Category: HMRC

Foreign income £2k threshold

How can you save UK income tax if your foreign income is less than £2k per annum

Basics

Non-domiciled UK tax residents do not pay UK income tax on their foreign income and capital gains if both the following apply:

  • These are less than £2,000 in the tax year; and
  • not brought into the UK, for example by transferring them to a UK bank account

ITA 2007 sec 809D

Detailed guidance

UK Tax residents1 can use remittance basis2without being liable to the remittance basis charge3 nor losing their personal allowance or annual exemption limit for capital gains, if they are below the £2k threshold. See RDRM32260

Exchange rates

To check whether foreign income is below £2k threshold, un-remitted foreign income is converted to pounds sterling at the rate of exchange on the last day of the tax year.

As per HMRC guidance, if threshold is breached and you need to include the income in the tax return, exchange rate that needs to be used is of the day that the income arose overseas.
In practice it may not be reasonable to calculate in this way, in those cases average rates can be used. See foreign notes SA106.

Note in case remittance basis is claimed and income is remitted in a later year, exchange rate of the date of remittance should be used.

This will mean that the same foreign income may be converted at different exchange rates, depending on the reason for the conversion. See RDRM31190

Self-Assessment Tax return

Individuals using the remittance basis by virtue of s809D do not have to file a self-assessment return in order to access the remittance basis. However, if an SA return has been issued or requested then they should include details of their use of the remittance basis by including Residence and domicile pages with the return, even if the remittance basis is accessed by using s809D [Box 29]. see RDRM32105

Split tax years
Income of whole tax year is taken in account to determine the £2k threshold.4

Small remittances
Where £2k threshold met and remittances are less than £500 and are in cash, no need to complete a tax return to pay UK tax on amount remitted. 4

Notes:

1. Including long term UK tax residents i.e. individuals who have been tax resident in at least seven out of the nine tax years preceding the current or ‘relevant’ tax year see RDRM32210.

2. Individuals tax resident in the UK are liable to pay tax on their worldwide income. Individuals whose domicile (in simple terms – permanent home) is overseas can choose to pay tax on their foreign income on remittance basis i.e. pay tax only on income brought to the UK. See RDRM31030

3. Remittance basis charge is payable by long term residents who choose to pay tax on remittance basis. see RDRM32210.

4. 60.2 Tolley Income tax Annual.

5. What happens when £2k threshold remittance basis user remits funds to the UK

Source:

To know more about taxation of foreign income in the UK read our Worldwide Disclosure blog.

Voluntary pension contributions to HMRC

May 2022

This blog article is for people who wish to find out if they have missing gaps in their qualifying years for state pension and wish to pay voluntary pension contributions to HMRC.

Here are the steps:

  1. Find out if you have missing gaps in your qualifying years for state pension via:

    a. Your personal tax account, or

    b. Calling Future Pension Centre helpline on 0800 731 0181
  1. This is a free advice service. You will be advised regarding any information you need to know from your account (e.g. how many years you contributed to your state pension, how many years you still need to contribute to qualify for full state pension, if you have any gaps and how to pay for the gaps etc. They also advise whether it is recommended to fill the gaps according to your circumstances)

2. If you wish to pay for any gaps, you need to call HMRC on 0300 200 3500.
They will provide you with details of HMRC’s account no, sort code and a 18 digit reference number for the payment. If making an online payment , it may reach in about 24 hours, however it will show in you HMRC account in about 6 weeks. You need to check after six weeks to ensure gap is resolved.

September 2023

Incase a self-employed pays Class 2 national insurance voluntary via his Self assessment return. They need to pay it before 31st Jan otherwise HMRC’s system wipes it off, this will result in a NI gap for this year. To rectify this gap they will need to follow point 2 above.

May 2024

Government has launched a new online service for people to check if paying voluntary NICs will improve their pensions. You can also get the payment reference from this service avoid the telephone call mentioned above.

Link to new service

HMRC : How to change access code – two step verification

I have listed below 4 scenarios :

A. If you wish to change your telephone number or how you receive the code you can do this by logging into your business tax account and following these steps:

  1. Select the Manage account link which is shown on the top menu bar.
  2. Under the account details heading, select the view or change your account details link.
  3. Next to the Government Gateway details heading, select the Manage your Government Gateway details link.
  4. Click `Your Government Gateway profile`
  5. Select the How you get access codes link.
  6. Then change, add or delete the entries on that screen as required.

B. If you cannot log into your business tax account, but someone else in your business who is an administrator can, they can follow these steps:

  1. Select the Manage account link which is shown on the top menu bar.
  2. Select the Add or delete a team member link.
  3. Select the Manage link for the required team member.
  4. Select the Remove (name of user) security preferences link.

C. If no one can log into business tax account you can contact HMRC:

Via Webchat : Link ; then click Ask HMRC online

or

Via Telephone : Online Services Helpdesk: 0300 200 3600
Phone line opening hours are:
Monday to Friday: 8am to 6pm

D. If all else fails, contact us to file you tax return. We will just need your UTR. If you do not have a UTR we can apply it for you but this will take time.

Source:
Employer Bulletin June 2022

Should I submit my return early ?

Thousands of individuals file their tax returns on the first day

The tax year has ended.

Main benefit of submitting tax return as soon as possible is that the enquiry window runs for a full 12 months from the date the tax return is received. So for example a return received by HMRC on 20 June 2018, the enquiry window will close on 20 June 2019 – EM1501

Other benefits enumerated by HMRC Agent Update 110.

  • submitting your tax return now does not mean you pay now — when you submit your tax return, you’ll know how much you need to pay, so you can plan your finances and cash flow better — this might mean you can book a holiday, make an investment or it may mean you have to save for your tax bill
  • your tax return provides you with proof of income — you’ll need this if you apply for a mortgage, loan, or if you need to access certain benefits and schemes such as Tax-Free Childcare
  • you can claim a refund faster — if you’re due one
  • knowing what you owe, might mean you can reduce your payments on account if your tax bill is lower than forecast
  • you’ll avoid any chance of getting a penalty for submitting your tax return late, so do it now and get it out of the way
  • beat the rush — HMRC’s busiest time is January so if something goes wrong and you need to contact them, you might find it hard to get through
  • peace of mind — so you can get on with the important things in your life

Fascinating facts about Self Assessment

Profit extraction via interest on Director loan account

Small company owners can lower their tax bill by charging interest to their own companies.

Where company owes money to shareholders. Shareholders can charge interest to the company on the outstanding loan balance.

In case interest is charge on a loan for a period less than a year there is no need to deduct tax and complete form CT61.1

Interest rate should be a commercial rate i.e. few points above BOE base rate. In case, rate charged is too high HMRC can treat it as remuneration or dividend.1

Company gets relief in the accounting period when interest is actually paid or within 12 months after its end. So simply crediting interest amount in Director Loan Account will not work.2

Interest Income received by the director will be added to his taxable income but it is taxed on receipt basis.2

Main advantage of this interest over dividends is:

  • No tax on starting rate of savings upto £5,000. So directors save income tax.
  • Company gets deduction for interest paid.

Notes on form CT61

  • In case loan is for a period over one year, 20% (basic rate) tax will need to deducted and deposited with HMRC using Form CT61.
  • CT61 returns are filed every quarter.
  • Nil returns not needed.
  • Return cannot be downloaded. A structured email needs to be sent to HMRC; they will send the form in post.
  • Both Returns and Tax deducted are due within 14 days from the end of the return period.
  • Company can issue Form R185 to the person whose tax has been deducted.

Source:
1. Para 1.148 Bloomsbury Tax Planning Book.
2. Para 2.47 Peter Rayney’s Tax planning for owner managed companies.