The deadline for submitting your self-assessment tax return is 31 January. Jackie Luesby, tax lawyer in Morgan Cole’s employment pensions and benefits team, looks at some frequently asked questions from employees.
If I am not sent a tax return by Her Majesty’s Revenue & Customs (HMRC) do I still have to complete one?
The duty to declare taxable income and gains and pay the correct amount of tax is not dependent on being on HMRC’s mailing list.
OK, but the penalty of £100 doesn’t really bother me. Why should I come forward ?
The late payment fine of £100 is refundable if it turns out that there was no tax due. But any tax which should have been paid will carry interest charges which can easily mount up. A positive incentive to complete the return is to claim tax back. If, for example, you have made pension contributions over the year to a Group Personal Pension Plan or Personal Pension Plan you will only have received basic rate tax relief but may be entitled to higher rate relief too. But you have to claim it! Also see the question below about the costs of working from home.
I am a full-time employee paid under PAYE. Surely I am “fully paid up”?
The following is not exhaustive, but highlights some of the commonly encountered items which might result in a tax liability for you, particularly if you are a higher rate tax payer:
Investment income eg UK bank and building society deposits and dividend income. You will have received this net of the savings rate of tax (20%) and accompanying tax credit but may be liable to higher rate tax. If you received the investment income gross you will not have paid any tax at all.
Items on your P 11 d. Your employer had to complete and file its counterpart of this in July 2005. It details all of the taxable benefits you receive through your employer such as private medical insurance, critical illness insurance, car benefits and subsidised travel.
Rental income if you own an investment property or take in lodgers. Under the “rent a room scheme” you can receive up to £4,250 per tax year free of tax but once this figure is exceeded you must either pay tax on all gross receipts above this or you can elect to pay tax on all the rent received in the normal way (ie net of deductible expenses) If the rent a room scheme income is shared the £4,250 allowance is also shared.
Capital gains above £8,200. There may be no duty to declare gains below this figure but this will depend on the total figure for all of your chargeable disposals during the tax year and whether or not you are claiming allowable losses. The Capital Gains Tax pages of the self assessment return have a useful help sheet which explains what you must declare and is also available online.
My employer has reimbursed various expenses over the year. I assume none of those reimbursements are taxable?
Without a valid dispensation the local tax office, employers should give the Inland Revenue details of all expenses reimbursed and paid on an employeeÕs behalf on form p11d. The employee should then, in turn, claim an exemption from tax when they submit their tax return but only to the extent that the expenses were “wholly, exclusively and necessarily incurred” in the performance of the duties of the employment. An employee needs to keep receipts and other details to substantiate the tax deduction claimed. If you are uncertain or have not been given a p11d, check with your employer about the status of your expenses payments.
I work from home two days a week. My employer pays me an allowance to cover my additional heating lighting and telephone expenses. Is the allowance taxable?
Exempt payments to reimburse an employee for additional household expenses can be made under section 316A ITEPA 2003.
Note that exempt payments can only be made where there are formal arrangements between the employee and the employer under which the employee regularly works at home.
An employer can agree with HMRC a scale rate payment that is estimated to reimburse the average additional costs that an employee incurs while working at home in advance and this avoids the need for record keeping of the actual additional costs.
If you do work regularly from home it is worthwhile formalising this with your employer and HMRC so that you can take advantage of the tax breaks. If you work from home all the time, and your contract reflects this, all of your travel expenses can be tax deductible.
Note that if you work from home as a matter of your own choice you cannot usually deduct your expenses for doing so. This is different from the situation mentioned above in which an employer compensates an employee for the additional costs without creating a taxable benefit. Section 336 ITEPA 2003 deals with an employee who is not reimbursed but who wants to make a deduction from his taxable salary and imposes a stricter test.
My employment was terminated last year and I received a termination payment net of tax. Can I assume that this is all “done and dusted”?
If the termination payment was under the terms of the contract eg it was pay in lieu of notice it will be subject both to basic rate and higher rate tax if you are a higher rate taxpayer.
Usually payments are made after the termination so that the employer only needs to deduct basic rate tax, leaving the employee to “self assess” for any additional tax payable.
Termination payments can also be tax free up to £30,000 and without ceiling if they are in respect of injury to feelings or ill health.
This is a complex area and the tax status of the payment being made to you should have been explained at the time. If you are unsure you could seek help from your local tax office.