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Personal tax returns – a layman’s guide

12 December 2008

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Jeremy Syree
Specialist Medical Accountant

Jeremy is Vice Chairman of the Institute of Chartered Accountants’ National Health Care Specialist Interest Group and a partner in Ballard Dale Syree Watson LLP, a Worcestershire-based accountancy practice. He has a wealth of experience in all aspects of accountancy services. During his career he has also acquired specialist knowledge in the vast arena of medical practices and other affinity healthcare sectors and professions. He has assisted clients ranging from senior consultants and physiotherapists to anaesthetists and nursing homes

A tax return will be sent to you automatically if you have notified the tax authorities that you are self-employed or are a director of an organisation. A return also needs to be completed where tax is due at higher rates of tax, ie, where all income for the year 2007/08 exceeds £39,825.

When should I expect to receive it?
The tax return arrives in early April in one of those brown envelopes that usually means trouble. The return does not require immediate action, but it is important you put it in a safe place. Although it will be spotted periodically during spring and summer, it will be impossible to find when Moira Stuart (who has now replaced “Hector the Inspector” in tax return ads) appears in the paper or on television saying you only have until the end of October to file the return.

Is 31 October the final deadline?
The reminder you receive will state that the paper version can only be filed up to 31 October. After that date, you need to file the return using the HM Revenue & Customs (HMRC) website electronic filing system, for which the final deadline is 31  January.

What format will the return be in and how complicated will it be to fill in?

The latest version of the tax return is only a six-page document. The majority of entries in the main return will be confined to the following:

  • Savings income – must be included, even though tax has already been deducted. Higher-rate tax might be payable if your income from all sources exceeds the lower-rate tax bands, which change each year.
  • Pensions and state benefits income – if taxable.
  • Relief for pension contributions – if relief has not already been given through the employer payroll scheme.
  • Charitable giving – if payments have been made under gift-aid schemes. The charity receives the tax credit back, but relief is available if you pay tax at the higher rate. So do remember and note down all the gifts you have made in the tax year.

Is that it or is there more?
All other income and expense claims are entered on supplementary pages. It is at this point the return gets considerably more bulky. The first of the additional sections relates to employment – this is where you note income and tax deducted where earnings are received by way of salary. This information is obtained from the year-end summary form P60, which your employer issues.

The HMRC regulations on claiming expenses while employed are fairly restrictive but, even so, this article is too short to cover all of them. One aspect I would highlight is where you have been asked to use your car on business and you are reimbursed at less than the authorised rates – you can claw back a deduction equal to the shortfall.

The agreed rates are 40p per mile for the first 10,000 miles and 25p per mile thereafter. You can, if you wish, claim 20p per mile if you use your bicycle!

Form P87 is used to make this claim, and you should keep a mileage log to back up your claim. While 40p per mile is not generous, an employer can pay up to an additional 5p per passenger mile if a fellow employee travels by car on a journey for business purposes for both the driver and passenger.

There are also “flat rate” expenses allowances for healthcare workers. Among these, nurses and midwives can claim £70 each year, and receptionists and other uniformed staff can claim £45. While these aren’t large allowances, they are
useful nonetheless.

Partnership tax return
If you have become a practice partner and qualify as self-employed, your income and expenses are recorded on partnership supplementary pages. The entries are brief because they are merely copies of figures collated in an overall partnership tax return.

The partnership tax return will have summarised the business accounts and then allocated the income and expenses in the profit-sharing ratios agreed in your Partnership Agreement. Also included in this appendix is your share of the partnership savings income.

The self-employed expense claim regime is far more generous than that for the employed. By and large, the view taken is that if an expense for an employed person is necessary and tax deductible, then your employer would have paid it already, so you cannot get an allowance. With self-employment, broadly speaking if you choose to incur a business expense then you can claim it.

So there are advantages to being self-employed, even if you do have to complete this complex form?
Yes. A busy day means that writing a report at work is difficult because you are always getting interruptions. A self-employed individual can take work home and get a tax deduction for using a part of the house as an office. For instance, as a self-employed individual, I can get a tax deduction while writing this article at one end of the table, while my employed wife at the other end of the table writes her report but cannot have a tax deduction.

That doesn’t seem fair does it?
No, I would suggest not. But that is the nature of tax law! However you go about your business, the expense can be tax deductible with very few exceptions. Not all expenses will be 100% business use, but provided you keep adequate records an appropriate allowance can be claimed, eg, mobile phones, cars, computers, etc.

What other questions about my income will I need to fill in?
Further supplementary pages are needed to record UK property rental income and foreign income. A summary of income and expenses is made along similar lines to self-employment.
The tax treatment depends on the type of property let. Short-term holiday lets are treated as a “business”, and if you make a loss it can be offset against other income to obtain a tax refund. Long-term letting income does not have this offset arrangement.

There is also a difference if your holiday let is in relation to a property abroad in the Mediterranean or elsewhere. If losses are made on foreign property then the losses are carried forward to offset against future profits. This can be particularly hard in the first year or two, when a rental market is being established and the rental income is insufficient to meet costs, yet there are no tax breaks.

Supplementary pages also need completing by those that have income from trusts or have made capital gains. Capital gains tax rules are very complicated and, in all honesty, I believe the tax calculations beyond the capabilities of the average taxpayer. This is a sad reflection on our tax regime but the law has become more and more complex and really needs an overhaul.

Phew, is that it – or is there more?
Having completed the return, there is one last task of actually calculating the tax due. The revenue guide is very comprehensive and should be followed in a mechanical fashion. My tip would be: don’t try and follow the logic, otherwise you will get lost!

As I mentioned earlier, a paper version of the return can be filed up to 31 October, and thereafter you have to file electronically. The ease of internet filing has improved greatly over the past few years but does get more difficult the closer you get to the 31 January deadline – in the last week or two, the HMRC computer system tends to crash.

The electronic tax return has to be filed by 31 January, following the tax year. Failure to do so incurs a fine. Also, the tax has to be paid by this date – not just with HMRC but cleared funds – otherwise automatic interest is charged and a tax-geared penalty then follows as time goes by.

Help! It doesn’t sound that simple
The completion of a tax return is a daunting task unless you are organised in recording all the information you need. If you are unsure, do not guess: read the notes issued with your tax return. If there are areas you are not quite clear on, call the Self Assessment Helpline number on 0845 9000 444, or ask a
practising accountant.