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LITRG reminds of tax and tax credits issues to consider and action you might need to be taking this month.

Back to business

With Easter, the Royal wedding and May Day having fallen in quick succession, we may all be in a festive and holiday mood. But now that the celebrations have died down, we have to turn our attention back to more sobering matters – tax and tax credits.

We are of course now in a new tax year, but we cannot quite yet put 2010/11 behind us.

Tax

1. Have your PAYE tax deductions changed since 6 April?

Check your PAYE Code and consider taking action if an underpayment is included

New PAYE codes for 2011/12 should have come into effect from 6 April. You should check your PAYE coding each year. If yours contains a restriction for tax underpaid for earlier years, you might need to take action to challenge that underpayment and/or dispute your tax code. LITRG’s article ‘Tax underpayments included in 2011/12 coding notices’ explains more.

Impact on means-tested benefits

If you are on a low income and an underpayment is being collected through your code, it is quite possible that the extra tax you are paying will affect your entitlement to means-tested benefits. You should contact JobCentre Plus, The Pension Service and/or your local authority to advise them of your reduced income due to the tax you are paying and ask how it affects your entitlement.

If you are not already claiming means-tested benefits, having to pay more income tax could reduce your income so that you become entitled to them, so you should check your situation. For example, you can seek a benefits review from Citizens Advice. Note, however, that tax deductions do not make any difference to your tax credits entitlement.

2. Tax returns for 2010/11 – have you received one?

Most tax returns for 2010/11 should now have been issued, this year accompanied by a flyer about new penalties for late filing. But, as explained in LITRG’s article ‘Tax return penalties – fear not (at least, not yet)’, don’t worry – you have plenty of time to file your return as the deadlines are not changing.

3. No tax return? You should still gather together 2010/11 tax papers

If you were employed at 5 April 2011, your employer(s) should give you your P60 for 2010/11 by 31 May (perhaps even an electronic P60). Pensioners should also get P60s from their pension providers.

Over the coming months, HMRC will carry out certain automatic checks to see whether you have paid the right PAYE tax for 2010/11. HMRC will send you a ‘P800’ tax calculation if they think you:

• owe £50 or more, or
• are due a refund of £10 or more.

LITRG will be posting more guidance about this process on their website in due course. Meanwhile, it is worth keeping your tax papers together as you get them. Importantly, if you are due a refund of less than £10, HMRC will repay it but only if you submit a claim.

You might also need the same papers to help with your tax credits renewal (see below).

4. Tax on bank interest

You might have noticed in with your bank and building society statements recently an extra note telling you how much interest was paid on your account in the last tax year, whether or not you paid tax on it and, if so, how much.

Keep this information – you will need it to check if you are due a repayment and need to make a claim. Not all banks and building societies send out the tax summary, so you might need to ask for one – check you’ve got them for all your accounts.

You might also be interested in looking back at LITRG’s April article (link below, see in particular section 9) to make sure you are not paying too much tax on your savings.

5. Employers – PAYE year end returns

Most employers now have to file PAYE forms online, including filing the Employers Annual Return (P35) along with P14s for individuals, the deadline for which is 19 May.

The deadline for paper filers is also 19 May and there are no longer any ‘days of grace’ allowed before late filing penalties arise, for either the online or paper filers, as there has been in previous years.

Tax credits

6. Renew your claim or review whether you are now eligible to claim

It is important to consider tax credits if you have not already thought about them since the new tax year began on 6 April.

Existing claimants need to renew their claim by 31 July, but the earlier this is done, the better. As well as acting as a new claim for 2011/12, the renewals process also finalises your award for last year (to 5 April 2011).

If you don’t currently claim tax credits, you should still consider your position. For example, you might now be entitled to them, particularly if your personal or financial circumstances have changed. Or even if they haven’t changed yet, you might consider claiming tax credits now in case your income drops during the coming year.

More information can be found in LITRG’s article – ‘Tax credits and the new tax year – changes and renewals’.

7. What to do if you receive a letter about leaving the tax credits system

Within the next few weeks, some 1.8 million tax credits claimants will receive a letter from HMRC (designated TC1015). The letter will warn them that their claim will not be renewed this year, but will lapse from 6 April 2011, unless they contact HMRC by phone or letter within a specified time telling them that they want to renew for 2011/12.

If you receive such a letter, read our article ‘Think twice before leaving the tax credits system’ for advice.

8. Employer-supported childcare (for example, vouchers) – check your position

For the last few years LITRG has been warning that if you were on a low or middling income and able to recoup most of your childcare costs through tax credits, it would usually be to your disadvantage to start receiving childcare vouchers from your employer in exchange for a reduction in salary. From 6 April 2011 the rules change so for some low-income people there may now be a small advantage in taking vouchers. If you accept vouchers, make sure that you understand what is going on. Read LITRG’s full article – ‘Childcare vouchers in 2011-12’.

Useful links

LITRG guidance on checking your PAYE code
Citizens Advice – get advice
Information from HMRC about electronic P60s
Examples of tax repayment scenarios on the LITRG website under Students – Tax refunds and Pensioners – Claiming a repayment
LITRG’s April article – Your 2011/12 tax health-check
Employer PAYE returns – the exceptions to the requirement to file online are outlined on the HMRC website under ‘The requirement to file online’