Property 30-day reporting issues
April 2020 saw the introduction of 30-day capital gains tax reporting and payment for disposals of UK residential property where the gain is not covered by the annual exemption, private residence relief, or losses arising before the date of disposal. The payment on account of the CGT due is by nature a best estimate at the payment date, as the applicable rate charged depends on the level of income in the tax year. In many cases, the actual level of income will not be known until after the tax year and so the gain is still reported on the self-assessment tax return with credit given for the payment made under the 30-day reporting regime.
However, where the initial payment was excessive it transpires that HMRC’s self-assessment system will not offset the overpayment automatically. Affected taxpayers are advised to correct the initial 30-day return where this is possible before submitting a self-assessment tax return. This avoids the need for an offset in the first place. If a return has already been submitted, or if it is not possible to amend the 30-day return, the taxpayer (or their agent) will need to call HMRC to request that the overpayment is offset manually.
The ATT have published a FAQ document with responses from HMRC which can be read here that advisers should find useful. This document makes clear that, unless the initial payment was made using a card, a refund will have to be requested manually in almost all circumstances:
“No, the refund will not happen automatically. If the overpaid tax is the result of an amendment or due to a further UK Property Disposal return there is a section on the UK Property Disposal online return to request a repayment if one is due, this will prompt HMRC to review your client’s record and repay any tax overpaid.
If the last payment on the UK Property Disposal return is made by card, then this will be how the refund is repaid. HMRC are currently reviewing the UK Property Disposal online service to add the option of notifying HMRC of bank details for repayment cases.
If a repayment is not requested, then any tax overpaid will remain as a credit on your clients UK Property Disposal account until you or your client contact HMRC.”
COVID-19 – JOB RETENTION SCHEME AND SEISS GRANTS
From 1 August the government contribution will fall to 60%, meaning the employer will need to pay 20% to ensure the employee receives their entitlement of 80% (subject to a £2,500 per month cap). This will remain in place until the end of September when the scheme is set to close.
HMRC published new guidance for those who received SEISS grant payments last month. The guidance covers situations where the SEISS income may not have been correctly reported on the self-assessment return. The income needs to be reported in specific boxes on the return, and HMRC are automatically correcting returns where the amounts in these boxes do not match the taxpayers’ SEISS record. This can lead to the grant income being double counted, e.g. if it has been included as “other” income etc.
Finance Bill published
20 July saw the publication of the draft clauses of Finance Bill 2022. Whilst there will inevitably be more announcements made at the autumn budget, there are two clauses in particular that stand out.
Firstly, the confirmation that the minimum age for accessing a pension plan is to increase from 55 to 57 in 2028. There will be exemptions for certain types of employees, including police officers and members of the fire service.
Secondly, to prepare for MTD for income tax the concept of basis periods is under consideration to be abolished in 2022/23 if this happens for that year and all subsequent years, trading profits and losses will be reported on a tax year basis. According to HMRC, the majority of sole traders already prepare accounts to 31 March or 5 April, but roughly a third of partnerships do not, and so these are likely to be affected most.
Unincorporated businesses will still be able to draw up accounts to any date they want, but they will need to make the appropriate adjustments in order to report on the tax year basis. 2022/23 is the transitional year when the basis period will change to the tax year end and overlap relief (where applicable) will be able to be utilised.
The proposed mechanism for transition is to extend what would be the current year basis period under the old rules in 2022/23 with an additional transition period starting the next day and ending on 5 April 2023. This could adversely affect businesses that have an accounting period ending early in the tax year e.g. 30 April or 30 June unless they have a significant amount of overlap relief, or are loss-making. To assist with this, the policy document states that the government is considering making an election available to spread any additional profits over a period of up to 5 years. The change will render the opening and closing year rules, as well as the rules surrounding accounting date changes obsolete, and no overlap profits will arise going forward.
The consultation is open until the end of August, and can be responded to here.