Tax Returns for previous years

bikeman

My father has recently gone into a carehome, he's had dementia for a number of years, and we've had a chance to review his tax returns. He hasn't done a self assessment since 2013! Instead of chasing him HMRC have assumed that his income from savings every year going forward is that declared in 2013 plus an uplift. Every intervening year this amount has been collected by adjusting his pension tax code.

Now that I've had a chance to review this, his actual savings income has been way less than HRMC's 'estimations' and he has paid many 000's in tax that he shouldn't have.

Firstly, how can HMRC over estimate savings interest, surely they have access to accurate figures from banks etc? Secondly, are they allowed to simply guess rather than insist that tax returns are completed?

Also, from 2012 to 2015, his personal allowance was wrong. It supposed to increase over 65 and again over 75 but his didn't. How on earth can HMRC not know his birth date?

Will I be allowed to complete tax returns for him for the intervening years? How far back can I go?

Thanks
  

[Deleted User]

A lot of assumptions there, not all of which are correct.

1. While HMRC receive details of interest from the banks, they don’t go through every one and match up with tax returns - that is simply not feasible. They can and will use that information when enquiring into a return.

2. There has been no additional allowance for over 75 year olds since 2016.

3. Has he really paid thousands in additional tax? £1000 of tax would mean that there is £5000 of interest. There is also the savings rate to consider.

HMRC take the view that it is up to the taxpayer to ensure that one’s tax is correct, hence self-assessment. Your father would have been issued tax codes each year as you have pointed out and, therefore, give fair warning of the tax to be deducted in each year. 
However, you can complete or amend tax returns for the previous four years, from 2016/17 onwards and, perhaps, the overpayments can largely be reclaimed. 

Good Luck!

Dazed_and_C0nfused

Instead of chasing him HMRC have assumed that his income from savings every year going forward is that declared in 2013 plus an uplift

That is quite unusual.

He hasn't done a self assessment since 2013! 

Has he been asked to complete returns or was that just when HMRC decided he didn't need to bother doing them anymore?

Now that I've had a chance to review this, his actual savings income has been way less than HRMC's 'estimations' and he has paid many 000's in tax that he shouldn't have.

Have you actually worked that out or is just an assumption that he has paid more tax than you believe he should have?

Firstly, how can HMRC over estimate savings interest, surely they have access to accurate figures from banks etc? Secondly, are they allowed to simply guess rather than insist that tax returns are completed?

An estimate is just that, an estimate.

They have been getting and using information from banks since the rules on taxation of interest changed in April 2016.

Also, from 2012 to 2015, his personal allowance was wrong. It supposed to increase over 65 and again over 75 but his didn't. How on earth can HMRC not know his birth date?

Think you are jumping to conclusion there.  Age related Personal Allowance was based on a combination of age and (adjusted net) income so just because he was old enough doesn't mean he would be entitled to age related allowances.

Will I be allowed to complete tax returns for him for the intervening years? How far back can I go?

Has he been asked to complete returns?  If not why do you want to complete them for him???

macman

Do you have power of attorney over his financial affairs? If not, is he of sound mind and able to give consent to you acting as his financial adviser going forward?
How many thousands is 'many thousands'?. Does his savings income  in the years since 2013 exceed the savings allowance of £1000?  You don't say what his other income is derived from, so is it actually necessary for him to be in self-assessment if his only income is from his pension and savings income?

unholyangel

macman said:

Do you have power of attorney over his financial affairs? If not, is he of sound mind and able to give consent to you acting as his financial adviser going forward?
How many thousands is 'many thousands'?. Does his savings income  in the years since 2013 exceed the savings allowance of £1000?  You don't say what his other income is derived from, so is it actually necessary for him to be in self-assessment if his only income is from his pension and savings income?

The personal savings allowance didn't exist until the 16/17 tax year. Prior to that, it was all taxable (unless you had unused personal allowance). 

Dazed_and_C0nfused

Taxable yes but above the Personal Allowance some people could make use of the savings starter rate. 

0% in 2015:16 and 10% prior to that.

macman

The limit for claiming a refund is 4 years from the end of the tax year in question, so the OP is not going to be able to claim for anything prior to 2016/17 anyway. 

Dazed_and_C0nfused

macman said:

The limit for claiming a refund is 4 years from the end of the tax year in question, so the OP is not going to be able to claim for anything prior to 2016/17 anyway. 

That is usually the case and may well be here but if the op's father was served with notices to file Self Assessment returns then there is a very slim chance that a claim for Special Relief may be applicable

But all guess work until the op provides a bit more clarification about what has actually happened.

https://www.gov.uk/hmrc-internal-manuals/self-assessment-claims-manual/sacm12220

bikeman

I'll try and address some of the points raised.

1. No I don't have power of attorney and he is no longer of sound mind so can't grant it. Becoming his deputy is not really an option since the cost of an indemnity when I looked into it was well into 5 figures per annum for little real benefit.

2. I have a letter from HMRC from 2013 in which it confirms that he told them he no longer wanted to do a self assessment. They seem to have just accepted this even though at the time he obviously should have been required to do them if only to recover savings interest. Thy continued to send tax code notices but never asked for self assessments to be completed.

3. Between 2013 and 2020 they've assumed a savings income of £5000+ per annum. This seems to have been based upon the £5k interest received in 2012. This has been collected by paye on his pension. I am in receipt of 2020's demand for payment of over £1k which is in addition to the £2k already collected by paye. Which I obviously can't pay and neither will he - See point 1. 

4. As a higher rate tax payer, they have collected £2000+ each year on an assumed savings interest of £5k+. Due to falling rates and lack of management most of his accounts are dormant nil interest. Actual interest received is way less than this so yes over the past 8 years he has paid more than £10k too much tax.  

5. For the period 2012 - 2016 (I can't go back earlier) his personal tax allowance given on his tax code notices was as per under 65 when in fact he was over 75. I am aware that personal allowances were aligned after 2016. I am assuming this from age but would appreciate if anyone can offer a fuller explanation.

6. I haven't factored in the personal savings allowance and I am aware that it would reduce his tax liability further, though not by much.

7. I want to complete his tax returns because of point 4. Hopefully to get the overpayment back. At the very least to stop him paying more tax than required going forward. 

Not sure what I've given above is more than a nice to know and doesn't change the facts: 1. hmrc made assumptions and collected too much tax. 2. They seem to have made an error on age related allowances. 3. I'd like to correct this going forward and retrieve previous overpayment.

[Deleted User]

In that case I would complete the returns. These can only be done online, I believe, for the last two years. However manual forms can be found online e.g.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/626131/SA100_2017.pdf

You could, as Dazed suggested, try the special relief route for earlier years. However, as age allowances were restricted by income, and your father was a higher rate taxpayer, there would be no appropriate claim for those earlier years even if HMRC was prepared to re-open them.

Dazed_and_C0nfused

2).  An adjustment to his tax code appears to have facilitated that rather than Self Assessment returns.

3).  That should be relatively easy to resolve providing you have details of all his accounts and interest paid etc.  What do you mean by demand for payment?  Tax for 2019:20 isn't normally due until 31 January 2021 at the earliest.  Have you (he) received a P800 or PA302 calculation or something else?

4).  You may be actually correct but you are only going to be able to look back 4 tax years.

5).  I think are overlooking the fact that age related allowances were income based.  As a higher rate payer his allowance would have no doubt been reduced to the standard amount.

6).  Every little helps.  Having £500 taxed at 0% is better than £500 taxed at 40%.

7).  In point 2 you say HMRC decided returns were no longer necessary so there are no returns requiring completion.  

1.  That is a fundamental part of the UK tax system.

2.  I think you have misunderstood this point.

3.  That should be possible but you can only go backwards 4 years.