Your tax return in retirement.

Work may stop in retirement – for some people, at least – but tax does not. If your income totals more than your personal allowance, you may still be liable to tax.

Occupational pension benefits from an employer are generally paid with tax deducted at source, but other income – from private pension plans, for example – is not. State benefits, including the basic state pension, are also paid with no tax deducted.

If you are potentially liable to tax not being deducted at source, you should complete a self-assessment tax return.

This may be the first time you have had to do so, or you may have been filing returns for several years, but if in doubt, ask HMRC for confirmation that you need to complete the form.

Personal allowances in retirement

In 2015-16, older people may be entitled to claim a higher personal allowance – this is the amount of income you are allowed to receive before any tax is due. In 2016-17, no extra allowance will be given.

In 2015-16, the personal allowance for those born after

• 5th April 1938 is £10,600,
• rising to £10,660 for those born before 6th April 1938.

However, pensioners with income above £27,700 a year don’t get the full higher personal allowance – the extra reduces by £1 for every £2 of income you have above this threshold until it hits the standard £10,600 level.

For those pensioners with an income above £100,000, this standard allowance is also subject to a £1 for £2 reduction, so if you earn enough, you may find your personal allowance is nil.

For older pensioners, the need to apply the reduced personal allowance is the trigger for them to receive a self-assessment tax return. Those with simpler financial affairs may receive a shorter version requiring fewer details.

Tax relief for savers and investors

The Government wants people to save and invest more for the future, so it offers generous tax incentives to encourage people to do so

Several parts of the tax return deal with the income and profits you have earned on savings and investments – interest payments on bank and building society accounts, for example, and capital gains on disposals of assets such as shares.

You can reduce your liability to tax on savings and investments by arranging your finances to take advantage of a number of allowances and tax breaks.

Individual savings accounts

The tax-free Isa allowance is a generous scheme that enables you to shelter a wide range of assets from tax. On 6 April 2015, the annual limit for Isas was increased to £15,240; this will be frozen in 2016. You may opt to hold all your Isa allowance in cash, all in stocks and shares or split the allowance between both.

There is no income tax to pay on income generated by assets held in an Isa. Nor is there any capital gains tax to pay on profits you make when selling assets held in Isas. Your Isa savings and investments do not need to be declared on your tax return.

Junior Isas are a separate allowance for children, enabling you to save money tax-free on their behalf. Gifts you make to a child’s junior Isa are not taxable and the money can be held in cash or stocks and shares. As with the grown-up version, income and gains are tax-free. The Junior Isa allowance in 2015-16 is £4,080.

Family finances

Arrange your family finances to minimise your tax bill. For example, consider transferring savings and investments to your husband, wife or civil partner if they pay a lower rate of tax than you do. Stop children being taxed at source on their savings by completing a simple form (R85).

 

10 Ways to reduce the tax you pay

Everyone must pay tax, but don’t pay more than necessary – there are many ways to reduce your bill, and your return is the place to claim lots of these savings

Arranging your finances in the most tax-efficient way possible will mean your total tax bill is as low as possible. There are all sorts of tax reliefs and allowances available. To claim these tax breaks, complete the relevant sections in your self-assessment tax return. Here are 10 potential tax- saving tips to get you started:

1. In tax year 2015-16, if you were born before 6 April 1938, you may be eligible for an increased personal allowance. This means you will pay less income tax.

2. In tax year 2015-16, you can claim tax relief on the interest on a mortgage for a rental property – even if the property is abroad.

3. If you’re self-employed, don’t forget to claim all your tax-deductible expenses, including cash spending where eligible. Keep receipts for such expenses so you can make the claims and produce evidence of them if needs be.

4. If you are a landlord or run your own business, take advantage of the annual investment allowance to claim for capital expenditure on items such as tools and computers.
   In the 2015-16 tax year, you can claim relief on up to £500,000, reducing to £200,000 in 2016-17.

5. Landlords are entitled to several other tax reliefs. These include a special tax allowance of up to £1,500 for insulation, draught proofing and installing a hot water system, as well as the opportunity to offset costs such as the wages of gardeners and cleaners and letting agency fees
   against rental income.

6. If you are self- employed and your business loses money over the tax year, you can carry forward these losses in order to offset them against any profits you might make in the following year.

7. Making donations to charity through Gift Aid will reduce your taxable income. If you are in a higher tax bracket, you can also claim back the difference between the basic and higher rate of income tax on any of these donations.

8. It’s not just standard cash and stocks and shares Isas that offer tax breaks. Investors can make a bigger dent in their tax bill by putting their money in government- backed initiatives, such as the enterprise investment scheme (EIS) or venture capital trusts (VCTs).

9. Contributions to your pension scheme (including any additional voluntary contributions you make) attract tax relief – if you are a higher-rate taxpayer, you may be able to claim additional relief via your tax return.

10. If you are self- employed and expect to earn less in 2015-16 than you did the year before, apply to reduce any payments on account that HMRC asks you to make.

The legalities

Tax avoidance is the practice of reducing your tax bill by legal means, while tax evasion – deliberately failing to declare income on which tax is due – is a criminal offence.

However, the Government has been trying to crack down on aggressive tax avoidance in recent years, and HMRC now asks a specific question on the tax return about whether you
have used tax avoidance schemes. If it suspects the scheme has been set up for the sole purpose of tax avoidance, it may challenge its legality and demand that you pay more tax.

If you are in any doubt, do not hesitate and contact experienced and trusted professionals such as Correct Balance LLP.

 

Self – Assessment Tax Return – Easy Guide, Part 6

How to complete the paper form

As many as eight in 10 taxpayers now file their self-assessment tax returns online, but if you prefer to submit a paper form, you are entitled to do so

The paper version of the self-assessment tax return is a six-page form, but many taxpayers are then also required to complete some additional supplementary pages. Paper tax returns must be filed by 31 October each year, but if you miss this deadline, you can still avoid a fine by submitting an online tax return by 31 January instead.

Sections of the main tax return:

• The first page of your return includes a reminder of the submission deadlines for both the paper and online returns.
• You are then asked to enter your personal details, including your date of birth and telephone number.
• The next section is a summary of your types of income for the year. You don’t need to fill in amounts on this page — simply tick the box for types of income that fit your circumstances.
• If you tick a box, check there is a section on your return for this type of income. If not, you may have to complete supplementary pages, which are available upon request from HMRC.
• The next sections of the tax return are for income, including savings and investment
  income, plus income from benefits, pensions and other miscellaneous sources.
• The following page covers the most common forms of tax relief that may be available to you, including Married Couples’ Allowance, Gift Aid and payments into registered pension schemes.

The final pages of the paper tax return are more administrative. These sections deal with:

• Any tax already repaid to you by HMRC or Jobcentre Plus;
• The bank account into which any further repayments should be made by HMRC;
• How you would like to pay any tax owing (for example, through PAYE);
• Contact details for your tax adviser (if you have one);
• Any other information;
• Signing the tax return.

Completing the supplementary pages of the form

Some people are sent supplementary pages automatically, but you may need to request these from HMRC in order to make a full return. You can do this by telephoning HMRC on 0300 200 3310, or you can download the pages you need from the HMRC website.

Supplementary pages include:

• Additional Information (form SA101);
• Employment (E1/E2);
• Self-employment (SES1/SES2 or SEF1 to SEF6);
• Partnership (SP1/SP2 or FP1 to FP4);
• UK Property (UKP1/UKP2);
• Foreign (F1-F6);
• Trusts, etc. (T1/T2);
• Capital Gains (GC1/CG2);
• Lloyd’s Underwriters (LU1 to LU4);
• Non-resident (NR1/NR2);
• Minister of Religion (MoR1/MoR2).

Short tax returns

Some employees, pensioners and self employed people with a turnover under £73,000 are sent a simplified four-page short tax return. You can’t ask for this – HMRC decides who gets it. You also can’t fill in the short return online, though you can choose to complete the full online return instead. If your circumstances have changed since last year, or you think you should fill out the full return, you need to decide if you are still eligible to fill in the short form. If in doubt, contact HMRC.

 

Self – Assessment Tax Return – Easy Guide, Part 5

Online tax returns: declaring your income and claiming reliefs.

This is the most crucial part of your tax return: these are the pages where you supply the details necessary to work out whether you owe tax – and how much

In Section 4 of the online form, you’ll be asked to ‘fill in your return’. This is the largest and most complicated part of the tax return and requires you to supply all the detail that will determine your final tax position — what, if anything, you owe for the current year, what you need to pay for future years, how and when you need to make these payments or even whether you are owed a tax rebate.

It is crucial that you take the utmost care with this section of the return, giving your answers on the basis of up-to-date and comprehensive paperwork and checking your entries carefully before moving on from page to page.

Getting the details right

Section 4 of the online tax return is divided into two parts. The first part is tailored to fit your personal circumstances, and only includes pages that are relevant to you, while everyone completes the second part.

In the first part of Section 4, the pages will vary according to the answers you gave in the previous three sections.

For each of the areas where you signalled you had income to declare or reliefs to claim, you’ll be asked to complete the details. This part of the tax return is also personalised further as you complete it, with some answers leading to further questions. In the employment pages, for example, if you say you have received taxable benefits and expense payments, a further page will appear asking you to give details.

These tailored pages are the online equivalent of the supplementary pages supplied with the paper version of the tax return, but only relevant pages appear in your return. These may include pages detailing: employment, self-employment, partnership, pensions and other state benefits, property, capital gains and losses, foreign income, UK interest, other UK income, and allowances and reliefs.

Once you have completed the pages relevant to you, as determined by the information you gave in Section 3, there are three further parts to complete.

These deal with issues such as whether you have tax owing from a previous tax year that is currently being collected via your PAYE tax code or whether you intend to pay this way for the current year. You can also give details of how you’d like any overpayment of tax to be repaid.

The third part enables you to add any attachments required alongside your tax return – computations for capital gains tax, for example.

Online tax returns: completing the form

In the final part of your online self-assessment tax return, you will check your answers, receive details of the tax you owe and formally submit the form to HMRC

Sections 5, 6, 7 and 8 are the final elements In your online tax return and are fairly straightforward to complete. They shouldn’t require you to supply any further information. Instead, these final sections deal with the mechanics of checking your online form, calculating your tax, saving and printing your work, and actually filing the completed tax return with HMRC.

• Section 5 gives you an opportunity to check your form. As you fill in each page of your tax return, you’ll receive an error message if you’ve missed completing a box, but on this page there is an additional check. For example, if you said at the start of your return that you were employed but haven’t filled in the employment pages, you’ll see an error message next to ‘Employment’ — then, when you go to the employment section, you’ll see a more detailed error message next to each of the entries you need to correct. You must correct all the errors before you can submit your tax return.
• Section 6 is the moment of truth: it gives the detail of what exactly HMRC thinks you now owe. Based on the information you have given, the online service automatically produces a calculation of the tax that is to be paid. This may include tax, National Insurance and student loan payments due, repayments that you are owed and any payments on account you need to make for the following tax year. If you have already made a payment on account, this won’t appear on your tax return, but you will be able to see it by looking at your self- assessment statement online. This section of the tax return continues with a page that breaks down your calculation in more detail, and then a third page dedicated to payments on account. These tell you what advance payments are required, but also give you an opportunity to make a claim to adjust this payment downwards — if, for example, you expect to earn less in the tax year following the one that this return covers.
•  Section 7 of the return enables you to save your tax return to your computer and also to print it out so that you have a hard copy of the return. Alternatively, you can return to Section 6 and just print out the tax calculation. There are several options for different ways to save and print the whole return, but it’s important that you have electronic or hard copies (or both) of the return to refer to at a later date if you need to do so.

• Section 8 asks you to formally submit the return to HMRC. Before doing so, you must confirm that the information you have supplied is accurate — deliberately supplying incorrect information is a criminal offence.

  You will also need to give your user ID and password once again as a further security check.

  Once submitted, HMRC will acknowledge that it has received your online tax return with a submission receipt number for the form. In most cases, this acknowledgement happens instantly, though you may have to wait a few minutes during the busiest periods

Self – Assessment Tax Return – Easy Guide, Part 4

Online tax returns: the first part of the form

By working systematically through your online tax return, you will supply all the information required to discharge your responsibilities without having to complete unnecessary sections

One of the most compelling reasons for completing your tax return online is that the document will automatically be tailored to ensure you only have to complete those sections that are relevant to you, which will save you time and hassle.

In order to do this, the first part of the online tax return asks you to supply basic personal information and then checks which parts of the form aren’t necessary for you to
complete. This initial chunk of the tax return is split into three sections:

In Section 1 (see above), the online tax return begins with a welcome screen that includes a brief overview of what the process entails and explains who is entitled to use the free HMRC service. It also details in what circumstances you will need to use a commercial software provider. If you are covered by these criteria, you will still be
able to file online, but not using HMRC’s free service.

Section 2,  asks you to enter your personal details, including your date of birth, address and telephone number.

Any information that you have provided previously will be automatically completed, though you can change the details at this stage if they are incorrect.

The next three pages of the online return:

Section 3 – enable you to tailor the return so that you only need to fill in the pages that are relevant to you. They establish the different types of income you have received over the year, the tax reliefs you wish to claim and a number of other details required to ensure the rest of the form is personalised in the right way.

1. The first page of this section asks about your employment status, income from property in the UK and chargeable gains.
2. The next page asks whether you have had income from investment, whether you have any losses to claim and whether you have been receiving Child Benefit.
3. The final page in this section asks about deductions and allowances you want to claim, whether you have a tax adviser and whether you are filling in the form on someone else’s behalf.

Getting help

The online tax return service includes a built-in help facility which provides very valuable assistance just as you need it. Next to most questions on the tax return you will see a help icon – a circle with a question mark inside. Clicking on this icon opens a box that gives specific guidance to help you answer that particular question.

HMRC’s website also carries an online demonstration of how to fill in your tax return, with a walk-through of the entire form. Alternatively, you can call HMRC’s self-assessment helpline on 0300 200 3310. The service is open Monday to Friday, 8am to 8pm, and on Saturdays between 8am and 4pm. If you have a technical query about online filing, rather than a question about tax, the number to call is 0300 200 3600. If you are in need to call HMRC be prepared that you might have to wait in excess of 30 minutes before your call will be picked up by someone.

If you are in rush or haven’t got time to wait that long, do not hesitate drop us a line or call we will be more than happy to serve you with an advice.

 

Self – Assessment Tax Return – Easy Guide, Part 3

Online tax returns

Filing your tax return online is fairly straightforward and has several advantages, but you will need to plan ahead in order to complete the form on time.

There are many reasons to file your tax return online if you are able to do so. You can tailor the return and just complete the pages you need, plus you get online help as you work through the form. Your tax is calculated automatically and you get an acknowledgement when HMRC receives your return. You have longer to complete the online return than if you use a paper form: until 31 January following the end of the tax year instead of 31 October.

If you’re filing online for the first time, follow these steps so that you are ready to submit your return successfully:

1. Check your 10-digit Unique Taxpayer

   Reference. HMRC should have issued you with this code, which is known as a Unique Taxpayer Reference (UTR), and it will appear on some of your paperwork from the authorities. If you don’t know your UTR, contact the telephone help line and ask to have it sent by post to your home address. HMRC can’t confirm the reference over the phone. You will also need your National Insurance number or postcode to confirm your UTR.

2. Register to use HMRC Online Services.

   Log on to the registration page of the HMRC website at online.hmrc.gov.uk/ registration/individual and select ‘Self Assessment’.

3. Set up an online account.

   You will need to create a password and to receive a user ID, which will be sent to you online. Make sure you keep a note of this ID, as you will need it to log in. If you forget the ID, you can get HMRC to send it again by email or post. It can also issue a replacement password if you forget this.

4. Wait to receive an activation code by post.

   This is similar to the security code issued by credit card providers. It takes about a week to arrive, so make sure you apply in plenty of time to wait for the code to arrive and for you to be able to complete your return.

5. Log on and activate your account.

   You must do this within 28 days of receipt, or the code will expire and you’ll have to request another one. Once you’ve completed these steps and assembled your documentation (see page 7), you are ready to begin filing your tax return online. If you have registered for online filing in a previous tax year but have mislaid your password or user ID, you do not need to start the process all over again. It is possible to get an online reminder via HMRC’s online services login page (online.hmrc.gov.uk/login), though you will have to answer a number of security questions to access the information.

Commercial software options

HMRC’s online service enables you to file your self-assessment free of charge, but a number of commercial software providers sell products for filing returns. The HMRC service only covers the income and gains from these sources:

• Employment;
• Self-employment;
• Partnership – to report the income you receive as a partner;
• UK property;
• Capital gains;
• Foreign.

If you have other income to report – for example, you need to send a Trust and Estates tax return – you may need to use commercial software, and some people may prefer to do so in any case. HMRC maintains a list of providers it has successfully worked with in the past but cannot endorse them.

Note that even if you are using commercial software, you will still need to sign up for HMRC Online Services before you can send your return online.

Find out more: 

HMRC’s website: hmrc.gov.uk

Self – Assessment Tax Return – Easy Guide, Part 2

Preparing the paperwork

Good preparation and record keeping will make self-assessment a smoother process, so make sure your paperwork is in order.

In order to complete an accurate tax return, you will need to keep good records. Doing so is a legal requirement and you may be asked to produce your paperwork if your tax return is queried.

You should keep your financial records for at least six years.

The documentation you need will vary according to your circumstances, but must include details of all your income and all the expenses you want to set against that income.

Keep all of this information in a secure location. Then, well before your tax return is due, check you have everything needed to complete the form. Most commonly, the documents you will require include the following:

• Details of income from your employment (a P60 or P45 form);
• Details of income from self-employment;
• Information on pension contributions or receipts;
• Details of income from letting property or land;
• Details of capital gains or losses;
• Details of income from any UK savings and investments;
• Details of life insurance gains and AVC refunds;
• A record of any other taxable income you have;
• Details of any gifts to charity if you intend to claim tax relief on them;
• Details of any other commitments that are eligible for tax relief.

If you fail to keep proper records for tax purposes you could face a fine of £3,000. The rule is to keep your documentation for six years, but it might be worth keeping the paperwork for 20 years, because this is the time limit for an HMRC investigation if it suspects there might be fraud.

Self – Assessment Tax Return – Easy Guide, Part 1

Who has to complete a self- assessment tax return?

For large numbers of UK taxpayers, all the tax they owe is deducted at source via the pay-as-you-earn (PAYE) system, so there is no need to fill in a tax return. However, around 10 million people a year need to complete a self- assessment tax return. This number has increased in recent years following changes to the Child Benefit rules and as more people have moved into self-employment.

Specifically, you will need to fill in a tax return if:

• You’re an employee or pensioner with an annual income of £100,000 or more;
• You’re self-employed, a business partner or a director of a limited company;
• You have a pre-tax investment income of £10,000 or more;
• You’re a ‘name’ at the Lloyd’s of London insurance market;
• You’re a minister of religion;
• You’re a trustee or representative of someone who has died.

You will also usually be sent a tax return if:

• You have untaxed income – from investment, land or property, or from overseas;
• You make capital gains above the annual exempt amount (£11,100 for the 2015-16 tax year);
• You were required to complete a tax return last year;
• You’re a pensioner who gets reduced age-related allowance, though you may be sent a special short version of the form that requires fewer details.

Completing a self-assessment tax return

Anyone who receives a self-assessment tax return from HMRC is legally obliged to complete and submit it, either by post or online. If you think you should be covered by self-assessment but do not receive a tax return, contact HMRC to check whether you need the form.

The deadline for filling in the paper version of the tax return is 31 October. After this you can still file your tax return online. The deadline for this is 31 January in the year following the end of the tax year:

• 31 January 2017 for the 2015 – 16 tax year,
• 31 January 2018 for the 2016 – 17 tax year.

Filling in a tax return online is relatively straightforward, even if you have not done it before. But you need to plan ahead in order to meet the deadlines and avoid the fines and penalties potentially payable if you’re late.

Settling your tax bill

The principle of self-assessment is that you are responsible for
paying the rig
ht amount of tax at the right time. The self-assessment form enables you to make a complete return of all your income over the course of the financial year, as well as all the tax you have already
paid, and to claim any tax reliefs or allowances that you are due.
With the return completed, you must then settle any tax that is due, typically by 31 January in the year following the end of the financial year covered by the form – by 31 January 2016 in the case of the 2014-15 tax year, for example. You may also need to make advance payments on the bill for the next tax year, known as payments on account. These are due on 31 January and 31 July each year.

Hit the deadlines to avoid the fines

The self-assessment system features strict deadlines by which you must submit your tax return and pay any tax that is due. Miss these deadlines and you may face penalty charges

HMRC sends out self- assessment tax returns shortly after the end of the tax year each April. The deadlines by which the forms must then be returned to HMRC vary according to how you intend to file your return and whether you intend to calculate your own tax bill:

31 October – This is the deadline for filing a paper tax return, whether you choose to work out how much tax you owe yourself or want HMRC to do it.

31 January – This is the final deadline for online tax returns, unless HMRC issues a notice to make an online tax return later than this date.

Late-return fines

If you miss the 31 January deadline, you will automatically be fined £100, even if you have no tax to pay. The longer you delay, the higher the fine you’ll have to pay:

Three months late: a fine of £10 for each following day up to a 90-day maximum of £900. This is in addition to the fixed penalty, so the overall fine could be up to £1,000;

Six months late: a further fine of either £300 or 5% of the tax due, whichever is the higher;

12 months late: another £300 fine or 5% of the tax due, whichever is the higher.

Late tax payment penalties

The deadline for paying tax for the 2015-16 tax year is

31 January 2017. If you don’t file your return by this deadline, you’ll be charged interest from the date the payment was due. If any of the tax bill remains unpaid by 28 February 2017, you’ll incur a 5% surcharge. Another 5% is imposed on any of the tax bill still unpaid by 31 July 2017.