You made it and filed your self-assessment return for 2018/19 by the 31 January 2020. However, having felt pleased with yourself, you realise to your horror that you have made a mistake and need to correct your return.
Can you do this and if so, how and by when?
Yes, you can
If you have made a mistake on your return, for example entered a number incorrectly or forgotten to include something, all is not lost. As long as you are within the time limit, the error can be corrected by filing an amended return.
If you are in time to file an amended return, the process that you need to follow will depend on whether you filed your return online or on paper.
If you filed your return online, you simply amend your return online. To do this:
Remember to check that it has been submitted and that you have received a submission receipt.
Check the revised tax calculation too in case you need to pay more tax as a result of the changes, but remember to take account of what you have already paid.
If you opted to file your return on paper by 31 October 2019, to make a change you will need to download a new tax return. This can be done from the Gov.uk website. Fill in the pages that you wish to change and write ‘Amendment’ on each page. Make sure you include your name and unique taxpayer reference (UTR) on each page too. Send the corrected pages to the address to which you sent your original return.
If you used commercial software to file the return, contact your software provider to find out how to file an amended return. If your software does not allow for this, contact HMRC.
You have until 31 January 2021 to make changes to your 2018/19 tax return.
If you have missed the deadline, you will need to write to HMRC instead. This may be the case if you find a mistake in your 2017/18 return after 31 January 2020. In the letter, you will need to say which tax year you are amending, why you think you have paid too much or too little tax and by how much. You have four years from the end of the tax year to claim a refund if you have overpaid.
Changes to the tax bill
If amending the return changes the amount that you owe, you should pay any excess straight away. Interest will be charged on tax paid late. If your 2018/19 liability changes, your payments on account for 2019/20 may change too.
If as a result of the changes made to the return you have paid too much tax, you can request a repayment from your personal tax account.
Partner note: See www.gov.uk/self-assessment-tax-returns/correction.
From 1 April 2020, nearly three million workers are set to benefit from increases to the National Living Wage (NLW) and minimum wage rates for younger workers, according to estimates from the independent Low Pay Commission.
From 1 April 2020, the NLW will rise from £8.21 per hour to £8.72 per hour.
The new rates should mean a pay rise of some £930 over the course of the year for a full-time worker on the NLW. Younger workers who receive the National Minimum Wage (NMW) will also see their pay boosted with increases of between 4.6% and 6.5%, dependant on their age, with 21-24 year olds seeing a 6.5% increase from £7.70 to £8.20 an hour.
Employers need to make sure they are ready for the new rates.
The compulsory NLW is the national rate set for people aged 25 and over. The NLW is enforced by HMRC alongside the national minimum wage which they have enforced since its introduction in 1999.
Generally, all those who are covered by the NMW, and are 25 years old and over, will be covered by the NLW. These include:
The NMW is the minimum pay per hour that most workers are entitled to receive by law. The rate to which they are entitled depends on a worker's age and whether they are an apprentice.
The rates from 1 April 2020, the NMW will rise across all age groups, including increases:
Payments that must be included when calculating the NMW are:
Some payments must not be included when the NMW is calculated.
There are a number of people who are not entitled to the NMW, including:
All other workers including pieceworkers, home workers, agency workers, commission workers, part-time workers and casual workers must receive at least the NMW.
Businesses should make regular checks to ensure compliance with NLW/NMW obligations including:
The penalty for non-payment of the NLW can be up to 200% of the amount owed, unless the arrears are paid within 14 days. The maximum fine for non-payment is £20,000 per worker.
The government is currently committed to raising the NLW to £10.50 per hour by 2024 on current forecasts.
Employers need to take action over the coming weeks to ensure that they are ready for the increase in rates on 1 April 2020 and beyond.
Partner note: SI 2015/621; BEIS guidance Calculating the minimum wage https://www.gov.uk/government/publications/calculating-the-minimum-wage/calculating-the-minimum-wage
Currently, capital gains on the sale of residential property in the UK are reported on the self-assessment tax return and the total capital gains tax liability for the tax year is payable by 31 January after the end of the tax year. Thus, the capital gains tax on residential property gains arising in the 2019/20 tax year must be reported to HMRC on the 2019/20 self-assessment return by 31 January 2021 and the associated capital gains tax paid by the same date.
However, from 6 April 2020 this will change. From that date, gains arising on disposals of residential property by UK residents must be notified to HMRC with 30 days of the completion date, and a payment on account of the eventual tax liability made by the same date.
What disposals are affected?
The new rules will apply from 6 April 2020 to disposals by UK residents of UK residential property which give rise to a residential property gain. The rules applied to disposals by non-residents from April 2019.
A new return
Rather than notifying HMRC of the gain on the self-assessment return, there will be a new return for advising HMRC where a gain arises on the disposal of a residential property. If there is no taxable gain, for example if the property is disposed of to a spouse or civil partner on a no gain/no loss basis, there is no requirement to make a return.
The return must be submitted to HMRC within 30 days from the date of completion.
Payment on account of tax due
The taxpayer must also make a payment on account of the capital gains tax liability within 30 days of the completion date. This is considerably earlier than now, where the lag is at least nine plus months and may be as much as almost 22 months.
Amount to pay
The amount to pay is effectively the best estimate of the capital gains tax at the time of the disposal, taking into account disposals to date in the tax year.
Paul sells a second home, completing on 31 May 2020 realising a gain of £50,000. He has made no other disposals in 2020/21 at the time that the property is sold.
He can take into account his annual exempt amount (for purposes of illustration this is assumed to be £12,000 for 2020/21) when working out his liability. Paul is a higher rate taxpayer.
The payment on account is therefore £10,640 ((£50,000 - £12,000) @ 28%).
Where a capital loss has been realised before the residential property gain, this can be taken into account when calculating the payment on account.
The return must be filed and the payment on account made by 30 June 2020.
Rebecca sells her city flat, which is a second property, on 1 August 2020, realising a gain of £100,000. In May 2020, she sold some shares, realising a loss of £10,000. Rebecca is a higher rate taxpayer.
The loss can be set against the residential property gains of £100,000, leaving a net gain of £90,000. As her annual exemption is available, the chargeable gain is £78,000 and the payment on account is £21,840.
No account is taken of a loss realised after the residential gain.
Final capital gains tax liability for the year
The final capital gains tax liability for the year is computed via the self-assessment return taking into account all gains and losses for the year. The payment on account is deducted from the final bill and the balance payable by 31 January after the end of the tax year.
If the payment on account is more than the final liability, for example if losses were realised later in the tax year, a refund can be claimed once the self-assessment return has been submitted.
Partner note: FA 2019, s. 14 and Sch. 2.
A tax exemption enables an employer to meet small personal expenses when an employee stays away from home for work, without the employee suffering a tax charge and without any need to report the expenses to HMRC.
What are incidental overnight expenses?
Incidental overnight expenses are personal (i.e. non-business) expenses incurred when an employee travels overnight for business. Examples include:
How much is the exempt amount?
The exempt amount is £5 per night for trips in the UK and £10 per night for overseas trips. These limits have not been increased.
It should be noted that the exemption only applies if the expenses do not breach the limit. If amounts paid to the employee are more than the exempt amount, the full amount is taxable not just the excess over the exempt amount.
Per trip not per day
The exemption can be applied per trip rather than a day-by-day basis. This means that it will apply as long as the incidental overnight expenses paid for the trip do not exceed the allowance for the full trip – it does not matter if on a particular day the allowance is exceeded as long as on average within the exempt limit.
The application of the allowance is illustrated by the following example.
Rachel and Anna are colleagues and often travel on business.
In January 2020, Rachel spent five consecutive nights away from home on a business trip in the UK. During the trip she incurred incidental expenses of £21 which were reimbursed by her employer. On one day, her expenses (for laundry) were £8. On the remaining four days, they were less than £5 per day.
The exempt amount is £5 per day for overnight stays in the UK – equivalent to £25 for a five-night trip. As the expenses paid by her employer are less than £25, the exemption applies. It does not matter that on one day the actual expenses were more than the £5 daily limit.
Anna also took a business trip during January, spending three consecutive nights in Germany. She incurred incidental expenses of £31 which her employer reimburses. For trips abroad, the exempt amount is £10 per night – a total of £30 for a three-night trip. As the amount paid by Anna’s employer is more than £30, the full amount is taxable and liable to Class 1 National Insurance.
Partner note: ITEPA 2003, s. 240, 241.
To prevent manipulation of the NIC earnings period rules to reduce contributions, directors liable to Class 1 contributions will have an annual earnings period, however often they are paid.
The non-cumulative nature for calculating employee Class 1 NICs makes it possible to manipulate earnings to reduce the overall amount payable by taking advantage of the lower rate of primary Class 1 contributions payable once the upper earnings limit has been reached. For example, an employee who is paid £3,000 for each month of the tax year will pay considerably more in primary contributions than someone who is paid £600 for 11 months and £29,400 for one month, even though their total earnings for the year are the same.
Since company directors often have greater scope to influence the time and amount of payments they receive as earnings, special rules exist which provide that a director’s earnings period is a tax year. As the end of the tax year approaches, it is worthwhile checking to make sure that all company director NICs have been calculated correctly.
There is an exception to the above rule where a director is first appointed during the course of a tax year. Where this happens, the earnings period will be the period from the date of appointment to the end of the tax year, measured in weeks. The calculation of the earnings period includes the tax week of appointment, plus all remaining complete weeks in the tax year (i.e. week 53 is ignored for this purpose). This is known as the pro rata earnings period.
Mr Green is appointed to the board of directors of A Ltd in week 44 of the tax year. The primary threshold and upper earnings limit are calculated by multiplying the weekly values by 9, because the earnings period starts with the week of appointment. This means that in 2019–20, Mr Green will pay NIC at the main rate of 12% on his director’s earnings between £1,494 (9 × £166) (the primary threshold) and £8,658 (9 × £962) (the upper earnings limit) and at the additional 2% rate on all earnings above £8,658 paid up to 5 April 2020.
Leaving the company
It is also worth checking as to whether any directors have left during the year. Again, to prevent manipulation of the rules, directors ceasing mid-year retain an annual earnings period for the remainder of that year and the next year in relation to earnings from the same employer.
Who does the annual earnings basis affect?
Towards the end of the tax year, a check should be made to ensure that the annual earnings basis is being used for the correct people. There may be people within the organisation who are called directors, but for whom that is just an honorary title.
The definition of ‘director’ is wide and extends beyond someone registered as a director with Companies House. For these purposes a director means:
However, a person giving advice in a professional capacity is not treated as a director.
Companies often find it easier to calculate directors’ NIC in a similar way to other employees, spreading contributions throughout the year. A recalculation on an annual basis should be performed when the last payment of the year is made and any outstanding National Insurance due can be paid at that time.
Partner note: SI 2001/1004, reg Part 2(2) and (8); HMRC guidance CA44: National Insurance for company directors (https://www.gov.uk/government/publications/ca44-national-insurance-for-company-directors)
Where a property qualifies in full for private residence relief, it is perhaps academic, from a tax perspective at least, whether a couple own it jointly or it is the one name only. In either case, the relief shelters any gain that arises and there is no tax to pay.
However, where a gain is not fully sheltered by private residence relief, as may be the case for an investment property or a second home, there can be very different tax consequences depending on how it is owned.
Take advantage of the no gain/no loss rules for spouses and civil partners
There are some breaks in the tax system for married couples and civil partners, and one of them is the ability to transfer assets between each other at a value that gives rise to neither a gain nor a loss. This can be very useful from a tax planning perspective to secure the optimal capital gains tax position on the sale of property where full private residence relief is not available. This enables a couple to utilise available annual exempt amounts and lower tax bands.
Capital gains tax on residential property gains is charged at 18% where total income and gains do not exceed the basic rate limit (set at £37,500 for 2019/20) and 28% thereafter.
Ron and Rita have been married a number of years and in addition to their main residence, they have a holiday cottage, which is owned solely by Ron. As their lives are busy, they no longer use the cottage much and decide to sell it. They expect to realise a gain of £100,000.
Rita does not work and has no income of her own. Ron is a higher rate taxpayer. Neither has used their annual exempt amount for 2019/20 (set at £12,000).
If they leave the property in Ron’s sole name, they will realise a chargeable gain of £88,000 after deducting his annual exempt amount of £12,000. As a higher rate taxpayer, this will give rise to a capital gains tax bill of £24,640 (£88,000 @ 28%).
However, as Rita has her basic rate band and annual exempt amount available, making use of the no gain/no loss rule to put the property in joint names prior to sale can save the couple a lot of tax. Each will realise a gain of £50,000.
As far as Ron is concerned, £12,000 of his gain will be sheltered by his annual exempt amount, leaving a chargeable gain of £38,000 on which tax of £10,640 will be payable.
Rita will also have a gain of £50,000, of which the first £12,000 is covered by her annual exempt amount, leaving a chargeable gain of £38,000. As her basic rate band is available in full, the first £37,500 is taxed at 18% (£6,750), with the remaining £500 being taxed at 28% (£140). Thus, Rita’s tax liability is £6,890, and the couple’s total tax bill is £17,530.
By taking advantage of the no gain/no loss rule to put the property into joint names prior to sale, the couple will be able to make use of Rita’s annual exempt amount and basic rate band, reducing the capital gains tax payable on the sale from £24,640 to £17,530 – a saving of £7,110.
Partner note: TCGA 1992, s. 58.
Pension savings can be tax efficient as contributions to registered pension schemes, attracting tax relief up to certain limits.
Limit on tax relief
Tax relief is available on private pension contributions to the greater of 100% of earnings and £3,600. This is subject to the annual allowance cap.
Tax relief may be given automatically where your employer deducts the contributions from your gross pay (a ‘net pay scheme’). Alternatively, if you pay into a personal pension yourself or your employer pays contributions into the scheme after deducting tax, the pension scheme will claim basic rate relief (‘relief at source’). Thus if you pay £2,880 into a pension scheme, your scheme provider will claim basic rate relief of £720, meaning your gross contribution is £3,600. If you are a higher or additional rate taxpayer, the difference between the basic rate tax and your marginal rate can be reclaimed from HMRC via your self-assessment return.
The pension annual allowance caps tax-relieved pension savings – contributions can be made to a registered pension scheme in excess of the available annual allowance, but they will not attract tax relief. The annual allowance is set at £40,000 for 2019/20; although this may be reduced if you have high earnings. The annual allowance taper applies where both your threshold income is more than £110,000 (broadly income excluding pension contributions) and your adjusted net income (broadly income including pension contributions) is more than £150,000. Where the taper applies, the annual allowance is reduced by £1 for every £2 by which adjusted net income exceeds £150,000 until the annual allowance reaches £10,000. This is the minimum amount of the annual allowance. Only the minimum allowance is available where adjusted net income is £210,000 or more and threshold income is more than £110,000.
The annual allowance can be carried forward for up to three tax years if it is not used, after which it is lost. The current year’s allowance must be used first, then brought forward allowances from an earlier year before a later year.
Harry has income of £100,000 in 2019/20. He has received an inheritance and wishes to make pension contributions of £60,000. In the previous three years he has used £10,000 of his annual allowance, leaving £30,000 to be carried forward for up to three years.
To make a contribution of £60,000 for 2019/20, Harry will use his annual allowance of £40,000 for 2019/20 and £20,000 of the £30,000 carried forward from 2016/17. The £10,000 remaining of the 2016/17 allowance will be lost as cannot be carried forward beyond 2019/20. The unused allowances of £30,000 for 2017/18 and 2018/19 can be carried forward to 2020/21.
Reduced money purchase annual allowance
A lower annual allowance of £4,000 (money purchase annual allowance (MPAA)) applies to those who have flexibly accessed pension contributions on reaching age 55. This is to prevent recycling of contributions to secure additional tax relief.
The lifetime allowance places a ceiling on your pension pot. For 2019/20 it is set at £1,055,000. A tax charge will apply if you exceed the lifetime allowance.
Partner note: FA 1994, s. 227ZA, 288, 228ZA, 218.
The subject of allowable mileage rates for tax purposes often causes confusion as different rules apply depending on whether a car is employee or company owned.
Broadly, employees can only claim mileage allowance tax relief where their own vehicle is used for business purposes. If the employee is provided with a company car, a mileage claim can be made for business travel to cover the cost of fuel where this is paid for by the employee. There are different rules if the company pays for the fuel.
Approved mileage allowance payments (AMAPs)
An employee using their own car for work can claim a mileage allowance from their employer, which is designed to cover the costs of fuel and wear and tear for business trips. The mileage allowance will be tax-free if it does not exceed HMRC’s Approved Mileage Allowance Payment (AMAP) rates, which are currently as follows:
Actual costs of business journeys made in the employee’s private car cannot be claimed as a deduction by the employee as the legislation specifically prevents this where mileage allowance payments are made to that employee.
AMAPs are designed to cover any general or mileage-related expenses in relation to the car itself (such as fuel, servicing, tyres, road fund licence, insurance and depreciation), plus interest on any loan to buy the vehicle. The employee cannot claim any additional relief for expenses of that type.
AMAPs do not cover other expenses specific to the particular journey (such as parking charges, road tolls or accommodation) and the normal rules for deductions apply to expenses of this type.
Unless the employer reimburses employees at a higher rate than the AMAP rate, the payments do not need to be reported on annual forms P11D as a benefit-in-kind.
If an employer pays less than the approved rates, the employee can claim income tax relief from HMRC for the shortfall. This can be done via a self-assessment tax return or by completing form P87.
The AMAP scheme does not apply for company cars. However, employees can still claim fuel expenses for all business mileage where they pay for the fuel. The rates are lower than the AMAP rates and are updated quarterly. Current and previous rates can be found on the Gov.uk website at https://www.gov.uk/government/publications/advisory-fuel-rates.
Amounts paid in excess of HMRC’s advisory rates will be taxable.
If the company pays for all fuel (business and private), the fuel benefit will be charged, which is based on the cash equivalent of the benefit each tax year. The fuel benefit is fixed each year (for 2019/20 it is £24,100). This figure is multiplied by the CO2 percentage figure applicable to the company car.
It is the employee’s responsibility to claim tax relief due on mileage allowances. Form P87 can be used where an employee is not within self-assessment but has allowable employment expenses of less than £2,500 for a tax year. Current year claims are usually made via the employee’s PAYE tax code. However, employees have four years from the end of the tax year to make a claim for earlier years.
Partner note: ITEPA 2003, ss 229(3), 230, 359
The trivial benefits exemption allows employers to provide employees with low cost benefits free of tax and National Insurance and any reporting obligations. For the purposes of the exemption, a benefit is trivial if the cost per head is not more than £50. Where trivial benefits are provided to an officer of a close company or a member of their family or household, an annual cap of £300 per tax year also applies.
For the exemption to be available, the benefit must not be provided in return for services provided and the employee must not be contractually entitled to receive the benefit.
Contractual entitlement is wider than simply inclusion in the contract of employment. Consequently, the fact that the contract makes no reference to the provision of trivial benefits is not enough to satisfy the conditions for the exemption.
In the December 2019 issue of their Employer Bulletin, HMRC highlighted a number of ways in which a contractual obligation may arise, including:
If any of these provide for the employee to receive the trivial benefit, the exemption will not apply.
Beware of creating a ‘legitimate obligation’
Employers seeking to make use of the trivial benefits exemption should also be wary of falling into the ‘legitimate expectation’ trap; a contractual obligation may also arise is the employee has a legitimate expectation to receive the benefit.
In the December 2019 issue of Employer Bulletin, HMRC illustrate this with an example of an employer who provides employees with a cream cake each Friday. While there is no contractual obligation for the employer to provide the employees with a cream cake on a Friday, the fact that the employer does so every Friday creates a legitimate expectation, taking the provision of the cakes outside the trivial benefits exemption.
Frequency seems to be a problem here – HMRC seemingly do not apply the legitimate expectation argument where a benefit is provided annually, even if it is provided each year. HMRC’s Employment Income Manual at EIM21867, states:
“Just because a gift is provided each year, or is provided to all staff members, does not mean that the employee has a contractual entitlement to it.”
The guidance instructs HMRC officers that they “should not normally challenge modest gifts that are provided infrequently to employees, just because they are given to employees each year – for example, a Christmas or birthday gift”.
To avoid falling into the legitimate expectation trap, vary both the nature and timing of trivial benefits provided to employees.
Partner note: ITEPA 2003, s. 323A.
No capital gains tax liability arises if a gain occurs on the sale of a property which has been the owner’s only or main residence throughout the period of ownership then the gain is fully sheltered by private residence relief. However, there are advantages to be had if the property has been the only or main residence for part of the period of ownership – not only is that period covered by private residence relief but the door is opened to benefit from the final period exemption and, where the property has been let, lettings relief.
However, time is running out to benefit from these reliefs in their current, more generous, form.
Final period exemption
The final period exemption extends private residence relief to the final period of ownership where the property has been the owner’s only or main residence at some point in the period of ownership. Until the end of the 2019/20 tax year, the final 18 months of ownership is exempt. However, from 6 April 2020, this is halved to nine months, although, as now, it will remain at 36 months where the owner is disabled or goes into care.
Where a sale is on the cards, completion before 6 April 2020 will keep the last 18 months of ownership tax-free as long as the property has been the only or main residence at some point.
As it currently applies, letting relief can reduce the chargeable gain on a property that has been let and which has been the owner’s only or main residence at some point by up to £40,000. The relief reduces the chargeable gain by the lower of:
Consider selling before 6 April 2020
If a disposal is on the cards and you currently would benefit from lettings relief and/or the final period exemption, where possible aim to complete before 6 April 2020 to enjoy these reliefs in their current, more generous, form.
Partner note: TCGA 1992, s. 222, 223 and new s. 224A (to be introduced by the 2020 Finance Bill).