Personal Tax Account (PTA) and Dynamic Coding - HMRC Updates

1. Technical Session8 September 2.00pm • Valerie - Remarks • PTA • HMRC iComplaintforms - continuing roll out • Dynamic coding • Simple Assessment • NES update • Simplified expenses • Errors in NICs calcs on SA statements since 2015 • P14 mismatch cases where an employer has submitted incorrect figures to HMRC • Personal savings Allowance (PSA) - tax software issues • Mutual Assistance in the Recovery of Debt (MARD) • IT refunds – Dubious agencies • HMRC Compliance activity/Campaigns • New Trading and Property allowance • Other rental property changes • IHT online service • Bereavement helpline • Post Office payments • Embassy staff & S301

2. The Personal Tax Account (PTA) The Personal Tax Account (PTA) is the main vehicle through which HMRC gives taxpayers a view of what data it is holding about them. over 11 million users 1.7 million tax refunds completed online, totalling £872 million Over 3 million customers opted to go paperless, doing more online 3.5 million customers checked their tax code 500K change of address 81% customer satisfaction You can: check and change your address see what tax code you’re on, and how your tax is calculated check your state pension and your National Insurance record go paperless – gets texts and emails from us rather than letters manage your tax credits and Child Benefit payments allow a family member or friend to manage your tax affairs on your behalf track the progress of any forms you’ve submitted to us

3. The Personal Tax Account (PTA) - cont iForms Within the PTA, customers can correspond with HMRC using forms that can be filled in and filed online, known as iForms. HMRC say responses to iForms across the year 99% within seven days against a target of 95%. HMRC also want people to pay PAYE underpayments via their personal tax account. Esp useful for coding issues & tax refunds – suggested signposted route for capable helpline callers Key rout e into HMRC to resolving personal tax issues and providing/ updating personal info. HMRC also looking into the possibility of “unverified” iForms i.e. no need to access via PTA Register at www.gov.uk/personal-tax-account. YouTube vid re PTA https://www.youtube.com/watch?v=rz2P_l8dMd8 For what the PTA can do, see: https://www.gov.uk/government/publications/your-personal-tax-account/your-personal-tax-account#other

4. Dynamic coding (+notes) Before the changes? Up to, and including, the 2016/17 refunds and underpayments were notified by a P800 at the end of the tax year. Refunds of tax arrived during the summer months; underpayments would be collected via the tax code (where possible) in the following tax year. A 2016/17 underpayment would appear in a 2018/19 tax code. Where coding wasn’t possible people were issued with voluntary payment letters and a short deadline to pay. This system remains. So what’s changing? From 2017/18 HMRC can collect potential underpayments in the year they actually happen - dynamic coding. So, if there is an underpayment in this year, the computer system will work out what it will be and then add an adjustment to the tax code and spread the payment over the rest of the tax year. Safeguards Restrict HMRC from taking more than 50% of that income source and stop them taking more than double the tax that is already being paid. Can also collect the amount over the next tax year if it isn’t possible to collect it all in the first year. Hardship If the amount being taken is more than you can afford or you think something is wrong you should contact HMRC immediately. You can ask for an underpayment to be spread over more years. Initially, HMRC can spread an underpayment over two years but once the tax year has ended they can spread them for longer periods; you will need to provide income/expenditure information for periods of 5 years or more. If you are unable to pay, ask HMRC to consider their hardship rules.

5. Dynamic coding (cont) In order to make the IYAs, HMRC relies on two important concepts, estimated pay and trigger points, to calculate the new code. Estimated pay is effectively a person’s annualised year to date pay and this is used to perform the calculations to arrive at the new tax code. The same procedure is used for monthly paid employees, but based on average monthly income. However, the PAYE code will only be amended if employers notify HMRC of a trigger point, where an employee’s circumstances have changed. This could include an individual changing their personal tax account, or an employer notifying the Revenue of a change, which will typically take place during a payroll report or through a number of different forms. Bonuses and one-off payments must be included in an employee’s estimated income for the year. However, many are finding that current payroll software does not contain a facility to tell HMRC that a payment is a one-off, which has led to the misinterpretation of payments. Important then to check their tax code where a bonus or one-off payment has been made to ensure it doesn’t cause unwarranted restrictions of personal allowances or overpayments of tax.

6. Simple Assessment (SimpA) The law has been changed to allow HMRC to collect some underpayments using a new process called Simple Assessment. (SimpA) The calculation, called a PA302, can only be issued where HMRC already hold all the information required to assess your income accurately. A simpler process in contrast to the past where a P800 and voluntary payment letters were issued and where people didn’t respond, they fell into SA. Taxpayer just needs to check the figures on their PA302 and, if they agree, pay the tax due by 31st January 2018, or three months after the date of the assessment if it is issued after 31st October 2017. If you don’t agree, have 60 days in which to query it. HMRC has up to four years from the end of the tax year to issue a simple assessment. Who is affected? Initially SimpAwill apply to underpayments above £3K. underpayments that would more than double an individual’s tax liability or where the 50% K code limit would be exceeded. New state pensioners in 2016/17 who will owe tax but can’t pay via a tax code will be put straight into SimpA. Pensioners with income greater than the personal allowance already in SA for 2016/17 will remain in Self-Assessment for 2016/17. Will receive a letter later in year conforming they will be put into SimpAfrom 2017/18 onwards. SimpA will draw in further categories of taxpayer in due course as it beds in

7. NES Update NES developing service to include Nat Ins queries – people being trained up NES to advise when this goes “live”/is up and running We will be able to warm handover NIC queries Further announcement to follow when it goes live. NES intend to offer a KANA referral for CT and Stamp Duty issues – so not a warm handover. This is not yet live – people being trained up. Important to remind us: KANA referrals are for “vulnerables” only; nonvunerablesvia normal HMRC helpline route As UC kicks in the Tax Credits NES advisers are being transitioned/trained to be moved into these areas.

8. Simplified expenses if you're self-employed (Notes+) Vehicles Calculate your car, van or motorcycle expenses using a flat rate for mileage instead of the actual costs of buying and running your vehicle, eg insurance, repairs, servicing, fuel. Note you cannot can’t claim simplified expenses for a vehicle you’ve already claimed capital allowances for, or you’ve included as an expense when you worked out your business profits.

9. Simplified expenses if you're self-employed Working from home May calculate your allowable expenses using a flat rate based on the hours you work from home each month. No need to work out the proportion of personal and business use for your home, eg how much of your utility bills are for business. The flat rate doesn’t include telephone or internet expenses. Canclaim the business proportion of these bills by working out the actual costs. You can only use simplified expenses if you work for 25 hours or more a month from home.

10. Errors in NIC calculations on SA Statements What’s the problem? Since 6 April 2015, both Class 2 and Class 4 National Insurance contributions for self-employed taxpayers have been collected through Self Assessment …. But often the Self Assessment calculations issued by HMRC show incorrect NIC figures. Why is this happening? NIC liability is determined by the information held in NPS (HMRC’s National Insurance and PAYE system) and this overwrites any figures that an agent or taxpayer reports on their tax return, even if the return is correct.   What does this mean for us? NIC figures on SA calculations for 2015/16 onwards should be checked carefully.   What do we do if we find an error? Contact the National Insurance helpline for the self-employed on 0300 200 3500 (and not the Self Assessment helpline) as it is the underlying National Insurance record that needs to be corrected.

11. P14 mismatch cases What’s the problem? Many P800 underpayment cases arise because HMRC hold incorrect P14 (end of year) PAYE figures. Why is this happening? Most commonly employer has made a mistake using the RTI system (or failed to input details at all). Other reasons can be change of employer name/new PAYE reference leading to duplicated information or fraudulent use of a NINO. What does this mean for us? We should always ask the taxpayer to confirm that the pay and tax figures on the P800 (or employment history letter) are correct and tie in to their P60s and P45s. What do we do if we find an error? Where an employer has submitted incorrect figures to HMRC, the taxpayer needs to get in touch with the employer and ask them to amend the RTI figures via an EYU (End of Year Update).  HMRC can issue the taxpayer with a letter they can send to the employer in question which explains what they need to do or you can provide the client with the necessary info (see handout).

12. Savings and Investment Income – covered by Personal Savings Allowance (PSA) ? What’s the problem? Since April 2016, basic rate taxpayers have been given a Personal Savings Allowance (PSA) of £1,000 (£500 for HRT). However, according to HMRC, not all payments made by banks and building societies fall under the PSA. Why is that? To promote various accounts, banks and building societies now offer a wide range of incentives: Interest on credit balances; Lump sum cash incentives for switching accounts; Cash back on purchases on debit or credit cards or on direct debits (eg Santander’s 1-2-3 account); Monthly cash rewards if certain conditions are met (eg £5 per month for the Halifax Reward Current Account) Which do you think are taxable? Which are taxed at source? Why?

13. PSA - Savings and Investment Income (cont) What does this mean for us? We should check whether our clients are receiving any such payments. TaxAid clients with a Halifax reward account for example who are non-taxpayers can reclaim the £15 in tax that has been deducted at source (by completing an R40 or through SA). The table shows your allowance from 6 April 2016, depending on whether you’re a basic, higher or additional rate taxpayer.

14. Mutual Assistance in the Recovery of Debt (MARD) HMRC can now recover amounts in the UK in respect of which a request for enforcement has been made in accordance with the Mutual Assistance Recovery Directive 2008/55/EC a tax authority in another European member state. Brexit ?? Question of underlying taxes/debt What powers ?

15. Income tax refunds - Dubious Agencies CIS refunds Expenses ( eg employees in construction, NHS) Deed of Assignment ( ! )

16. HMRC Compliance activity/Campaigns Targeted campaigns: Untaxed interest – 2,00 letters issued Music royalties – 3,600 letters issued Follow up with further Distributor agency Letters issued to recipients of income Businesses - CC payments (Card Transaction Programme) Looking at card usage where trade had allegedly ceased Dormant companies Checking whether really dormant

17. New Trading and Property allowance - 2017/18 Tax allowances for property and trading income introduced from 6 April 2017 For individuals of £1,000 each will take effect from the tax year 2017/18. The new tax allowances for property and trading income cover all of an individual’s relevant income (before expenses) then they will no longer have to declare or pay tax on this income. Those with higher amounts of income will have the choice, when calculating their taxable profits, of deducting the allowance from their receipts, instead of deducting the actual allowable expenses. The trading allowance will also apply for Class 4 National Insurance contribution purposes. The new allowances will not apply to partnership income from carrying on a trade, profession or property business in partnership.

18. Rental property changes HMRC announced the wear and tear allowance is abolished from 6th April 2016 and introduced a new system effective in the 2016/17 tax year onwards. This system will be that instead of claiming a flat rate allowance, you will be able to claim the cost of replacing the furnishings but not the initial cost. Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs. Deductions from property income will be restricted to: 75% for 2017 to 2018 50% for 2018 to 2019 25% for 2019 to 2020 0% for 2020 to 2021 and beyond Individuals will be able to claim a basic rate tax reduction from their Income Tax liability on the portion of finance costs not deducted in calculating the profit. REMINDER - Let Property Campaign allows landlords to come forward and pay tax on previously undeclared rental profits, benefiting from more favourable terms as far as penalties are concerned. Some new examples have been included e.g. accidental landlords i.e. inheriting property, letting out former matrimonial home following divorce

19. Rental property changes HMRC announced the wear and tear allowance is abolished from 6th April 2016 and introduced a new system effective in the 2016/17 tax year onwards. This system will be that instead of claiming a flat rate allowance, you will be able to claim the cost of replacing the furnishings but not the initial cost. Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs. Deductions from property income will be restricted to: 75% for 2017 to 2018 50% for 2018 to 2019 25% for 2019 to 2020 0% for 2020 to 2021 and beyond Individuals will be able to claim a basic rate tax reduction from their Income Tax liability on the portion of finance costs not deducted in calculating the profit. REMINDER - Let Property Campaign allows landlords to come forward and pay tax on previously undeclared rental profits, benefiting from more favourable terms as far as penalties are concerned. Some new examples have been included e.g. accidental landlords i.e. inheriting property, letting out former matrimonial home following divorce

20. Inheritance Tax online service The Inheritance Tax online service is now open to the public to use. From Tuesday 15 August. Replaces IHT205 Executors and administrators of an estate can use the online service if they already know that there is no Inheritance Tax to pay. Can still use the service if they do not know if there is any Inheritance Tax to pay because the service will tell them if they need to complete an IHT400 form based upon the estate details that are entered. Benefits of the new online service include: quicker and easier than the paper form to report the details of an estate to HMRC executors and administrators can chase the progress of the estate report that they send online to HMRC help being available online at the right place that it is needed calculations being performed by the online service instead of by the executor or administrator  The online service can be accessed through the valuing the estate of someone who has died pages on GOV.UK.

21. Bereavement helpline New service introduced in March 2017 has streamlined the process, more calls resolved at first point of contact. Telephone 0300 200 3300 Opening times: 8am to 8pm, Monday to Friday 8am to 4pm Saturday 9am to 5pm Sunday Deceased Estate Helpline Specialist advice on a deceased person’s estate about: Income Tax& Capital Gains Tax Telephone 0300 123 1072 Opening times: 9am to 5pm, Monday to Friday

22. HMRC Withdrawal of Post Office Payments From 15 December 2017 it will no longer be possible for taxpayers to make payments to HMRC at the Post Office. HMRC will shortly be issuing letters to its customers starting with Tax Credits, NICO and Child Benefit customers (as these people tend to pay frequently via the Post Office and may need the most help in finding alternative methods of payment). HMRC will not be issuing a press release regarding this change. Can still pay at a bank with cash, but the biggest issue is probably for anyone who wants to pay cash but does not live in an area with a local bank.  In addition to pay by cheque or cash at a bank a paper statement with a payslip attached is needed to make the payment. HMRCs preferred route is online banking, telephone banking or direct debit or via customer’s PTA.

23. Miscellaneous • Embassy staff (Harry)