Rose Duly, Tax Consultant at Dorset based Chartered Accountants and Independent Financial Advisers, Ward Goodman, has addressed some common misconceptions and queries surrounding tax returns, what to do if you are sent one, and what to do if you have not been asked to complete one.
Rose explained: “Most people aren’t sent a tax return and don’t need to do one, but it’s always helpful to be aware of what the law says. The UK tax year 2017/18 ended on 5 April 2018, and HMRC will soon be sending out ‘notices to complete’ returns. If HMRC sends you a self-assessment tax return you have to fill it in. If you really do have nothing to declare you can call HMRC and explain this. Don’t just ignore it – you will be fined.
“But what if you haven’t been sent a return? What does ‘self-assessment’ mean? The key is in the name. Everyone is required by law to tell the government if they need to pay any taxes, and that means it’s up to you to decide if you need to ask for a tax return. People who should think about getting professional advice in order to avoid falling foul of HMRC include those with dividends over the £5,000 tax free amount for 2017/18 as these are now taxed at 7.5% unless you fall into a higher rates band.
“Bank interest is no longer taxed at source, so this income needs to be declared. If you have more than £500 bank interest each year, you need to be aware that there are different tax-free allowances depending on your overall income.
“If you have rental income you should be completing tax returns. Be aware that the way tax is worked out has changed. If you are used to thinking that you do not need to declare this income because you think you make losses after taking off mortgage interest, this needs reviewing.
“International information exchanges between countries are becoming easier. If you complete overseas tax returns for overseas income this should also be shown on UK tax returns. There are special adjustments to stop you being taxed twice. Penalties for undisclosed overseas income will be increasing from September this year, so anyone with undeclared foreign income should seek professional advice at the earliest opportunity.
“Other possibilities include starting to be self-employed, cashing insurance bonds, or receiving money from any kind of trust.
“Selling small items for under £6,000 is usually tax free but, if you sell a valuable asset there may be capital gains tax to pay. Selling your main home is usually tax free but this depends on exact circumstances, and again, it is best to seek advice to make sure.
“HMRC has smart systems to identify people who have undeclared income. Undeclared rent and investment income is easy for them to spot, and HMRC then asks people to make a disclosure, and will charge penalties and interest as part of a settlement agreement.
“If you have tax arrears to sort out it’s better to make a voluntary disclosure as the penalties are significantly lower than they will be if HMRC spots your tax arrears first. Instalment payment agreements can be agreed to help you catch up. These examples are not an exhaustive list, so if you have any concerns, it’s best to come and talk things through with us. You never know, you may even be due a refund of tax!”
To make an appointment please call Ward Goodman on 01202 875 900.