2017/18 Self Assessment Tax Return toolkit

A summary of top tips for dealing with last minute tax returns; what not to forget, and how to protect against enquiries.

Deadlines

The normal filing deadline is 31 October 2018 for paper returns and 31 January 2019 for online filing.

If a return cannot be filed electronically if it is covered by one of the 60 odd online filing exclusions. These are cases where HMRC has been unable to provide a correct specification for software suppliers. In most cases, paper returns should instead be filed, by 31 January, together with a reasonable excuse claim.

A later filing deadline may be given when HMRC have received notification of chargeability and were unable to provide a notice to file within the normal deadline.

If underpayments are to be included in the taxpayers' code for the following year, their return needs to be filed by 30 December 2018.

Who must file a return?

• Anyone who has received a notice to file a Self Assessment return.
• Anyone with taxable income or gains should have notified HMRC of chargeability. HMRC will then issue a notice to file.

Voluntary Tax returns

• Backdated, as from April 1996, Income tax, Capital Gains Tax and Corporation Tax voluntary tax returns are to be put on a statutory basis, making them legally valid returns.

Directors tax returns

• HMRC have updated their guidance about when a director has to file a tax return.
• The guidance now states that where all of a director’s income is taxed at source and there is no further tax to pay, they do not have to register for and file a Self Assessment return.
• See Do I need to file a tax return?

The taxpayer must register with HMRC in order to obtain a Unique Taxpayer Reference (UTR)

• Online filing of a tax return is not possible without a UTR.
• Apply as early as possible as it can take up to 10 working days from registration for the UTR to arrive.

If the taxpayer does not have a PAYE reference for their employer

• The current guidance is to use 'None' to enable the return to be filed.

Use of estimates: do not forget to tick the box

• It may be OK to use estimates provided that you tell HMRC that you have done so by ticking the estimates box.
• You also need to provide an explanation as to why you have used estimates in order to avoid later penalties or discovery assessments.
• There is a high risk of penalties for deliberate error if you fail to provide actual figures, you make a delay in providing figures or if it transpires that you simply ticked estimates because you were too disorganised to file a tax return on time. 
• In short, to avoid penalties, if you use an estimate you need to ensure that you have a reasonable excuse for not providing the correct figures in time.

Using the 'white space' in the return

• The main SA100 return and additional pages (capital gains, employment etc) all have 'white space' boxes to allow for more details to be provided to HMRC. 
• These can be used for areas of doubt to ensure HMRC have full details to protect against discovery assessments; careful consideration should be given to what is included here as it is classed as being part of the tax return and penalties can result for inaccuracy in the same way as if boxes of the return have incorrect figures in them.
• See How to appeal a tax penalty and Discovery assessments and time limits.

The remittance basis and deemed domicile

• The remittance basis is no longer available for those who are deemed UK domiciled at 6 April 2017.
• All income and gains must be included on the return whether remitted or not.
• See Non-domicile status, deemed domicile and tax

Use of home adjustments

If you are self-employed and work from home:

• You can claim all the costs that are incurred for business purposes.
• You may also claim a proportion of all the other costs of running your home, such as light and heat, insurance, council tax, repairs, cleaning and mortgage interest.
• There is no set method of apportioning these other costs; it depends on what work is carried on at home.
• From 6 April 2014, a taxpayer may claim a monthly fixed rate allowance for home working instead of making a claim for their actual expenditure: this is a low figure and so actual expenditure may yield higher tax relief.
• See Use of home as office calculator

Private use adjustments

• The self-employed must make adjustments for private use of vehicles and property where relevant.
• If your vehicle is used partly for private purposes you need to make a tax adjustment to disallow a proportion of your running costs that relate to that private use.
• If you disallow a proportion of running costs, you must adjust your claims for capital allowances too.
• Assets that have mixed-use must be pooled separately from other assets.

Pensions

• Beware the annual allowance taper for high earners and those with large pension pots such as NHS doctors; fund growth goes towards the £40,000 limit and can result in tax charges. See our Pensions guide for more details.

Losses

• Don't forget to take account of losses brought forward, especially capital losses which can be overlooked as not relevant until a capital gain occurs.
• Remember the Sideways loss relief cap of £50,000 or 25% of adjusted net income for sole traders wishing to offset trading losses against other income.
• Losses in the first four years of trading can be carried back three years and terminal losses go back three years.
• See our guide Losses, trade losses and sideways relief.

Higher-income benefit charge

• Don’t forget to complete this section if:
  • Income is over £50,000.
  • Child benefit has been received by the taxpayer or their spouse or partner.

Trading and property allowance

• If income from trading or property is below £1,000 check if the new trading and property allowances apply.
• If so you do not need to complete the self-employment pages and/or Property pages of the return as appropriate.

Restriction of relief for residential financing costs

• For 2017/18 75% of finance costs are deductible from rental income and the remaining 25% (or the remaining profits whichever is lower) are allowed at 20% only.
• This applies to all financing costs and not just mortgage interest.
• See Forms tab for how to input on the tax return.

Finally don't forget to follow up. Items spotted during the tax return process can result in amendments being required to previous years' Self Assessment returns or to previous VAT or PAYE returns, as well a requirement for voluntary disclosures to be made to HMRC. 

Links

Client guide to reasonable care and tax penalties

Penalties: errors in returns and documents

A summary of what’s changed since 2016/17 and top tips for 2017/18 tax return completion. 

New legislation in force from 6 April 2017

All changes here apply from 6 April 2017 unless otherwise stated.

Income tax

Savings interest:

No changes:

• Basic rate taxpayers can receive £1,000 interest tax-free.
• Higher rate taxpayers can receive £500 interest tax-free.
• Upper rate taxpayers do not benefit from a PSA.
• The PSA is in addition to the 0% savings rate band which remains at £5,000.
• The taxpayer is allowed to deduct the reliefs and allowances in a way that will result in the greatest reduction in their liability to Income Tax.

See our guide Savings income: tax on interest for examples to help you check your calculations.

Pensions:

• No changes.

Top tips

• Beware the annual allowance taper for high earners and those with large pension pots such as NHS doctors; fund growth goes towards the £40,000 limit and can result in tax charges
• Exceeding the lifetime allowance only results in tax charges when benefits are taken (pension or lump sum).
• Form SA101 page Ai4 is where annual allowance and lifetime allowance charges need to be input.

Other

• The transferable married couple allowance increased to £1,150
• The Benefits in Kind (BIK) lower-paid employee threshold of £8,500 has gone; benefits are now taxable for such employees. 

Top tips

• Use the online form to apply for the married couple allowance and complete page Ai3 of form SA101.
• The lower-paid may not file tax returns but for any who do, P11D benefits will need including unless they have been payrolled.
• Also, note that some employers may have opted to payroll benefits for 17/18 instead of including them on P11Ds. In this case, the BIK information will be found on the taxpayers P60.

See our guide Payrolling of Benefits.

Property income

• The 10% wear and tear allowance for furnished buy to lets was removed in 2016/17 and replaced by Replacement Domestic Items Relief (RDIR).
• RDIR applies to all residential lets, furnished or not but not to Furnished Holiday Lets or rent a room relief.
• The renewals basis continues for fixtures.
• Rent-a-room relief remains at £7,500.
• Landlords may use fixed mileage allowances for travel in connection with their property business from 6 April 2017
• The cash basis becomes the default method for unincorporated property businesses with receipts under £150,000. Businesses may elect to use the accruals basis.

Restriction of relief for residential financing costs

This is the first year that the restriction of relief for financing costs for buy-to-let properties has applied:

• For 2017/18 75% of finance costs are deductible from rental income, The remaining 25% (or the remaining profits whichever is lower) are allowed at 20% only.
• This applies to all financing costs and not just mortgage interest, e.g. legal fees, commissions, fees and valuation costs connected to the loan financing are also included.
• Excess finance costs are carried forward to future years.

• See Restricting mortgage interest relief (subscriber guide) and the Forms tab for how to input on the return.

Top tips

• Consider whether to elect for the accruals basis if there is significant deductible expenditure which is complete or invoiced but not paid before 6 April. Tick box 20.2 on the Property pages of the return to make the election.

Trading and property allowances

From 6 April 2017:

• There are two Income Tax allowances of £1,000 for trading and property income for people who have minor trading, property or income from micro activities such as Airbnb, Ebay sales, washing machine sharing etc. 
• Individuals with income below these allowances will not need to declare or pay tax on that income.
• Applies to income from property abroad.
• Individuals with income above this amount can elect to deduct the allowance instead of claiming expenses.
• The new allowances do not apply to income of a participator in a connected close company or to any income of a partner from their partnership. 
• See Allowances: Trading and Property

Capital Gains Tax

• Capital Gains Tax (CGT) rates remain unchanged.
• Residential property rates remain at 28% and 18% respectively.
• Remember to include non-resident UK residential property gains on the Capital Gains pages of the return even though a non-resident CGT return has already been filed.
• Enter the reference numbers of the NRCGT returns made in the additional information box 54 and the tax included on the NRCGT in box 9.

The remittance basis and deemed domicile

• The remittance basis is no longer available for those who are deemed UK domiciled at 6 April 2017.
• Deemed domicile applies for income and gains where the taxpayer has been UK resident for 15 out of the last 20 years or has a UK domicile of origin and is UK resident in the year.
• All income and gains must be included on the return whether remitted or not.
• See Non domicile status, deemed domicile and tax 

Partnerships

• Partnerships may claim a simplified expense deduction for a partner's home including fixed rate deduction for use of home and fixed rate non-business use adjustment where premises are used mainly for business but are also used as a home by a partner or partners. Not applicable where there is a corporate partner.
• When a partnership makes a donation under Gift Aid each individual partner must make their own Gift Aid declaration, specifying the amount of each partner’s share of the whole donation. Previously one partner was able to make the declaration on behalf of all provided it was allowed by the partnership agreement.

Top tips

• Remember that all partners' expenses must be included on the partnership return to allow the individual partner to claim a tax deduction, even if they are incurred personally. This includes capital allowances. If they are not on the partnership return and therefore within the individual partners’ profit share’ for tax purposes, HMRC will refuse the claims.
• Ensure individual gift aid declarations are made by the partners

See our guides to Gift Aid and Partnerships

Software specification exclusions

As with 2016/17, there remains a list of Self Assessment exclusions due to software specification errors which can be found here. Some of these are different/additional to those for 2016/17. These apply to both third-party software and HMRC's own software.

Key exclusions:

• Dividend income and liability at higher/additional rate (i.e. higher rate taxpayers with dividend income).
• Basic rate band extended incorrectly for gains with life policies; there is a workaround for this.
• Non-residents with disregarded income, excluded income or gift aid payments.
• Farmers and authors averaging.
• Scottish Income Tax: for additional rate and remittance basis taxpayers.
• Remittance basis for deemed domiciled individuals.
• Restriction of property finance costs where the transferable marriage allowance is being claimed.
• Validation error where the £1,000 property allowance is being claimed.

In most cases, the filing of paper returns is being advised by HMRC. If your software allows you to file online you may do so and HMRC will prepare the calculation for you.

Key changes to the Self Assessment forms

Forms that are not mentioned have not changed since 2016/17.

SA103F Self employment (full):

The £1,000 trading and income allowance goes in box 16.1 on SEF1

Partnership pages of Self Assessment return (full) (SA 104):

Box 41.1 on page FP2 (box 63.1 for offshore property) is to be used for the residential finance costs restriction taken from box 26 (box 27 for offshore) on a partnership statement. For 2017-18 the restriction is 25%.

Property (SA 105):

The £1,000 property allowance goes in box 20.1 on UKP2

The residential finance costs restriction goes in box 44 UKP2. This is 25% for 2017-18. The 75% which is eligible for higher rate tax relief goes in box 26 as normal.

Foreign (SA106): Income from land and property abroad:

Box 13.1 (page F3) to be used for residential finance costs restriction for ring-fenced foreign income. For 2017-18 the restriction is 25%.

The residential finance costs restriction goes in box 24.1 on page F5. This is 25% for 2017-18. The 75% eligible for higher rate tax relief goes in box 17 as normal.

Box 42 should be completed if you are chargeable on a benefit received by you or a close family member (because you are a UK resident settlor) that is matched to protected foreign source income to enter the value of the payment. Full details should be included in the ‘Any other information’ box on your tax return. See Non-resident trusts for more details.

Residence, remittance basis (SA109):

Box 23.1 and 23.2 on page RR2 are for deemed domicile under the new rules. If you are deemed domiciled under condition A (UK domicile of origin and UK resident for the tax year) you tick box 23.1.

If you are deemed domiciled under condition B (UK resident for 15 out of the previous 20 years) you tick box 23.2.

Box 23.3 requires you to say how many years you have been UK resident out of the previous 20 years.

Box 30 (page RR3) now deals with remittances by deemed domiciled taxpayers arising from years in which the remittance basis was claimed and details of these remittances must be included in the additional information section at box 40.