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Chargeable to tax
Notifying HMRC when a person has no liability to tax.
A person has come to me who started in business three or four years ago, but he has not told the Revenue and consequently has not submitted any tax returns.
His total income each year has been less than his personal allowance and therefore he has not had a tax liability.
TMA 1970, s 7 states that you have to notify where a person is chargeable to tax. This is confirmed in paragraph SALF210 of the Revenue manuals where it says: ‘Any person who has not been required to complete a tax return, but who nonetheless has profits or chargeable gains on which tax is due must notify an officer of the board that they are chargeable to tax.’ So, by inference, no notification is due if there is no tax liability.
However, there is another section on the GOV.UK website in a section headed ‘Working for yourself’ which contradicts this and says:
‘You need to set up as a sole trader if any of the following apply:
- you earned more than £1,000 from self-employment between 6 April 2019 and 5 April 2020;
- you need to prove you’re self-employed, for example to claim tax-free childcare;
- you want to make voluntary class 2 National Insurance payments to help you qualify for benefits’.
(see tinyurl.com/tt77hea).
Does the phrase ‘chargeable to tax’ refer to a person who has income which is potentially taxable or who has income which is not covered by allowances or deductions? I am obviously concerned whether HMRC is able to charge penalties for late notification.
I look forward to hearing from readers.
Query 19,731 – Low Earner.
Jamaican income
UK treatment of Jamaican resident’s income.
We are reviewing the affairs of a client who is a national of, and tax-resident in Jamaica, who has no UK income other than interest of £12,000 per annum received on a loan made by her to an unconnected UK limited company on a commercial basis.
The UK payer company deducted tax at source on payments of interest to our client on the following basis: for 2019-20, tax withheld at basic rate (20%) and for 2020-21, tax withheld at treaty rate of 12.5% (following clearance by HMRC).
I am not clear on the interaction of the different provisions in this respect (primarily ITA 2007, s 811) and would appreciate comments by readers on the following:
- whether filing a tax return for 2019-20 would enable the client to reclaim the difference of 7.5% between what he should have taxed under the treaty (12.5%) to the amount actually taxed (20%)?
- whether the UK personal allowance available to Jamaican nationals would enable the client to reclaim tax on income covered by the personal allowance in 2019-20 (when he was taxed fully at 20%) or in 2020-21 (when he was taxed at the treaty rate)?
Query 19,732 – Kingston.
Carbon emissions
When are carbon offsets tax deductible?
A client approached me last week asking me whether carbon offsets were tax deductible.
A carbon offset is defined by Greenpeace as a way of paying for others to reduce emissions or absorb carbon dioxide to compensate for one’s own emissions. For example, by planting trees to suck carbon out of the atmosphere as they grow, or by delivering energy-efficient cooking stoves to communities in developing countries.
I cannot find anything on HMRC’s website on the matter and the only published commentary that I have seen says no more than ‘it all depends’.
Does the way in which it is paid matter? For example, an airline includes an option for a business to pay for the offsets at the point of sale when buying a ticket – is that deductible as part of the cost of the journey? Then again, if the purpose of carbon credits is to help others to be energy efficient does that mean that the expenditure cannot by definition be wholly and exclusively for the purposes of the trade of the person paying for them? Given the ever greater importance of environmental issues it seems surprising that there is no clear answer on this.
Do readers have any experience of HMRC’s attitude which they can share?
Query 19,733 – Mr Green.
VAT registration
Temporarily trading above VAT threshold during Brexit.
My client is a self-employed transport consultant and he has always traded below the VAT threshold because he only works three days a week. His annual turnover has been about £60,000 for the past five years.
However, his business has boomed because of Brexit challenges, and his turnover for the year ended 31 December 2021 was £95,000 – the first time he has exceeded the registration threshold in any rolling 12-month period.
My thinking was that he could ask HMRC for an exception to being VAT registered on the basis that his workload will ease once Brexit issues are sorted out. However, his turnover in both January and February has been about £10,000 in each month because of post-Brexit teething problems. He is confident that his business turnover will reduce to £5,000 a month from April 2021 onwards but will this be good enough to satisfy HMRC?
Readers’ thoughts would be appreciated.
Query 19,734 – Laurie Driver.
