self-assessment – Femi O. Ogunshakin – Solicitor & Tax Advisor

Paying the high income child benefit charge

Written by admin on May 7, 2025. Posted in Employment Tax, High Income Child Benefit Charge, self-assessment. No Comments on Paying the high income child benefit charge

From this summer, employed taxpayers who have to pay the high income child benefit charge (HICBC) will no longer need to complete a self assessment tax return. Instead, they can report the charge using HMRC’s new online service.

When the HICBC is payable

The HICBC only comes into play when an individual – or their partner – receives child benefit and their annual income exceeds £60,000. This means:

The charge removes 1% of child benefit for every £200 of income over £60,000.
Once income reaches £80,000 the charge is 100%, so the amount of child benefit is essentially reduced to nil.

For those with several children, the HICBC can result in a high effective marginal tax rate.

For 2025/26, child benefit of £26.05 a week is paid for a first child, with £17.25 a week paid for each subsequent child.

New online service

Employed taxpayers will be able to use HMRC’s new digital service to report the amount of child benefit received. This will give them the option of paying the HICBC through PAYE:

Unless the taxpayer has any other income or chargeable gains, there will be no need to submit a tax return following the end of the tax year.
Taxpayers who are required to file a tax return for another reason will still need to report the HICBC on their return.
Anyone who has previously submitted a tax return needs to be careful because HMRC will continue to issue a notice to make a return. Penalties will be incurred if the notice is ignored.

It remains to be seen whether the new online service will alleviate the problems associated with the HICBC. One of the main issues continues to be a lack of awareness, despite the charge being in place for more than ten years. Also, most employed taxpayers are not used to dealing with HMRC.

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Making Tax Digital expands

Written by admin on April 16, 2025. Posted in Making Tax Digital, self-assessment, Self-Employed. No Comments on Making Tax Digital expands

Self-employed people and landlords with an income between £20,000 and £30,000 will be required to use Making Tax Digital (MTD) from 6 April 2028. This will bring a further 900,000 low-income taxpayers under the MTD regime.

HMRC previously stated that those with an income between £20,000 and £30,000 would be mandated before the end of this parliament. The specific start date of April 2028 is therefore earlier than expected.

Timing

Taxpayers with an income of more than £50,000 will be mandated from 6 April 2026 for the 2026/27 tax year. The deadline for finalising MTD obligations for this year is not until 31 January 2028, which doesn’t give HMRC much time to sort out any problems before the new cohort of taxpayers join the system in April 2028. At present:

Unrepresented taxpayers with an income between £20,000 and £30,000 are going to need software that is either free or low-cost.
The availability of such software is quite limited, although more options might become available by April 2028.

The relevant income for meeting the £20,000 threshold will be that for the 2026/27 tax year.

In the future, the MTD threshold might be lowered again as the government has stated there are plans to expand the regime to include those with an income below £20,000.

Self assessment

HMRC has also announced that the year-end self assessment tax return must be submitted using MTD or other suitable software. It was previously thought that taxpayers would be able to use HMRC’s online service, but this is not going to be the case.

When selecting suitable MTD software, it is important to make sure it can also deal with the tax return submission. If the MTD software cannot do this, a different software package will be required to complete the year-end requirement.

HMRC’s list of software that’s compatible with MTD for income tax can be found here.

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Side hustles and tax obligations

Written by admin on April 10, 2025. Posted in HMRC Investigations, self-assessment. No Comments on Side hustles and tax obligations

HMRC has recently launched their Help for Hustles campaign to help people earning extra income to understand their tax obligations.

Online platforms, such as eBay, are now required to report users’ income to HMRC. Anyone who is selling goods or services online therefore needs to be aware of their tax reporting requirements. Many regular activities that might have been considered a lucrative hobby now fall into the ‘trading’ category:

Buying or making things to sell: Activities such as selling things that you have made, upcycling furniture to sell, or buying items with the aim of reselling them at a profit. All count as trading.
Side gigs: Even if carried out in your spare time, a side gig such as tutoring or gardening counts as trading. Using an App to pick up work will almost certainly mean trading.
Multiple jobs: Working many different side hustles, without having a main source of income, means you are trading.
Content creators and influencers: It is likely to be trading if you are paid to make sponsored social media posts for a brand or are earning income from advertisements on your online videos or blog.
Property income: This might be from renting out a spare room in your home, a holiday letting, or renting out property using an App such as Airbnb.

You will not normally be treated as trading if you are just selling off some unwanted personal possessions online after clearing out your loft or garage.

Exemptions

If you are trading, no tax will be due if your income is £1,000 or less for the tax year:

If income exceeds £1,000, you will need to inform HMRC and complete a self-assessment tax return.
Although everyone with income of less than £100,000 is entitled to a personal allowance of £12,570, this allowance is particularly relevant for those with multiple jobs, but no main source of income.

Those renting out a spare room can benefit from a tax-break of up to £7,500 a year. Other property income doesn’t need to be reported to HMRC if less than £1,000 for the tax year.

Details of HMRC’s side hustles campaign can be found here.

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Making Tax Digital Expands

Written by admin on April 3, 2025. Posted in Landlord, Making Tax Digital, MTD, self-assessment. No Comments on Making Tax Digital Expands

Timing

Unrepresented taxpayers with an income between £20,000 and £30,000 are going to need software that is either free or low-cost.
The availability of such software is quite limited, although more options might become available by April 2028.

The relevant income for meeting the £20,000 threshold will be that for the 2026/27 tax year.

In the future, the MTD threshold might be lowered again as the government has stated there are plans to expand the regime to include those with an income below £20,000.

Self assessment

HMRC’s list of software that’s compatible with MTD for income tax can be found here.

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Late payment interest warning

Written by admin on March 20, 2025. Posted in self-assessment, Tax, Time To Pay Arrangements. No Comments on Late payment interest warning

A warning for the 1.1 million taxpayers who missed the 31 January filing deadline. It isn’t just penalties you will be incurring for subsequent late payment, but also late payment interest.

A record amount of late payment interest was paid to HMRC during 2024 to a total of £409 million, more than triple what it was three years ago.

Why the increase?

The interest rate charged by HMRC was 2.6% at the start of 2022 but increased to an average of 7.6% for 2024. The rate has been 7.0% since 25 February 2025:

With tax allowances and thresholds frozen since 2021 – and with no increases on the cards until 2028 – more taxpayers are either being drawn into the tax net or facing higher rates of tax.
The reductions to the capital gains tax (CGT) exemption have also contributed.

If that were not bad enough, things are only going to get worse from 6 April 2025, from when HMRC will be adding a 1.5% surcharge to the late payment interest rate. So, if nothing changes, the current rate will jump to 8.5%.

Preventative measures

With the rate of late payment interest so high, it will almost certainly make sense to use savings to pay off any overdue tax liabilities.

With another tax year ending, get your self-assessment tax return in as early as possible. You will then know what your tax liability is well in advance of the due date and can plan accordingly.

Regular saving into a separate bank account is a good approach. Or set up a budget payment plan with HMRC to make weekly or monthly payments towards your next self-assessment tax bill.

Simply burying your head in the sand over an overdue tax liability will only see the debt spiral. You should engage with HMRC and try to agree a payment arrangement even though this will not prevent interest being charged.

Details about setting up a budget payment plan with HMRC can be found here.

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Heads Up: New Reporting Requirements for Dividend Data

Written by admin on March 14, 2025. Posted in Company Director, Corporation Tax, Director Disqualification, Dividends, self-assessment. No Comments on Heads Up: New Reporting Requirements for Dividend Data

Starting with the 2025/26 tax year, directors of close companies (owner-managed companies) will need to separate the dividend income received from their companies. This change will have an impact on almost 900,000 directors.

In very broad terms, a close company is a company that is under the control of its directors or five or fewer shareholders.

At present, directors report just the total dividend income figure, which means HMRC can’t tell which dividends a director receives from their own company or from other sources. By separating out dividends, HMRC will be able to see the total remuneration package received by an owner-manager. This helps them to focus their compliance activities.

Disclosure

From 6 April 2025, directors of close companies will have to disclose:

name of the company and its registration number;
percentage shareholding in the company; and
amount of dividend income received from the company for the tax year.

The question on the tax return about whether an individual is a director of a close company will be changed from voluntary to mandatory.

In regard to the percentage shareholding, this will be the highest percentage held during the tax year. For some directors, providing this information will not be straightforward; for example, where a company has different classes of share.

Employee hours data

On a more positive note, the proposal that employers would have to report the actual hours worked by each employee has been shelved. The implementation date had already been put back from April 2025 to April 2026.

The Government has recognised that requesting this information as part of the real-time reporting process would have been unduly complex, costly and burdensome for businesses. The cost of the initial implementation alone was forecast to be nearly £60 million.

The starting point for determining whether a company is ‘close’ or not can be found here.

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What’s new on MTD?

Written by admin on March 6, 2025. Posted in Landlord, Making Tax Digital, MTD, self-assessment, Self-Employed. No Comments on What’s new on MTD?

A busy start for HMRC on Making Tax Digital (MTD) for 2025 with focus falling on new guidance for three-line accounts and joint property income.

Self-employed individuals and landlords with an annual income of more than £50,000 will start using MTD from 6 April 2026. The £50,000 test is based on overall self-employed and property income for the current 2024/25 tax year.

Three-line accounts

HMRC has confirmed a three-line account approach:

Currently, when completing a self-assessment tax return, self-employed individuals and landlords whose income from either self-employment or property is below the VAT registration threshold of £90,000, need only enter one figure for total expenses.
Therefore, keeping digital records for MTD should be a matter of classifying amounts as either income or expense.
Each quarter, only the total income and expense figures will be submitted to HMRC.

The one exception is when a landlord incurs residential finance costs, which must always be recorded separately because they are not a deductible expense.

Joint property income

Joint property owners only need to record their share of the property’s income and expenses. If a landlord chooses to, they can simply record income on a quarterly basis and expenses on an annual basis at the end of the tax year. Individual transactions will not have to be captured; only a total figure for each income and expense category.

If the joint property owner is eligible to use a three-line account approach, it gets even simpler. A total quarterly income figure and a total expenses figure at the year end. Recording and reporting will then be:

Each quarter: record a single income figure and submit to HMRC.
End of the tax year: record a total figure for expenses and report through the end-of-year finalisation process.

HMRC’s guidance on the categories of income and expenses that need to be included in quarterly updates (if a three-line account approach is not used) can be found here.

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A cautionary tale – no excuse for late tax return

Written by admin on February 12, 2025. Posted in self-assessment. No Comments on A cautionary tale – no excuse for late tax return

In a recent case heard by the First Tier Tribunal (FTT), a taxpayer lived overseas, encountered postal delays and had limited internet access, but these did not constitute reasonable excuses for the late submission of a self-assessment tax return.

The case

When he was a UK resident, the taxpayer had previously submitted tax returns on time. However, for 2020/21, he was living overseas and presumed there was no need to submit a return because there was no tax liability for that year. The income for his UK property was covered by his personal allowance.

HMRC thought otherwise. The taxpayer was charged late filing penalties totalling £1,600 as a result of his self-assessment tax return being submitted more than a year late.

The penalties of £1,600 included an initial £100 penalty, £10 daily penalties charged for 90 days, and two £300 penalties for being six months and then twelve months late.

Reasonable excuse

At the FTT hearing, the taxpayer argued that:

A lack of internet access meant he could neither submit a tax return, nor open letters emailed to him with details of the penalties charged; and
There were postal delays outside his control.

Ignorance of the law is, of course, no excuse in these matters. The FTT considered that the taxpayer should have been more diligent in organising his tax affairs. For example, arrangements could have been made to forward mail from the UK.

A warning

This case shows how important it is to keep on top of your tax affairs, even if no tax is at stake.

The £1,600 of penalties were only for a late tax return. The situation will be much worse if tax is also paid late; with both penalties and interest charged. Late payment interest is currently 7.25%, but the government is adding an extra levy of 1.5% from 6 April 2025.

HMRC’s online calculator, which can be used to obtain an estimate of the penalties and interest charged for a late self-assessment tax return and/or payment, can be found here.

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Employment expenses pushed to paper

Written by admin on November 28, 2024. Posted in Employment Tax, PAYE, self-assessment. No Comments on Employment expenses pushed to paper

Despite its digital ambitions, HMRC has recently reverted to paper-based claims for employees who want to make a claim for employment expenses. The change from an online basis has been made to reduce fraud.

Reports suggest that businesses are claiming expenses even when there is little, or no, business relevance in an attempt to counteract increasingly onerous tax burdens. Given HMRC’s move to paper-based claims for employment expenses, it seems as if some employees may have adopted a similar attitude. Tax refund companies have also misused the expenses system in order to obtain inflated tax repayments.

Form P87

Employees can claim tax relief for expenses through PAYE if they have not been reimbursed by their employer. From 14 October this year, claims must be made using a paper form P87 which is then posted to HMRC. Claims have to be supported by appropriate evidence. For example:

Professional subscriptions: receipt copy showing how much was paid.
Mileage allowance: mileage log copy, giving the reason for each journey; with start and finish points.
Subsistence: hotel or restaurant receipts copies.
Working from home: proof that an employee is required to work from home, such as a copy of the employment contract. An employee who simply chooses to work from home is not eligible for a claim.

Despite the change, online claims can still be made for flat rate expenses (uniform, work clothing and tools). HMRC expects the digital claim route to be available again from next April.

Self-assessment

An alternative to claiming via PAYE is to claim for employment expenses when submitting a self-assessment tax return. If employment expenses for the year exceed £2,500, this is the only permitted route.

Although there is no initial requirement to provide evidence when claiming employment expenses this way, HMRC will be extending the number of compliance checks on the eligibility of expense claims made. In such cases, they may request further evidence.

HMRC guidance on claiming tax relief for employment expenses can be found here.

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Dividend allowance cut doubles taxpayers

Written by admin on September 17, 2024. Posted in benefit-in-Kind, Company Director, Dividends, self-assessment. No Comments on Dividend allowance cut doubles taxpayers

With the dividend allowance now cut to just £500, the number of taxpayers paying tax on dividend income for 2024/25 is expected to be double what it was three years ago.

Previously set at £2,000, the dividend allowance was reduced to £1,000 for 2023/24, and to £500 from 2024/25 onwards. This reduction has had the biggest impact on basic rate taxpayers. Just under 700,000 basic rate taxpayers paid tax on dividend income for 2022/23, but this number will leap to nearly 1.7 million for the current tax year.

Tax liability

A modest share portfolio of just over £10,000 yielding 5% will now use up the dividend allowance, leaving the investor with a tax liability notifiable to HMRC. Consider this:

Notification requires either contacting the HMRC helpline, asking HMRC to collect tax through a tax coding change (if employed), or completing a self-assessment tax return.
With a basic rate of 8.75% on dividend income, the amount of tax due will often be frustratingly low given the inconvenience involved.

The average amount of tax due from basic rate taxpayers is estimated to be £385 for the current tax year; down from £780 three years ago.

Even worse will be where an investor opts for script dividends. These are still taxable despite no cash being received, so tax will have to be funded from other sources.

At the same time as the dividend allowance has been cut, the level of dividend payouts by companies has generally recovered to pre-Covid levels.

Mitigation

If dividend income exceeds the £500 allowance, some mitigating steps might be possible. The obvious move is to make full use of Independent Savings Account allowances for some current, and all future, share investments. Another approach would be to invest for capital growth rather than dividend income. Making use of the dividend allowance of a spouse, partner or an adult child by spreading a share portfolio across the family is another possibility.

HMRC’s guide to tax on dividends can be found here.

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