The Low Incomes Tax Reform Group (LITRG) is urging HMRC to be ready to publicise new income allowances when they come into force to prevent confusion as to who is supposed to register for Self-Assessment this time next year.
By law, people have to notify HMRC of a new source of income, such as receipts from a trade or business, or rental income, by 5 October in the tax year following that in which the new source began.
According to LITRG, things could get very confusing for those who start work or rent property in the 2017/18 tax year due to the likely introduction of the new trading and property allowances. From 6 April 2017 those with rental and/or trading income (or miscellaneous income)2 below £1,000 will no longer have to tell HMRC about the income by the 5 October 2018 deadline or pay tax on it.3 If the trading or property income exceeds the allowance, they will need to notify HMRC and can choose whether to calculate their taxable profit in the usual way or by simply deducting the £1,000 allowance.
LITRG is concerned that, without appropriate publicity or guidance, some taxpayers may register for Self-Assessment and complete a tax return when they do not need to do so. Others with trading and/or property income above £1,000 may not realise that they need to register and complete a Self-Assessment tax return, which could subsequently result in significant penalties for late notification and filing.
LITRG Chair Anne Fairpo said:
“We call on HMRC to be ready to make available very clear guidance on these changes and to publicise them sufficiently. Ideally, there should be worked examples and also an online calculator. It is also crucial that such information is available in hard copy format as well as online to help the substantial numbers of taxpayers who are either digitally excluded or find it difficult to engage with government online.”
LITRG is also concerned that these new allowances will cause further confusion for tax credit and other benefit claimants. For example, this income will have to be declared for Universal Credit claims even if it is fully covered by the new tax allowances. The group recommends that all benefits claimants who can use these new allowances check whether they still need to declare this income as part of their claim.
Notes for editors
1. For example, if a person began trading in the tax year 2016/17, which runs from 6 April 2016 to 5 April 2017, they should have told HMRC by 5 October 2017 so that they can be put into the Self-Assessment system and pay any tax and National Insurance contributions they may owe. LITRG’s website contains further information on the Self-Assessment system for self-employment: http://www.litrg.org.uk/tax-guides/self-employment. HMRC has information here.
2. Reporting the income as ‘miscellaneous’ will mean that the person cannot pay Class 2 National Insurance (the type of National Insurance that self-employed people pay to gain access to the benefits system). Unless enough NIC or NI credits will be put on their record another way to bank the year as ‘qualifying’, they may wish to consider making voluntary Class 3 NIC contributions. These are quite expensive at £14.25 a week compared to Class 2 NIC at £2.85 per week (for the 2017/18 tax year), so before committing themselves, they should consider if it is necessary to make these contributions by taking account of how many qualifying years they already have worked and their future potential to make up any gaps.
3. The new tax allowances for property and trading income are found in section 17 and schedule 3 of Finance Bill (No.2) 2017, which is yet to receive Royal Assent. The proposed measure introduces a pair of new annual tax allowances for individuals of £1,000 each, one for trading and one for property income. The trading allowance will also apply to certain miscellaneous income from providing assets or services. These new allowances will take effect from the current tax year (6 April 2017 to 5 April 2018). It is likely to affect individuals with small amounts of income from providing goods, services, property or other assets.
4. Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk (Out of hours contact: George Crozier, 07740 477 374)More Articles by Chartered Institute of Taxation (CIOT) ...