Ilford Accountants, Trueman Brown, are a firm of accountants who like to keep their clients up to date with the latest developments.

HMRC have recently calculated that there are 4.6m taxpayers in the UK paying higher rate (i.e. pay tax at a rate of 40%).

A recent survey conducted on a sample of 4,000 higher rate taxpayers found that at least 76% of them do not complete a self assessment tax return!

The reasons why that higher rate taxpayers do file a self assessment return is because they believe that tax is automatically deducted from their earnings and pensions through the PAYE system.

Higher rate taxpayer should review their situation to ascertain whether they should be filing a self assessment tax return because:-

  • They may be obliged to register for self assessment;
  • By not registering for self assessment the taxpayer may be missing out on tax reliefs.

OBLIGED TO REGISTER

An higher rate taxpayer may be obliged to register for self assessment because of the high income child benefit tax charge which came into force on 7th January 2013.

From that date, if the taxpayer or their partner has an income over £50,000 then HMRC will start to recover any child benefit you and your partner have received. Over £60,000 and all of the child benefit received should be paid back to HMRC.

HMRC use the self assessment system to carry out this function.

Our experience has shown that HMRC will investigate any return where income is greater than £50,000 AND the taxpayer or their partner are receiving child benefit.

TAX RELIEFS

PENSION RELIEF

If taxpayers pay into a private pension plan then they could be receiving tax relief through the self assessment system.

Example – John’s total income is £80,000 and he pays pension premiums of £10,000 (actual payments of £8,000) per annum.

John receives basic rate tax relief because HMRC will 20% of the premium to the pension provider which, in our example, is £2,000.

John should also receive relief at the higher rate of tax.

This is done by extending the basic rate band by the size of the premium (i.e. £10,000).

In our example, John can reduce his tax liability by £2,000.

A recent survey showed that 30% of higher rate taxpayers do not make a claim for tax relief on pensions!

CHARITABLE DONATIONS

The next common failure that higher rate taxpayers make is the failure to claim for charitable donations made under Gift Aid.

Charities receive basic rate tax relief at 20% on a Gift Aid donations received.

Charities will receive an extra £25 for each £100 donated.

Higher rate taxpayers can claim an additional 20% relief meaning that for each £100 donated the higher rate taxpayer will reduce their tax bill by £25!

A recent survey showed that 59% of higher rate taxpayers do not claim tax relief for charitable donations!

OTHERS

By not filing a tax return, the higher rate taxpayer may fail to claim tax reliefs for investments in Enterprise Investment Scheme or Seed Enterprise Investment Scheme companies.

Another common failure that higher rate taxpayers make is not taking advantage of the HMRC Approved Mileage Allowance Rates when receiving mileage allowance payments from their employers.

Most employers do not use HMRC Approved Mileage Allowance Rates when paying mileage allowance to their employees

Any taxpayer, not just higher rate taxpayers, can make a claim for the difference between  the approved mileage rates and the amount actually received from the employer.

Example:

Eddie is a higher rate taxpayer employed by ABC Limited.

During 2015/16, he used his private vehicle for 12,500 miles business miles for ABC Limited.

ABC Limited paid Eddie mileage allowance of £2,500, which equates to 20p per mile.

Using the HMRC Approved Mileage Allowance Rates, Eddie calculates that he could have received 45p a mile for the first 10,000 miles and 25p a mile thereafter.

Using these rates, Eddie could have received £5,125. His employer paid him £2,500. Eddie can make a claim for an additional £2,625 of tax relief.

Being a higher rate taxpayer, Eddie will see a reduction in his tax liability of £1,050 which equates to £2,625 @ 40%!

If you believe that you can make a claim for these or any other reliefs then Ilford Accountants, Trueman Brown, can assist you. Please call on 01708 671910.

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