TT65: Tax Return Update 1
Returns they are a changing
Yes, the tax return season has well and truly started! This issue of Topical Tips highlights some changes this year that might affect Barnes Roffe LLP clients.
New (tax) year, new name
Now that it has merged with H M Customs and Excise the Inland Revenue is to be known as H M Revenue & Customs. As that’s a bit of a mouthful we’ll refer to it here as HMRC. No doubt other abbreviations will emerge in due course!
Some good news… or not?
Some taxpayers will have received notification from HMRC that they are not being sent a Tax Return this year. Whilst this might seem like good news, it does remain the duty of the taxpayer to tell HMRC if they should be completing a Return. For instance, if you have a new source of income (e.g. rent, or any income not taxed at source) or are amongst the class of people who are obliged to complete returns, (e.g. a director of a company) you must request a Return. There is a possibility that you might receive a P810 Tax Review Form to check your tax-paying status.
More good news… or not?
This year a new initiative by HMRC is to issue Short Tax Returns (form SA200) to up to a reported 2 million people out of the 9 million taxpayers who usually complete the full Tax Return. Again this might seem like a good thing, but it should be borne in mind that the Short Tax Return:
- still requires full details of income, but is not as clear as the full Return in making sure all income types are entered
- cannot be filed electronically
- cannot be produced by the software that many accountants (including Barnes Roffe) use.
Given the above, taxpayers can elect to complete the full Self Assessment Tax Return.
Foreign dividend income
Until now most people were generally unlikely to have foreign listed shares, however since the recent takeover of Abbey by Banco Santander, many people who held Abbey shares will now be the proud owners of such investments.
The Short Tax Return has no box in which to show foreign dividend income received. Also, taxpayers using the Online Filing facility for their full Tax Return will not be able to complete the foreign income supplementary page.
This matters because dividend income on UK shares come with a notional tax credit of 10%. This is deemed to satisfy the tax chargeable for basic rate taxpayers, and for higher rate taxpayers it is taken into account when calculating their liability to tax on such income. Foreign dividend income will not necessarily have the same tax credit e.g. dividend income on the Banco Santander shares will have a 15% tax credit.
Barnes Roffe Topical Tips
- If you wish to use a Short Tax Return or Online Filing, HMRC guidance states that if your only foreign income is from dividends and it is under £300 gross then you can include it in your Short Tax Return as if it was UK dividend income. This will leave you with a slight discrepancy in your tax calculation – you will pay a small amount too much!
- If you want a truly accurate calculation then you must complete a full Tax Return (which cannot be submitted online).