Self assessment tax: determining whos in and whos out
Caroline Miskin explains how the criteria for self assessment filing are changing in 2017.
The groups of taxpayers who are required to file annual self assessment (SA) tax returns have not altered for some time – but that is going to change.
To recap on the legislation: taxpayers who have not been issued with a notice to file a tax return have an obligation under s7, Taxes Management Act 1970 (TMA 1970) to notify HMRC of any liability to tax. The deadline for doing so is six months from the end of the tax year (ie, 5 October). The obligation to file a return arises only when HMRC issues a notice under s8, TMA 1970. Neither the legislation nor any regulations specify who must file a tax return. HMRC has had a formal power to withdraw the requirement to file a return only since 2012.
HMRC has considerable freedom to set the criteria for who should be in the SA population and generally seeks to minimise the number of taxpayers required to file. The simple assessment power introduced in Finance Act 2016 has given HMRC further scope to reduce the SA population and collect any tax due by raising a simple assessment.
HMRC generally accepts voluntary unsolicited SA returns, but this may not continue as Making Tax Digital (MTD) is introduced and HMRC makes a concerted effort to reduce the SA population.
Who is in self assessment for 2017?
The criteria for 2017 returns (that is, returns for the tax year 2016/17) are set out in HMRC’s Self Assessment Manual at SAM100060 and there is a simplified version and a checking tool that can be found on the government webpage
The box below opposite illustrates most of the criteria.
What has changed in the self assessment tax rules?
The £10,000 SA limits for savings and investment income and for dividends are new. Prior to the introduction of the dividend allowance from April 2016, HMRC had to be notified about dividend income only where higher or additional rate tax was due and in some cases could collect any tax due through PAYE rather than SA.
Deposit takers (banks and building societies) have not been required to deduct tax from interest income since April 2016 when the personal savings allowance came in. HMRC now requires an SA tax return where the interest income is £10,000 or more.
Taxpayers coming out of self assessment
There are two groups for whom the introduction of simple assessment is particularly welcome, as they will no longer have to go into SA:
- pensioners who receive a state pension of more than their personal allowance and who have no PAYE source of income; and
- PAYE taxpayers (not in SA for any other reason) who receive a P800 tax calculation showing an underpayment which cannot be collected by an adjustment to a tax code and which is not paid voluntarily.
Previously the only option available to HMRC to collect tax in these two cases was to issue an SA return. Simple assessment gives HMRC a mechanism to collect any tax that is due in these cases and from others who are taken out of SA. Pensioners being removed from SA will shortly receive a letter informing them that they are no longer required to file a return.
The next group to be removed from SA will be taxpayers with income from employment (including benefits) which exceeds £100,000 but is less than £150,000. These taxpayers will receive the standard SA exit letter when they file their 2016/17 return and will not be required to file for 2017/18 unless they meet one of the other SA criteria.
Guidance and information on the simple assessment process has been limited to date but is expected when the first simple assessments are issued later this year. The legislation (introduced by s167 and Sch 23, Finance Act 2016) allows for appeals against simple assessments within 60 days and the due dates are aligned with those that apply for SA.
It would be good to have greater clarity and communication from HMRC about the responsibility of the taxpayer to check the figures on their P800 and simple assessment tax calculations and to notify any discrepancies or untaxed income. More than nine million people have now accessed their Personal Tax Account but the importance of checking the information and not assuming its accuracy is not well understood by unrepresented taxpayers.
Exclusions from online filing
Tim Good has highlighted the new exclusions from online filing that have been introduced to deal with the impact of the personal savings and dividend allowances – these are required because the SA software cannot currently deal with the complexity of the calculations in all circumstances.
The full list of exclusions from online filing was updated by HMRC on 17 March 2017 and again on 11 April.
Some of the existing exclusions include:
- early submission of a tax return before the end of the tax year (for example, for a deceased taxpayer);
- MPs and members of devolved administrations (those who need to file a form SA102MP, SA102MLA, SA102MSP or SA102WAM);
- returns for the year of bankruptcy;
- averaging cases where the rules for capping of loss relief claims would be incorrectly applied if an online return was filed;
- share fishermen with earnings liable to class 1 national insurance contributions (NIC) – a paper return is required where class 4 NIC capping applies; and
- non-residents chargeable to class 4 NIC on profits in the UK.
Where an exclusion applies HMRC will accept the taxpayer has a reasonable excuse for not meeting the 31 October deadline for filing a paper return; the 31 January deadline for online returns effectively applies to paper returns in these cases.
Future changes to self assessment
As MTD is introduced, HMRC will be removing the requirement to file a tax return from further groups of taxpayers. HMRC has indicated an ambition that those who join the MTD pilot during 2017/18 will not be required to file a return for that year, even if the taxpayer has sources of income other than those being reported through MTD. A future article will look at this in more detail as further information emerges.
Criteria to file a 2017 self assessment return:
|Self-employment or partnership income (including foster carers)|
|Property income of £2,500 or more (if there is a live PAYE record a return is not required unless the gross rental income exceeds £10,000)|
|Savings or investment income of £10,000 or more before tax*|
|Dividend income of £10,000 or more before tax*|
|Income from employment (including benefits) in excess of £100,000 but below £150,000 and a live PAYE record|
|A liability to capital gains tax, or a capital loss needs to be established|
|Company directors for whom there is a live PAYE record (unless exempt, as in the case of the director of a non-profit-making organisation who receives no pay or benefits)|
|A liability to the high income child benefit charge|
|Taxable foreign income (unless it is foreign dividend income of less than £300 and no other SA criteria are met)|
|Ministers of religion (any denomination)|
|Trust or estate income where additional tax is due|
|Lloyd’s members and names|
|MPs and members of devolved administrations|
|A liability to tax on an unauthorised payment from a pension scheme|
|Other untaxed income of £2,500 or more*|
|Claim for employment expenses in excess of £2,500|
About the author
Caroline Miskin, practitioner support manager, Tax Faculty