We warned you about the HMRC nudge letters on 27 November 2021, and since then the tax authority has found three more topics to write to taxpayers about.
If you receive one of these letters it doesn’t necessarily mean you have done anything wrong, its just a nudge to check the amounts claimed on the 2019/20 tax return are correct.
The tax return for 2019/20 was the last opportunity for individual landlords to claim any deduction for finance costs, and they could only deduct 25% of such costs from their rental income.
HMRC is writing to landlords who let property in 2019/20, who may have deducted more than the allowable proportion of 25% of finance costs. Note that HMRC has not checked whether the taxpayer has claimed any deduction for finance costs, or even if they claimed the right amount of deduction.
If we have a number of landlord clients we may get one letter asking us to check the finance costs deductions for all those clients. Other landlords will receive a letter form HMRC directly and we should be copied in as the agent.
Where an error is found in the 2019/20 return this should be amended online before 31 January 2022. In such cases we also need to check deductions for interest claimed on the tax returns for 2018/19 and 2017/18, and correct those figures where necessary using HMRC’s Digital Disclosure Service.
The HMRC briefing indicates that this nudge letter will be sent to all those taxpayers who have claimed employment expenses on their SA tax return for 2019/20.
The HMRC letter lists the five conditions which must all be met for an expense to be claimed against employment income (see EIM31630), and asks the taxpayer to keep evidence of the expenses incurred.
HMRC is known to be concerned about the activities of High Volume Agents who submit employment-related expense claims to generate tax repayments, without checking the details. These nudge letters could potentially uncover fraudulent claims where the taxpayer’s online Govt Gateway credentials have been used to submit a tax return including an expense claim, without the taxpayer’s knowledge.
Gift Aid carry back
Last week we reminded you about the importance of declaring Gift Aid donations on the tax return and how donations made in the current tax year (2021/22) can be claimed on the 2020/21 return, if that return has not yet been filed.
The carry back of Gift Aid donations can not be made by amending an earlier tax return, it can only be included on the original version of that return which was submitted - crazy, but that’s the law.
HMRC is nudging taxpayers who have amended a declaration of Gift Aid in an earlier return. That amendment to box 8 of the tax return is not valid, although the tax software may have allowed it to be submitted, and HMRC initially accepted the amended return, and issued a tax repayment.
If the tax return is not corrected to reinstate the original figure of Gift Aid, HMRC will make an amendment under TMA 1970, s 9ZA or it may open a formal enquiry.
Written by the Tax Advice Network