Andrew Baker - Taxation Consultant
www.baktax.com
UK tax advice for residents worldwide – including Non-Resident Landlords, Pilots, Aircrew, Seafarers, Yacht Crew and Non-Doms
Telephone:
+44 (0)1243 582926
Mobile: +44 (0)7795671536
Email: baktax@aol.com
Self-Assessment Tax Returns
If you have income which has not been taxed or you are liable for higher rate tax or you have been sent a self-assessment tax return by HM Revenue and Customs (HMRC) even though you have no income to declare, you have a legal obligation to complete and submit a tax return as well as paying any tax liability due by certain deadlines. Failure to do so could result in penalties, interest and surcharges becoming payable in addition to the tax liability.
The deadline for submitting a paper tax return is 31st October, following the end of the tax year, 5th April. If submitted electronically, the deadline is extended to 31st January following the end of the tax year. Interestingly, HMRC's online software does not support the filing of the non-resident supplementary pages, resulting in either having to file a paper tax return or using commercial software.
If the deadlines are missed, a penalty of £100 will apply, with a further penalty of £10 per day all the while the return is outstanding over the next three months. After 6 months, a further £300 penalty or 5% of the tax if greater, will be charged and the same again will be applied if the return is still outstanding after 12 months.
The tax liability also becomes payable in full by the 31st January. Although, where the tax payable exceeds £1000, you may also be required to make provisional payments on account for the following tax year of the same amount, divided into two instalments payable by 31st January of that tax year and the following 31st July. Any balancing payment due, once the tax return has been completed and the final tax liability calculated, after taking into consideration the payments on account, becomes payable by the following 31st January.
Late payment of the tax liabilities will result in interest charges running on a daily basis currently at a rate of 3%. Surcharges of 5% each will also apply where the tax remains unpaid after 30 days, 6 months and 12 months.
Making Tax Digital and Personal Tax Accounts
The Government announced in the Spring 2015 Budget that self assessment tax returns are to be abolished with the introduction of "Making Tax Digital". In its place, each individual has been given a digital Personal Tax Account with the expectation of the self employed and landlords to keep their records digitally (it has been confirmed compatible integrated spreadsheets are acceptable) and upload their income and expenditure to HMRC on a quarterly basis.
Whilst there have been a number of delays to implement this, VAT registered sole traders having a turnover above the VAT threshold of £85000 have been required to make quarterly VAT returns only and keep records digitally using MTD compatible software since 1st April 2019. The most recent announcement is for sole traders and landlords to make quarterly reports for income tax with effect from 6th April 2026. Testing on a voluntary basis is possible for those who wish to in advance of the mandatory requirement start date
However, this will only apply to those with gross income over £50000. Those with gross income of £50000 and under but over £30000 will join MTD for ITSA from 6th April 2027. The Government is to review how those with income of £30000 and under will report their income. General partnerships will now join at a date to be announced.
For landlords where the rental property is jointly owned, the threshold(s) mentioned above relate to each individual landlord’s total share of the gross rents and not the total gross rents from the individual property (or properties if there is more than one).
HMRC had indicted that free software and apps would be available, although this now appears to have been withdrawn. However, commercial software may be more appropriate if this is to link with accountant’s/tax adviser’s third party software.
HMRC have already set up Personal Tax Accounts for each UK taxpayer and to access yours it is necessary to first of all go through a verification process online. You will need to have a passport or photographic driving licence, debit or credit card and a smart phone or email account.
For landlords where their gross rental income in the tax year is less than £150000, since 6th April 2017 the “cash basis” has become the default position to calculate the annual profit/loss (ie rents received less expenses paid in the tax year) rather than the “accruals basis” (rents due and expenses relating to the tax year, irrespective of when paid).
The first quarterly report will therefore not be required until the quarter ending 5th July 2026 (followed by 5th October 2026, 5th January 2027 and 5th April 2027).
Reporting has to be made within 30 days of the end of the quarter, otherwise penalty points will accrue leading up to a potential fine, although HMRC have indicated this will not apply for the first year until the new system has “bedded in”.
Some income, such as earnings, pensions and bank/building society interest which HMRC are automatically advised of, will be pre-populated in the Personal Tax Account. In time, letting agents will also be required to report rental income and expenditure quarterly for all their landlords.
However, it is likely that some fine tuning at the end of each tax year will be required eg non-resident status claims, landlords ensuring that mortgage interest is correctly claimed under the new tax relief arrangements which started with effect from 6th April 2017 and declaration of other income eg dividends etc. Therefore, a final (6th) declaration (ie after the 4 quarterly returns and annual reconciliation) will also be required by the familiar 31st January deadline or 10 months after the end of the tax year, whichever is the sooner.