Rental incme included in personal tax allowance?
Discussion
If you have rental income, you are obliged by law to register for Self Assessment. If you fail to register, HMRC will fine you.
So, step one, notify HMRC that you have income that needs to be declared under the Self Assessment tax system. This should be done whether you are making rental profits or rental losses.
Step two,, you will need to know which tax year the first Self Assessment tax return needs to cover. This will depend on the date you started receiving rental income. If you started collecting rents in (say) November 2012, that was in the tax year 2012/13 and therefore you will be obliged to complete and submit a 2012/13 Self Assessment tax return.
If the rental income began in (say) June 2013, that was in tax year 2013/14 and the first return will need to be for the 2013/14 tax year.
If the first year is 2012/13, then you should notify HMRC IMMEDIATELY to ensure they don't fine you for late notification. The 2012/13 tax return MUST be submitted on or before 31 January 2014. If filed late, you will receive late filing penalties.
Any Income Tax arising on the rental income for tax year 2012/13 is also payable in full by 31 January 2014. Any 2012/13 taxes paid after that date will be subject to interest charges and, if paid after 28 February, also be subject to a 5% Penalty Surcharge.
Most people pay their Self Assessment tax bills directly (by cheque or direct bank payment). There is an option to have Self Assessment tax liabilities collected through the following year's PAYE Tax Coding. However, there are restrictions on the amounts that can be collected this way. In essence, HMRC will not adjust a tax coding if the overall tax due exceeds £3,000.
There are also time limits for applying for this option. If you want a 2012/13 tax bill collected through your 2013/14 tax code, you must get the self assessment tax return to HMRC by 31 October 2013. If the return goes in later, HMRC may insist you pay the tax directly. If the tax due is small, they may adjust the 2014/15 tax coding instead.
If too many adjustments are made to your tax code, you may find it difficult to check that the adjustments they are making are correct and that they are collecting the proper amount of tax arrears.
So, step one, notify HMRC that you have income that needs to be declared under the Self Assessment tax system. This should be done whether you are making rental profits or rental losses.
Step two,, you will need to know which tax year the first Self Assessment tax return needs to cover. This will depend on the date you started receiving rental income. If you started collecting rents in (say) November 2012, that was in the tax year 2012/13 and therefore you will be obliged to complete and submit a 2012/13 Self Assessment tax return.
If the rental income began in (say) June 2013, that was in tax year 2013/14 and the first return will need to be for the 2013/14 tax year.
If the first year is 2012/13, then you should notify HMRC IMMEDIATELY to ensure they don't fine you for late notification. The 2012/13 tax return MUST be submitted on or before 31 January 2014. If filed late, you will receive late filing penalties.
Any Income Tax arising on the rental income for tax year 2012/13 is also payable in full by 31 January 2014. Any 2012/13 taxes paid after that date will be subject to interest charges and, if paid after 28 February, also be subject to a 5% Penalty Surcharge.
Most people pay their Self Assessment tax bills directly (by cheque or direct bank payment). There is an option to have Self Assessment tax liabilities collected through the following year's PAYE Tax Coding. However, there are restrictions on the amounts that can be collected this way. In essence, HMRC will not adjust a tax coding if the overall tax due exceeds £3,000.
There are also time limits for applying for this option. If you want a 2012/13 tax bill collected through your 2013/14 tax code, you must get the self assessment tax return to HMRC by 31 October 2013. If the return goes in later, HMRC may insist you pay the tax directly. If the tax due is small, they may adjust the 2014/15 tax coding instead.
If too many adjustments are made to your tax code, you may find it difficult to check that the adjustments they are making are correct and that they are collecting the proper amount of tax arrears.
Correct.
"Turnover" is irrelevant. "Turnover" has nothing to do with whether you declare rental income or not. Indeed, the term "turnover" is not really used in the context of rental income. The proper expression is "Gross Rents Received".
You are taxed on rental PROFITS i.e. the profit you make when the allowable rental costs are offset against the gross rents received.
HMRC actually expects ALL landlords to submit rental details under Self Assessment, even if they are NOT making rental profits.
If you are making a rental loss on your property (properties) in any given year, it will be in your interest to notify HMRC of those losses as you will be able to offset them against future rental profits.
PS, if you have very, very small levels of "gross rents" (i.e,. under £10,000 per annum), you MAY be able to submit the details to HMRC less formally and they will collect the tax through your PAYE coding.
This is slightly outside the legal requirement but is a concession made by HMRC to keep "small" people outside Self Assessment.
It is a slightly dangerous way of going about things, in my opinion, because HMRC is notorious for mucking up PAYE codes and there is no mechanism for logging rental losses with HMRC for future offset.
"Turnover" is irrelevant. "Turnover" has nothing to do with whether you declare rental income or not. Indeed, the term "turnover" is not really used in the context of rental income. The proper expression is "Gross Rents Received".
You are taxed on rental PROFITS i.e. the profit you make when the allowable rental costs are offset against the gross rents received.
HMRC actually expects ALL landlords to submit rental details under Self Assessment, even if they are NOT making rental profits.
If you are making a rental loss on your property (properties) in any given year, it will be in your interest to notify HMRC of those losses as you will be able to offset them against future rental profits.
PS, if you have very, very small levels of "gross rents" (i.e,. under £10,000 per annum), you MAY be able to submit the details to HMRC less formally and they will collect the tax through your PAYE coding.
This is slightly outside the legal requirement but is a concession made by HMRC to keep "small" people outside Self Assessment.
It is a slightly dangerous way of going about things, in my opinion, because HMRC is notorious for mucking up PAYE codes and there is no mechanism for logging rental losses with HMRC for future offset.
Edited by Eric Mc on Monday 7th October 15:10
Eric Mc said:
Most people pay their Self Assessment tax bills directly (by cheque or direct bank payment). There is an option to have Self Assessment tax liabilities collected through the following year's PAYE Tax Coding. However, there are restrictions on the amounts that can be collected this way. In essence, HMRC will not adjust a tax coding if the overall tax due exceeds 3,000.
There are also time limits for applying for this option. If you want a 2012/13 tax bill collected through your 2013/14 tax code, you must get the self assessment tax return to HMRC by 31 October 2013. If the return goes in later, HMRC may insist you pay the tax directly. If the tax due is small, they may adjust the 2014/15 tax coding instead.
If too many adjustments are made to your tax code, you may find it difficult to check that the adjustments they are making are correct and that they are collecting the proper amount of tax arrears.
Actually the deadline for submitting a tax return and HMRC collecting tax for 12/13 via a PAYE code in 14/15 (not 12/13) is 30 December 2013.There are also time limits for applying for this option. If you want a 2012/13 tax bill collected through your 2013/14 tax code, you must get the self assessment tax return to HMRC by 31 October 2013. If the return goes in later, HMRC may insist you pay the tax directly. If the tax due is small, they may adjust the 2014/15 tax coding instead.
If too many adjustments are made to your tax code, you may find it difficult to check that the adjustments they are making are correct and that they are collecting the proper amount of tax arrears.
David
Eric Mc said:
Most people pay their Self Assessment tax bills directly (by cheque or direct bank payment). There is an option to have Self Assessment tax liabilities collected through the following year's PAYE Tax Coding. However, there are restrictions on the amounts that can be collected this way. In essence, HMRC will not adjust a tax coding if the overall tax due exceeds 3,000.
There are also time limits for applying for this option. If you want a 2012/13 tax bill collected through your 2013/14 tax code, you must get the self assessment tax return to HMRC by 31 October 2013. If the return goes in later, HMRC may insist you pay the tax directly. If the tax due is small, they may adjust the 2014/15 tax coding instead.
If too many adjustments are made to your tax code, you may find it difficult to check that the adjustments they are making are correct and that they are collecting the proper amount of tax arrears.
Actually the deadline for submitting a tax return and HMRC collecting tax for 12/13 via a PAYE code in 14/15 (not 12/13) is 30 December 2013.There are also time limits for applying for this option. If you want a 2012/13 tax bill collected through your 2013/14 tax code, you must get the self assessment tax return to HMRC by 31 October 2013. If the return goes in later, HMRC may insist you pay the tax directly. If the tax due is small, they may adjust the 2014/15 tax coding instead.
If too many adjustments are made to your tax code, you may find it difficult to check that the adjustments they are making are correct and that they are collecting the proper amount of tax arrears.
David
Gassing Station | Finance | Top of Page | What's New | My Stuff