Get free updates - subscribe to our monthly newsletter Subscribe
Well that sounds like a fairly simple question but, during the year ahead many people will be finding out the hard way that they should have completed a tax return and are now about to be penalised for not doing so.
The basic rules are quite simple. If HM Revenue & Customs (HMRC) sends you a return then you have to fill it in and send it back before the deadline. For the year ended 5 April 2012 the deadline is 31 October if you use a paper return but you are allowed three extra months until 31 January 2013 if you file online. Failure to meet the deadline will incur an automatic penalty or fine.
Unfortunately, however, that is not the end of the story. Even if you do not receive a tax return, you are still required to ask for one if you owe tax for the year. It is up to you as the taxpayer to know when this might be the case. If HMRC finds out about the missing tax later you will be fined for that too – even if you were not aware of it. You will also be charged interest in addition to the fine!
HMRC already send regular tax returns to people they think will have tax to pay but many of those who have liabilities for the first time will have escaped their notice. HMRC is aware of that and is now targeting this group and, in particular, those who pay higher rate tax.
The normal PAYE system which is applied to wages, salaries and pensions will generally collect the right amount of tax on that income. If you have rents or are self-employed then you should already be submitting tax returns. If there is another source of income, however, such as bank interest or dividend income, only the basic rate liability is satisfied when you receive it – a higher rate taxpayer will have more to pay. That is usually where the missing tax arises for those who fail to pay accidentally.
This extra tax can sometimes be collected by an adjustment to your PAYE tax but only for the current tax year.
This is likely to be an increasing problem over the next few years as the amount of income you can receive before being liable to higher rate tax is not being increased in line with inflation. The tax free threshold is certainly going up substantially but you still hit 40% at the same total level of income (£42,475).
This is technically called fiscal drag but all the fancy name really means is that there will be more people paying 40% tax.
For over 65s the figure is a little higher as they currently still benefit from a higher tax threshold. As this is withdrawn gradually once income exceeds £25,400 (last year £24,000), however, the elderly can actually have unforeseen tax liabilities at even lower income levels than the rest of us.
Careful planning can often remove or reduce these tax issues but, if you think you may be affected, it would be better to have your position checked.
Partner and Head of Tax
If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletterSubscribe
All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.
Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. Unless otherwise indicated, either expressly or by the context, we use the word “partner” to describe a member of Armstrong Watson LLP or an employee of Armstrong Watson LLP in their capacity as such.
Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales, number 8800970. The registered office is 15 Victoria Place, Carlisle, CA1 1EW.
Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales, number 7208672. The registered office is 15 Victoria Place, Carlisle, CA1 1EW. Armstrong Watson Financial Planning & Wealth Management is a trading style of Armstrong Watson Financial Planning Limited.
Armstrong Watson Trustees Limited is a limited company registered in England and Wales, number 84495656. The registered office is 15 Victoria Place, Carlisle, CA1 1EW.