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With the 2011/12 tax year drawing to a close on 5 April, LITRG gives pointers on tidying up this tax year’s loose ends and looks forward to the next.

Introduction

LITRG’s monthly articles prompt you to think of topical tax, tax credits and related benefits issues. The article is broken down into a number of sections:

1. Tax on your wages or pension (PAYE) – make sure yours is right
2. Tax returns – dealing with last year’s fallout
3. Employers: PAYE online filing
4. National Insurance for the self-employed
5. Struggling with your council tax? Help could be available
6. Tax Credits

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 tax will be deducted from your income for the forthcoming tax year. Check your codes 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’s helpline number is 0845 3000 627 (Textphone 0845 302 1408).

If you have received ‘P800’ tax calculations which show underpaid tax for earlier years, your 2012/13 tax codes may have been adjusted to collect the tax from your wages or pension. 

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 (£7,475 for 2011/12, rising to £8,105 for 2012/13), 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. Note, however, that employers do not have to agree to use this form and indeed some large employers of students may not be able to use it from April 2012 if they are participating in HMRC’s pilot of the new ‘real-time information’ system of PAYE.

Even if you do use the P38(S) for tax, National Insurance contributions may still be deducted depending on your weekly or monthly income. Note 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 2012 if they are earning over £15,795 a year (an increase from the current repayment threshold of £15,000).

2. Tax returns – dealing with last year’s fallout

a. Have you received a late-filing penalty?

If you have received a penalty for late submission of your 2010/11 tax return, you have 30 days to appeal if you think the notice is wrong or you had a reasonable excuse for not meeting the deadline. If you file on paper, the deadline (and therefore the point at which you needed to have a reasonable excuse) was 31 October 2011, whereas for online filers it was 31 January 2012 (extended this year to midnight on 2 February, due HMRC industrial action).

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.

LITRG’s website provides a detailed guide with more information. In particular, if you believe that you ought not to have been in Self Assessment at all, you might be able to get HMRC to cancel the tax return.

b. Have you been charged an extra 5% for late payment?

In March HMRC will start issuing 5% surcharge notices for 2010/11 self assessment liabilities which were not paid within 28 days of the due date (31 January 2012).

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 2012 – if it is less than the year to 5 April 2011 there is a good chance that you will be able to reduce your payments on account.

For 2011/12, you should already have paid the first instalment on 31 January 2012 and the next is due on 31 July 2012. 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: PAYE online filing

Employers will soon start to receive notices to file year-end PAYE returns (P35s), for the tax year 2011/12. The filing deadline is 19 May. In the past, HMRC gave five days’ grace on this deadline, but this is no longer the case.

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. However, the simplified scheme is being closed down so, in future, its users will need to file online unless they qualify for one of the other exceptions.

4. National Insurance for the self-employed

If your self-employed earnings have changed, your eligibility for the Small Earnings Exception from paying class 2 National Insurance contributions (NIC) 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 2011/12 is £5,315, rising to £5,595 for 2012/13.

Note, however, that paying class 2 NIC can entitle you to contributory state benefits, such as Employment and Support Allowance and the state retirement pension. The small earnings exception means that your contributions towards these benefits stop, so you should take account of this when considering your application.

5. 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.

6. Tax Credits

a. Update your household income figures for 2011/12

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 2011/12 and let HMRC know. In most cases, your award for the current year 2011/12 will be unaffected because increases in income are disregarded unless current year income exceeds previous year income by more than £10,000.

However, by providing HMRC with your 2011/12 income figure early, it will help make sure that they have your most up-to-date information so that they can pay you the right amount from April 2012. 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 2011/12.

Our further guidance explains how to contact HMRC about tax credits and offers practical tips when doing so.

b. Have you received a letter from HMRC, a ‘TC1015’?

If you are on a nil award now, or are likely to be in April 2012 when the next round of changes to tax credits rates and thresholds takes effect, you will have received – or will soon receive – a letter from HMRC designated ‘TC1015’.  If so, your claim will lapse in April 2012 unless you take action by contacting or phoning HMRC straight away.

The letter sets out the circumstances when you should consider keeping your claim going rather than allowing it to lapse. In particular, if you think your current income (for 2011/12) may be less than your income for 2010/11 you should contact HMRC as the letters have been sent based on the information HMRC hold on their system. If this is out of date, your claim may lapse even though you have entitlement from April.

But the letter is wrong when it suggests that if you are receiving child tax credit, you will not be entitled unless your income is less than £26,000. If you have more than one child, are claiming for childcare costs, or have someone in your family who qualifies for one of the disability elements, your income cut-off point will be higher – sometimes much higher. The letter also gives specious cut-off points for working tax credit. Again, do not be misled by HMRC’s misinformation into losing money to which you are entitled.

c. 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 2012/13 award on an estimated current year income which will take into account the fall in your income. However, due to changes to the system from April 2012, HMRC will disregard the first £2,500 reduction in your income. For example, if your income in 2011/12 was £25,000 and you estimate your 2012/13 income as £20,000, HMRC will treat your income estimate as £22,500.

However, if you choose to do this, take care not to overestimate the reduction in your income. If you do, and your income later rises in the year, it is likely you will have an overpayment. If you do find you have an overpayment, read the LITRG guide on what to do. 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 2012/13.

Useful links

This article on the LITRG website contains links to other material that elaborates on the points made here.