First time tax returns

An individual should file a tax return if they have a liability to tax, and that tax will not be collected through PAYE. For years before 6 April 2016, the tax deducted at source from interest and the tax credit attached to dividends would cover the tax liability of basic rate taxpayers who received large amounts of investment income.

From 6 April 2016 only the first £5,000 of dividend income, and the first £1,000 of interest, (for basic rate taxpayers) is taxed at 0%. The savings rate band of £5,000 and the personal allowance may also be available to cover investment income, but even basic rate taxpayers may be due to pay some tax on dividends or interest. However, those individuals may not realise they have a tax liability, if they have had to complete a tax return before.

We have to think about the spouses and relatives of our clients. Are there individuals who live off a small pension or salary plus large dividends from the family company or trust fund? HMRC advise that individuals with more than £10,000 of interest or dividends should register for self-assessment. Those with more than £5,000 but less than £10,000 of investment income can make a declaration to HMRC by telephone, and pay the tax due through PAYE.

When an individual needs to register for self-assessment, they need to act very soon. If they have never submitted a tax return before they must wait for an UTR number to arrive by post (approximately 10 working days), or longer for taxpayers who live overseas.

To submit the SA return on behalf of a new client we will need to be authorised to act, using the form 64-8, or via the online authorisation procedure. To authorise via the online process the taxpayer must already be registered with HMRC.

If the taxpayer is not already registered with HMRC the 64-8 form is the only option, but it is currently taking around 4 to 6 weeks for forms 64-8s to be posted onto taxpayer’s records with HMRC.

HMRC has suggested that if we are trying to contact HMRC on behalf of a newly authorised client, we can attach a copy of the signed 64-8 to our letter and this should allow us the authority to contact HMRC on behalf of our client from that point. This might mitigate the delay in some circumstances.

Written by the Tax Advice Network