Panellists

• Stephen Relf, Technical Manager, Tax, ICAEW
• Caroline Miskin, Senior Technical Manager, Digital Tax, ICAEW
• Katherine Ford, Technical Manager, Personal Taxes, ICAEW

Producer

Ed Adams

Transcript

Stephen Relf: Hello and welcome to The Tax Track, the podcast series from ICAEW, where we explore the latest developments in the world of tax. In this episode, we’ll look at two alternatives to self assessment for income tax and capital gains tax. Firstly, simple assessments are becoming more common for income tax, but do they actually make things simpler for the taxpayer and for HMRC?

Caroline Miskin: There’s a lot of people who no longer need to complete self assessment returns, but the processes and systems have never really been fully developed. It’s a bit of a job half done. I’m afraid.

SR: Capital gains tax has real-time reporting, but it is often overlooked. We’ll explain how it works and look at current issues with CGT reporting more generally.

Katherine Ford: Data from 2022/23 tax year suggests that only 2,602 disposals were actually reported in that year using this system.

SR: I’m Stephen Relf, a Technical Manager for Tax at ICAEW. Today I’m joined by two colleagues from the Institute’s tax team, who are both well known to our listeners. We’ll begin with Caroline Miskin, Senior Technical Manager for Digital Taxation, discussing simple assessments. And then we’ll move on to CGT with Katherine Ford, Technical Manager for Personal Taxes. Welcome back, Caroline and Katherine.

HMRC issued a record number of simple assessments for 2023/24 and it will soon start issuing them for 2024/25. Caroline, you know a lot about this subject, having written the Institute’s Tax Guide on simple assessments. Could you quickly explain what simple assessments are?

CM: If you don’t complete an income tax self assessment tax return, HMRC still needs to have a way to check that you have paid the correct amount of income tax. So what it does after the end of each tax year is to reconcile your PAYE account, issue a PAYE tax calculation, called a P800, and either refund you over any overpaid tax or collect any tax that you are due. If it can, it will collect any underpaid tax by changing your tax code. But that is not always possible, and sometimes what it needs to do is to issue a direct assessment, called a simple assessment, to collect that tax. So to put it another way, simple assessment is used to collect PAYE underpayments, where either the underpayment is too high to allow it to be collected through a tax code, or the amount of PAYE income that you’re receiving is too low to allow them to collect it.

SR: Okay, so it’s kind of the culmination of HMRC reconciliation process. So it sends a calculation to people where it can’t collect the tax any other way.

CM: Yes. And that also includes a very specific group of pensioners whose only income is state pension. They have no other income, and that state pension exceeds the personal allowance. In that situation, tax needs to be paid on the state pension in excess of the personal allowance, and the only way that HMRC can do that is by simple assessment.

SR: Well, that all seems quite positive, then, as a way of keeping people out of self assessment when they don’t need to be there. Was it welcomed when it was introduced?

CM: I was at Tax Aid when simple assessment was introduced, and we’d been pressing for something very much along these lines, because what we were seeing was hundreds of thousands of self assessment returns being issued simply to collect PAYE underpayments. And, of course, lots of people didn’t understand they needed to complete a return and so there were lots and lots of late filing penalties. The P800 PAYE tax calculations are not legally enforceable assessments. The only options available to HMRC were either to collect it through the tax code, if it could, or to issue a self assessment tax return. Simple assessment has given HMRC another way of collecting PAYE underpayments, without having to put people into self assessment. So the principle is a good one.

SR: So again, continues to be all positive. But I suppose the key question is, has it delivered on that early promise?

CM: In some respects, yes, there’s a lot of people who no longer need to complete self assessment returns, but the processes and systems have never really been fully developed. It’s a bit of a job half done, I’m afraid. Some of the ways that it doesn’t quite work: so HMRC’s PAYE system, which is NPS, and the self assessment system, there is supposed to be a link between the two, but that link is very often broken, and what happens in that situation is that people get one tax calculation from the self assessment system and another calculation from the PAYE system. There are various reasons why that happens. It’s usually when a self assessment return has been submitted voluntarily. But it does go wrong. There’s also a bit of an issue with timing, because you have until 5 October after the end of the tax year to tell HMRC you need to do a self assessment return, and HMRC may already have issued a simple assessment.

SR: So I imagine that with your time in Tax Aid and your time at the Institute, you’ve come across a few examples where things have gone wrong?

CM: Indeed, I think one of the most extreme cases that I that I’ve seen is a simple assessment which was issued showing interest income of around £85,000, but with nothing else on it. Now, the taxpayer was a very prominent, highly paid barrister, and of course was in self assessment, and everything had been reported, and all the tax had been paid, but, you know, got this completely bizarre calculation from the system.

SR: And I guess if it’s bizarre for a barrister, it’s going to be confusing for the rest of us as well.

CM: Absolutely. The other weakness is that HMRC has not developed account-type information for simple assessment. The assessments are very much standalone, and sometimes HMRC needs to correct an existing calculation. But that really adds to the confusion, because people are getting multiple assessments for different years and correcting previous ones, so it’s really difficult to follow.

SR: So Caroline, what should be done if someone in self assessment receives a simple assessment?

CM: If a taxpayer who has filed a self assessment tax return, or plans to do so, receives a simple assessment for the same tax year, then they or their agent needs to phone HMRC to ask for the simple assessment to be withdrawn. There isn’t an online process. You may need to insist, but the simple assessment should be withdrawn.

SR: And we’ve talked about how they can be confusing, perhaps even bizarre. But how accurate are they? If you receive one, can you assume it’s correct?

CM: Absolutely not. You must always check simple assessments, and the same applies for P800 tax calculation. So, for example, we know that HMRC’s ability to match the information on bank and building society interest data that it receives – we know that’s imperfect; it’s 80% at best, and HMRC only receives that data well after the end of the tax year. So that data is often not going to be correct or complete. In fact, we have a consultation, which recently closed, which is talking about HMRC’s plans to collect data from banks and building societies more often and with an identifier to improve its ability to match. Some of the other information may simply be out of date. It may be job expenses based on a previous year; it could be other income being collected through the tax code, so they really do need to be checked carefully. And we hear about really poor understanding on HMRC’s helplines, people are often misadvised, I’m afraid to say, on this point refusing to cancel PA302 for people who are in self assessment or to accept that the calculations may be incorrect. So we really do need to be persistent.

SR: At the very start I did mention that HMRC issued a record number of simple assessments for 2023/24. Why is that?

CM: Yeah, the numbers are absolutely staggering: 1.32 million simple assessments issued for the 2023/24 tax year. And that’s a really big increase. It’s almost tripled since simple assessment was first introduced. There’s a number of factors. One is the freezing of the personal allowance, but also higher amounts of interest income, and we’re not far away from the situation that the new state retirement pension, if you get the full entitlement, that will be higher than the personal allowance, so I think we’re going to continue to see significant numbers of simple assessments being issued.

SR: And I guess with the issues that you’ve outlined for us today, and that increase in the number of simple assessments being issued, this must also be causing problems for HMRC?

CM: It certainly is. Simple assessments are causing significant problems for HMRC, primarily because of the amount of contact to HMRC helplines. I actually find that really reassuring, because I think if it’s a sign that people are checking and challenging these assessments, I think that is a good thing, but HMRC sees it as a problem. In fact, HMRC actually held back issuing a lot of simple assessments to try and manage demand on its helpline, and then when it finally started to issue those in February after the self assessment peak, that was one of the reasons the helplines’ performance didn’t bounce back as it should have done. HMRC is also very concerned because a lot of these simple assessments simply aren’t being paid on time.

SR: So. HMRC is aware of the issues and, for itself, its own performance. Is it doing anything to make the simple assessments process work better?

CM: HMRC is doing a significant amount of work on improving the guidance and on improving the simple assessment letter, but I think that until the process is improved and simple assessments are more accurate, I think there will continue to be an issue for taxpayers agents and for HMRC.

SR: Thank you, Caroline. Well, I think we’re all now much better prepared for what may turn out to be another record year for simple assessments for tax year 2024/25. Let’s move on to capital gains tax – CGT. Katherine, real-time CGT reporting is a way for taxpayers making a one-off disposal to avoid having to register for self assessment. Is that correct?

KF: Yes, it is. So, if you have people who have made one-off disposals, or just make an irregular pattern of disposals of assets, then they can use a CGT real-time reporting system, and it’s for disposals that are not land or property. So we’re looking at things like shares cryptoassets or the sale potentially of an unincorporated business, so sole trade or partnership. They don’t need to file a separate self assessment return unless, of course, they have any other sources of untaxed income, or unless they already complete a tax return for other reasons.

SR: I certainly have to confess that I’m not that familiar with real-time CGT reporting. Is it just me, or is it well known about?

KF: No, it was introduced actually in 2017 we have data from the 2022/23 tax year, which suggests that only 2,602 disposals were actually reported in that year using this system, and the overall yield of CGT payments was less than 1% of the total receipts. However, I think it will become more useful in the future, particularly since the annual exemption has started to be reduced since April 2023 and it currently stands at just £3,000, which is a quarter of what it was before.

SR: Yeah, we have mentioned that before on earlier Tax Track podcasts, that fall in the annual exemption is going to mean more people having to report capital gains. Could we have a quick recap Katherine on what disposals need to be reported to HMRC?

KF: There are two thresholds, and if you meet either one, you’ll need to report capital gains disposals to HMRC. So the first threshold is if your capital gain is more than your annual exemption, so your capital gain is more than £3,000. The second test is whether the disposal proceeds are more than £50,000. Now this test changed a couple of years ago: prior to 6 April 2023 the test was actually whether the proceeds were more than four times the annual exemption. A return might also be needed if the taxpayer needs to register a capital loss with HMRC, which they need to do within four years of the end of the tax year, or if they want to claim any of the capital gains tax reliefs, such as business asset disposal relief or the gift holdover relief.

SR: So back to CGT real-time reporting. Then can an agent use that on behalf of a taxpayer?

KF: Unfortunately not. The real-time CGT reporting is only accessible through a Government Gateway account, so that will be a personal tax account or the HMRC app, so agents will not be able to use it to report for clients. I think it’s still useful for agents to know about it, so they can spread the word. Sometimes agents will be contacted by people who only just want a computation doing, and can do the report themselves. Bear in mind that a calculation does need to be attached to any CGT report, so a PDF or JPEG. So the calculation will need to be done in some shape or form. So that’s where accountants could add value.

SR: So definitely some involvement there potentially for agents. Are there any time limits we need to be aware of for using it?

KF: So 2024/25 disposals have to be reported by 31 December 2025 and once the CGT report has been submitted, HMRC will issue the person with a payment reference number, and the payment then has to be made by 31 January 2026.

SR: Now, we have mentioned in the past as well, 60-day reporting for residential property. Is it worth having a quick recap of that as well?

KF: Of course. So I think this is the system that people will probably be more familiar with for residential property and the requirements here are, if you’re a UK resident and you’ve made a residential property disposal, then you have to make a report to HMRC and pay any tax due within 60 days of the date of completion. The system also applies for non-residents, which can include individuals and companies, and they are required to report direct or indirect disposals of any UK land or property, whether that’s residential or non-residential. What they mean by an indirect disposal, that is typically where a shareholder who owns 25% or more of, say, a non-UK company, and that non-UK company’s value, at least 75% of the value, is made up of UK land. So the 25% test is considered at any time during the two years prior to the date of disposal. So you can’t just change your shareholdings shortly before selling and not have to report. But it also aggregates holdings of connected persons, so your direct relatives.

SR: So 60-day reporting has been with us for a few years now, but still that tight deadline comes as a surprise, doesn’t it, 60 days?

KF: It’s quite tight. Yeah, absolutely.

SR: Definitely worth bearing that in mind. But having used 60-day reporting, having met your obligations, does that get you out of having to then submit a tax return?

KF: So for both of the CGT reporting systems, if you’re not already doing a self assessment return, you won’t need to do one. This report on its own will just be sufficient. However, for both systems, if you are doing self assessment returns, then the gains will need to be reported on the tax return as well, which kind of negates the point of having the CGT real-time reporting service – you know, why would you bother doing that? Because at that point you’re not paying the tax anyway.

SR: So for those who are in self assessment, then am I right in thinking that the tax returns for 2024/25 are probably going to be more difficult than usual?

KF: I think so. We have to bear in mind that we had the rate change on Budget Day on the 30 October 2024 mid-year. So if you’re a basic rate taxpayer, the main CGT rate went up from 10% to 18% and for higher rate taxpayers making disposals other than residential property, again the rate increased from 20% to 24%. So unfortunately, HMRC’s systems weren’t updated in time, so the returns won’t calculate the additional tax due, so that’s the extra 8% or 4% uplift. So HMRC expects that the taxpayer or their agent will be working this out. There is an online calculator that HMRC have made available to assist with this, but like all things that are rushed through, it’s worth checking the output to make sure that you agree with it. And if you do a paper return, so that goes in by 31 October, then the additional CGT goes into box 51 on the SA 108 CGT pages. And if you file a return online, there’s a box called ‘an adjustment to CGT’, which you need to add in there.

SR: So lots to be aware of there, I think, this year in particular, isn’t it, when you’re completing those tax returns. And you mentioned that there was a mid-year change in rates. So I guess knowing the date of disposal is going to be particularly important this time around. Can you remind us of the rules that apply there?

KF: Of course, yeah, it’s really key to, as you said, to know the disposal date. So what we look at here is whether the contract for the disposal was conditional or unconditional. If it’s an unconditional contract, then your disposal date will be the date the contract is made. Now that’s often referred to as the date of exchange, which typically happens on or before the date of completion. If you have a conditional contract, and that’s where further conditions will need to be met before the deal goes through, then the disposal date will be the date that all the conditions are satisfied. So it’s always worth discussing with the client, particularly for land and property transactions when it’s actually gone through.

SR: And I believe in an earlier episode on cryptoassets, we mentioned that there were some new boxes on the return this year relating to cryptoassets and gains and losses.

KF: So just remember that cryptocurrency is not cash, it is an asset for CGT purposes. On the SA108 CGT pages, we have a whole new section this year on page 1, specifically for reporting disposals of cryptoassets – boxes 13.1 to 13.8.

SR: That’s great. Thank you Katherine. So, some really good points to bear in mind there for 2024/25 self assessment tax returns, and also a timely reminder that real-time reporting is available in some circumstances as an alternative to self assessment.

SR: So that’s it for this episode. Many thanks to Katherine and to Caroline for your contributions. And thank you for listening. All of the topics we’ve discussed today are covered in more depth in the articles linked in the shownotes. If you found this useful, then don’t forget to subscribe so you never miss an episode. You can rate and share the podcast too. We’ll be back next month with the next Tax Track. In the meantime, why not check out the sister podcasts from ICAEW Accountancy Insights provides business finance and accountancy analysis, while each episode of Behind the Numbers offers a deep dive into a selected topic, and there’s also the students podcast aimed at young professionals. If you’re not already a member of ICAEW’s Tax Faculty, remember that Institute members can join the faculty for no additional cost. Faculty members receive our monthly TaxLine bulletin. In addition, anyone can subscribe to receive our weekly TaxWire newsletter containing the latest tax news from ICAEW. Thank you for listening.