he 2010/11 tax year draws to a close on 5 April. So this month’s reminders article focuses on tidying up last year’s loose ends and looks forward to the year ahead.
Introduction
Each month, LITRG writes an article reminding you of topical tax, tax credits and related benefits issues. This month’s piece is broken down into a number of sections:
- Tax on your wages or pension (PAYE) – make sure yours is right
- Tax returns – dealing with last year’s fallout
- Employers
- National Insurance
- Is your employer helping with childcare costs? It might be time for a review
- Struggling with your council tax? Help could be available
- Tax Credits
Depending on your situation, you can either read the whole article or skip to those headings of interest to you.
1. Tax on your wages or pension (PAYE) – make sure yours is right
a. Check your Coding Notices
Employees and pensioners should now be receiving ‘PAYE Notices of Coding’ (form P2) for each job or source of pension income. These tell you how your tax is to be deducted from your income for the forthcoming tax year.
It is important that you check these look right and, if in doubt, contact HMRC. If you have not received a Notice of Coding from HMRC for one of your jobs or pensions, it might be that nothing has changed so last year’s codes will continue to apply. But don’t assume that this means everything is correct – check what codes are being used (look at your payslip and/or pension statements) and again contact HMRC if you need help understanding them or think they might be wrong. HMRC have advised people to telephone 0845 3000 627 (Textphone 0845 302 1408).
This year, there could be particular issues arising if in recent months you have received ‘P800’ tax calculations which show underpaid tax for earlier years. Your 2011/12 tax codes may have been adjusted so that you will start paying the tax back from April. Follow our P800 guidance, accessed via the ‘popular link’ on the LITRG home page (see ‘useful links’ below).
b. Students – working in the holidays?
As the end of the spring term approaches, students may be looking for a job over the holiday period. If you are a student working only in holiday time and think you will earn less than your personal allowance over the whole tax year (£6,475 for both 2010/11, rising to £7,475 for 2011/12), you can ask your employer if you can complete a form P38(S) which allows you to be paid without tax being taken off your wages. Remember, though, that National Insurance contributions may still be deducted depending on your weekly or monthly income.
One particular point is that if holiday work straddles the tax year end (5 April), you will need to sign two forms P38(S).
c. Student loan deductions
Student loan borrowers who completed or left their higher education course recently may have to start making repayments from 6 April 2011 if they are earning over £15,000 a year.
2. Tax returns – dealing with last year’s fallout
a. Have you received a late-filing penalty?
February tends to be the time when HMRC issue late-filing penalties for tax returns not submitted by the 31 January deadline (or 31 October if you filed on paper) and might still be coming through. You have 30 days to appeal if you think the notice is wrong or you had a reasonable excuse for not meeting the deadline.
Late appeals against penalties may be accepted if you have a reasonable excuse for not lodging your appeal within the 30 day deadline. And if HMRC turn down a request for a late appeal, you can take your request to the independent tribunal.
b. Have you been charged an extra 5% for late payment?
In March HMRC will start issuing 5% surcharge notices for 2009/10 self assessment liabilities which were not paid by 28 February. As for late-filing penalties, you have 30 days to appeal if you think that you should not have been charged the penalty or if you had a reasonable excuse for delayed payment.
c. Still struggling to pay your 31 January tax?
If you still have not paid your tax bill from 31 January, it is best to take action as soon as possible – leaving the statements to pile up will only make matters worse. Contact HMRC (using the contact information provided on your self assessment statements) to discuss it with them and ask if you can agree a payment arrangement. More information on asking for time to pay is given on the TaxAid website.
If HMRC agree to give you extra time to pay, late payment penalties should be suspended provided you stick to the agreement. If you are struggling to keep up an existing time to pay agreement, again contact HMRC as soon as possible to see if you can renegotiate.
d. Has your income gone down? Think about claiming to reduce your payments
You can claim to reduce self assessment payments on account at any time, but the tax year end is a good time to consider doing so. This is because as the end of the tax year approaches, you might be able to get a better idea of how much your income will be for the tax year to 5 April 2011 – if it is less than the year to 5 April 2010 there is a good chance that you will be able to reduce your payments on account.
For 2010/11, you should already have paid the first instalment on 31 January 2011 and the next is due on 31 July 2011. But if you can claim to reduce the payments now, you can ask HMRC for a refund if you paid too much in January.
3. Employers
a. PAYE – online filing exceptions
Employers will soon start to receive notices to file year-end PAYE returns (P35s), for the tax year 2010/11.
As part of an increasing trend towards online filing, almost all employers are now obliged to file P35s electronically, with a few limited exceptions. LITRG successfully campaigned for exemptions from online filing for certain ‘care and support’ employers. Those who use the simplified schemes and file forms P37 and P12 are also exempted from online filing so long as they had not previously filed online and received an incentive payment.
It is also worth noting that from April all employers, not just those with 50 or more employees, will have to file forms P45 and P46 online, but care and support employers are again exempt from this requirement.
b. PAYE – HMRC online tools
HMRC are shortly withdrawing their CD-Rom for employers, replacing it with online tools.
If you are concerned that you will not be able to download the new tools, HMRC say that ‘in exceptional circumstances’ they will supply a disc if you call the Employer Orderline on 08457 646 646. But they urge that you only do so if you really need it, and use the download option where at all possible.
4. National Insurance
a. Low-paid employees
There are various changes to National Insurance from 6 April 2011. Key for low-income employees is that the point for starting to pay jumps significantly – from £110 a week in 2010/11 to £139 a week in 2011/12.
At the same time the rate of contributions increases from 11% to 12%. So for every £1 you earn on which NI contributions are due, 12 pence will be deducted instead of 11p. But because of the increase in the starting point, many low-income employees will not be worse off.
b. Self-employed? Check your National Insurance Contributions
If your self-employed earnings have changed, your eligibility for the Small Earnings Exception from paying class 2 National Insurance Contributions may also have changed.
Previously granted exceptions last for three years, so if your earnings have gone up and you are no longer entitled to the exception, you should contact HMRC and start paying weekly class 2. If your earnings have gone down, you may now be able to apply for exception.
The threshold for the exception for 2010/11 is £5,075, rising to £5,315 for 2011/12.
5. Is your employer helping with childcare costs? It might be time for a review
As we approach a new tax year, it is worth considering the benefits you are getting from your employer and whether you should continue with previous options you have taken up, such as childcare vouchers. If your income has changed, your overall tax, national insurance and tax credits position on taking vouchers may have altered.
6. Struggling with your council tax? Help could be available
Assessments for council tax for the forthcoming year will also be coming out about now. People on low incomes who are struggling with bills in the current economic climate should investigate whether they qualify for council tax benefit and disabled people should ask whether they are entitled to a reduction.
More information is given on the Directgov website – or contact your local council direct.
7. Tax Credits
a. Update your household income figures for 2010/11
As we approach the end of the tax year, it is important for tax credit claimants to think about what their household income figure is likely to be for 2010/11 and let HMRC know. In most cases, updating income in this way will not diminish this year’s award unless this year’s income is likely to be at least £25,000 more than last year’s. This is because HMRC pay tax credits initially based on your previous tax year’s income (so 2011/12 awards are initially based on 2010/11 income) and your payments will stay like this unless you expect your current year income to be lower than your previous year income, or to have increased by more than £25,000.
Note however that this £25,000 disregard only applies when HMRC are finalising your 2010/11 award. When they come to finalising your 2011/12 award (and compare your income for 2011/12 to that of 2010/11) the disregard will be reduced to £10,000.
Providing HMRC with your 2010/11 figure early will help make sure that HMRC have your most up to date information so that they can pay you the right amount from April 2011. This is the best way to try and prevent any overpayments building up, which can happen if HMRC continue to pay you based on out of date information.
Don’t worry if you do not have the exact figure. It is fine to provide an estimate at this point. Remember that even if you do give HMRC an updated figure now, you must still renew after 6 April as you will still need to confirm your actual income for 2010/11.
b. What if your income has gone down?
Many people have had a reduction in income recently due to job losses, or perhaps having had their working hours reduced or taking part time work where full time positions are unavailable. Some people have found that, even though one person has lost their income, they cannot claim any more tax credits. This is because tax credits work by spreading your income out across the whole tax year, so even though you might not be earning anything now, your income over the whole year is still too high to claim tax credits. If you are in this situation, you can contact HMRC after 6 April and ask them to base your new 2011/12 award on an estimated current year income which will take into account the fall in your income.
However, if you choose to do this you must remember not to overestimate the fall in your income. If you do, and your income later rises in the year, it is likely you will have an overpayment. If you are in receipt of any Housing Benefit, Council Tax Benefit or other passported benefit (such as help with health costs) you should seek advice on how these benefits interact with tax credits and if you think you might be entitled to these benefits you should seek advice before providing HMRC with an estimated income for 2011/12.
Useful links
The LITRG website
LITRG guidance for students working in the holidays
LITRG student loans guidance
LITRG appeals and reasonable excuse guidance
LITRG self assessment payments on account guidance
LITRG guidance on class 2 NIC, small earnings exception
How to contact HMRC about tax credits
Tax credits overpayments guide
Tax credits changes in April 2011 – the facts
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