Scammers are becoming increasingly adept at fooling people and a favoured tactic is a letter, a text or an email purporting to be from HMRC, often promising a tax refund in exchange for personal and financial data.

During the summer, many taxpayers received a very convincing scam letter which appeared to be from HMRC, seemingly from the Individuals and Small Business Compliance scheme. The letter asked the recipient to provide business bank statements, the most recent set of accounts, VAT returns in PDF format for the last four quarters and a clear photo of either a passport or a driving licence for all the directors for ‘identification purposes’, and for them to email the information to companies-review@hmrc-taxchecks.org. The letter warned that if the information was not provided, they would ‘conduct an investigation and possibly freeze any business activity’ until the investigation is complete. The letter had the look and feel of a genuine HMRC letter, adopting a similar format and font.

It is easy to see why people would be duped, and the threat of having their business assets frozen is enough to panic many people into complying.

So, if you receive a letter which appears to be from HMRC, what can you do to check its authenticity?

The first point is to consider what is being asked and why. There are some red flags in the letter. Firstly, the unique taxpayer reference (UTR) quoted is only six digits, whereas a UTR is ten digits. It is always prudent to check that the UTR quoted on a letter is correct. Further, it is sensible to ask why HMRC would ask for copies of the last filed accounts and VAT returns, which are easily available to them. The request to send photos of a passport or driving licence should also be viewed with suspicion. Finally, the email address to which the documents are to be sent is not a genuine HMRC email address, which would end in ‘gov.uk’.

Genuine HMRC contact

HMRC produce regular updates to help taxpayers gauge whether a communication that appears to be from them is indeed genuine. The guidance can be found on the Gov.uk website. Typically it will list recent communications from HMRC, so the taxpayer can check whether the communication they have received is listed. HMRC will contact taxpayers by letter, text and email, and sometimes will use more than one communication channel.

Stay alert

It is important to be alert to the possibility that a communication which seems to be from HMRC may be a scam. Particular care should be taken as regards clicking on links included in a text or an email. While HMRC may include links to information on the Gov.uk website or to a webchat, other links should be viewed with suspicion – if in doubt, don’t click on the link. HMRC will never send links which offer a tax refund on the provision of personal or financial details, nor will they ask for personal or financial information by text.

Reporting scams

Scam texts can be forwarded to 60599. Suspicious emails, texts, letters and phone calls can also be reported to HMRC by emailing them at phishing@hmrc.gov.uk.

There are various reasons why a person may not have told HMRC about the tax that they owe, ranging from a simple oversight to the deliberate evasion of tax. Regardless of the reason, if you have failed to declare income and gains on which tax is due, it is always better to take action to correct the situation than to wait to be ‘found out’ by HMRC.

There are various different ways in which a disclosure can be made, and the option that is right for you will depend on your particular circumstances.

The digital disclosure service

Individuals and companies can use the digital disclosure service to tell HMRC about errors that relate to income tax, capital gains tax, inheritance tax, corporation tax, National Insurance or the Annual Tax on Enveloped Dwellings. It cannot be used to tell HMRC about errors relating to VAT. The service can be used regardless of whether the error arose despite taking reasonable care, as a result of carelessness or because of deliberate actions.

There are various steps to follow.

The first step is to notify HMRC that you wish to make a disclosure via the digital disclosure service (see www.gov.uk/guidance/tell-hmrc-about-underpaid-tax-from-previous-years). At this stage it is not necessary to provide details of the income or gain. After making your notification you will receive a unique disclosure reference number (DRN) and a payment reference number.

The next stage is to make the disclosure. This can be done once you have the DRN, and must be done within 90 days of the date on which HMRC acknowledged your notification.

You will also need to calculate what you owe, and it is advisable to take professional advice. You will also need to work out the interest and penalties that are due. HMRC have an online calculator which can be used for this purpose. Interest is charged from the date that the tax was due to the date that it was paid.

The number of years covered by the disclosure would depend on the reason for the error – if you took reasonable care, the maximum period HMRC can go back is four years, if you were careless, it is six years, but if you deliberately misled HMRC, they can go back 20 years.

As part of your disclosure you will need to make an offer to HMRC.

Payment should be made when you submit your disclosure using the payment reference issued by HMRC.

If HMRC are satisfied that you have made a full disclosure, they will accept it. They may undertake further checks before accepting the disclosure. Where a disclosure is accepted, HMRC will send a letter of acceptance, which together with your offer letter forms a binding contract. If the disclosure is found to be incorrect or incomplete, it will not be accepted, Disclosures are unlikely to be accepted if they are made after HMRC have opened an enquiry or a compliance check. HMRC will contact you if they cannot accept the disclosure. Where this is the case, they may seek higher penalties or, in cases of fraud, consider a criminal investigation.

The contractual disclosure facility

The contractual disclosure facility (CDF) should be used where a disclosure is being made because you deliberately failed to tell HMRC about tax that you owe. This facility should only be used to admit tax fraud – it should not be used if you made an error despite taking reasonable care or you were careless.

If HMRC suspect you of tax fraud, they may offer you a contract through the CDF.

Specific campaigns

From time to time, HMRC run specific campaigns related to the non-disclosure of a particular type of income. Details of specific campaigns can be found on the Gov.uk website.

For example, HMRC have a specific form for telling them about undeclared sales arising from misuse of your till system (see www.gov.uk/guidance/make-a-disclosure-about-misusing-your-till-system).

HMRC have a range of powers at their disposal to collect unpaid tax. If you are struggling to pay a tax bill, or know that you will not have the funds available to meet an upcoming bill, it is better to take action than to ignore the problem and hope it will go away – it won’t. Interest will be charged on tax paid late, and late payment penalties may also apply.

Set up a Time to Pay arrangement

Rather than paying your tax bill in one hit, you may be able to set up a Time to Pay arrangement and pay in instalments. Depending on your circumstances, you may be able to set this up online. If not, you can call HMRC to discuss your options. Although interest will be charged, setting up an instalment plan will save late payment penalties. Further details on setting up a Time to Pay arrangement can be found on the Gov.uk website at www.gov.uk/difficulties-paying-hmrc/pay-in-instalments.

HMRC visits

If you have unpaid tax and a Time to Pay arrangement is not in place, HMRC will try and contact you first to discuss options for settling the bill. However, if you do not respond and do not pay what you owe, an HMRC officer may visit you at your home or business premises. At the visit they will discuss the situation with you and try and agree a plan for settling the debt, either in full or in instalments. The HMRC officer will be able to take card payments during their visit.

Debt collection agencies

HMRC may also pass the debt to a debt collection agency to collect on their behalf. A debt collection agency may contact you by letter or text or by phone, but they will not visit you. You can pay the debt collector what you owe. You can also discuss using a Time to Pay arrangement to settle the debt.

Adjusting your tax code

If you pay tax under PAYE, HMRC may be able to adjust your tax code to collect the debt.

Taking possessions to cover the debt

If neither HMRC nor an appointed debt collection agency have been able to collect the debt, HMRC may look to take possession of your goods to cover the debt. They will warn you before they do this and offer you the opportunity to settle the debt first. A formal notice of enforcement will be issued, for which there is a charge. An HMRC officer will visit you and ask you to pay the debt. If this is not done, they will either take possessions there and then to cover the debt or ask you to sign an agreement, which will include a deadline by which the debt must be paid. If the tax debt is not paid by the deadline, the goods will be removed and sold to clear the debt. You will be charged for this. If the amount realised from the sale of the goods is less than the tax debt, you will be liable for the difference; if it is more, you will be paid the excess. HMRC will not take possessions that are essential for your security and wellbeing.

Court proceedings

HMRC may use court proceedings to recover the debt through charging orders, attachment of earnings orders, third party debt orders or from pension payments.

Insolvency

Where all other options have been exhausted, HMRC may apply to the courts to make a person or company insolvent.

Many parents who fell within the ambit of the High Income Child Benefit Charge (HICBC) opted not to receive child benefit, rather than to receive it and pay it back in full in the form of the charge. However, changes to the HICBC which came into effect from April this year mean that some parents who previously lost all their child benefit to the charge will now be able to retain some or all of it. Where this is the case, they will need to restart their child benefit payments so that they do not lose out.

Changes to the HICBC

Prior to 6 April 2024, the HICBC applied where a child benefit claimant and/or their partner had adjusted net income of more than £50,000 a year. The charge was equal to one per cent of the child benefit for the year for every £100 by which adjusted net income exceeds £50,000. Once adjusted net income reached £60,000, the charge was equal to the child benefit for the year.

From 6 April 2024, the HICBC applies where the claimant and/or their partner have adjusted net income of more than £60,000 a year. The charge is equal to one per cent of the child benefit for the year for every £200 by which adjusted net income exceeds £60,000. Once adjusted net income exceeds £80,000, the charge is equal to the child benefit for the year.

Where both the claimant and their partner have adjusted net income in excess of the trigger threshold, the charge is levied on the person with the higher adjusted net income.

Impact on child benefit

It is always important to claim child benefit to preserve the associated National Insurance credits, particularly where the claimant will not pay sufficient National Insurance contributions for the year to be a qualifying year.

However, where the charge is equal to the child benefit for the year, it may be preferable to opt not to receive the child benefit than to receive it only to repay it in the form of the HICBC.

For 2023/24 and previously, where the person liable for the charge had adjusted net income of £60,000 or above, the charge equalled the child benefit for the year. Consequently, a decision may have been made not to receive the benefit. However, as a result of the changes to the HICBC thresholds from April 2024, the charge will only be equal to the child benefit for the year once adjusted net income reaches £80,000.

As a result, where adjusted net income is £60,000, the HICBC would be 100% of the child benefit in 2023/24, but in 2024/25, there would be nothing to pay. Similarly, where adjusted net income is between £60,000 and £80,000, the charge would be equal to 100% of the child benefit in 2023/24 but less than 100% of the child benefit in 2024/25.

Claimants who had opted not to receive child benefit and either they or their higher earning partner has adjusted net income of at least £60,000 but less than £80,000 will now be able to retain some or all of their child benefit. Consequently, they should restart their payments so that they do not lose out. It is important to do this without delay as it can take up to 28 days before you will receive your first payment. The Child Benefit Office will let a claimant know in writing whether they will receive backdated payments and, if so, how much.

Payments can be restarted by using the online service or by completing the online form. Alternatively, HMRC can be contacted by phone on 0300 200 3100 or by post by writing to them at the following address:

HM Revenue and Customs – Child Benefit Office

PO Box 1

Newcastle upon Tyne

NE88 1AA.

The remittance basis of tax is an optional tax treatment that allows individuals who are resident but not domiciled in the UK to pay tax on foreign source income and gains only if they are remitted to the UK in exchange for paying a fee. The fee is set at £30,000 where the person has been resident for at least seven of the previous nine tax years and at £60,000 where the person has been resident in at least 12 of the previous 14 tax years. Where unremitted income and gains are less than £2,000 in the tax year, no fee applies.

For all UK tax purposes, an individual is deemed to be domiciled in the UK if they have been resident in the UK for at least 15 of the previous 20 tax years.

The remittance basis will cease to apply from 6 April 2025. Instead, it will be replaced with a new residence-based regime.

The new regime

At the Spring 2024 Budget, the then Government announced a serious of changes to the rules for non-doms, including the abolition of the remittance basis and, subject to some transitional rules, the introduction of a new residence-based regime. The proposals are being taken forward by the current Government, albeit with some changes, and will apply from 6 April 2025.

Under the new regime, all UK residents will be taxed on their worldwide income wherever arising, regardless of their domicile. This is subject to an exemption for new arrivals who will benefit from a 100% tax exemption for foreign source income and gains for their first four years of residence, provided that they have not been UK resident in the previous ten years.

A form of Overseas Workday Relief will continue to apply. This provides relief from UK tax for earnings from work performed abroad which are not remitted to the UK. The Government are to consult on what this will look like going forward.

The previous Government’s proposals included a 50% reduction in the foreign income subject to UK tax in 2025/26 (the first year of the new regime) for individuals who lose access to the remittance basis from 6 April 2025 and who are not eligible for the 100% exemption for new arrivals. The new Government are not going ahead with this.

UK residents who are not able to benefit from the four-year exemption for new arrivals will be liable to capital gains tax on foreign gains. However, where the remittance basis has been used, UK capital gains tax will only apply to gains arising after the ‘rebasing date’ which is to be announced at the October 2024 Budget.

Foreign income and gains that arose prior to 6 April 2025 while the individual was taxed under the remittance basis will continue to be taxed when remitted to the UK. This will apply to remittances of pre-6 April 2025 foreign income and gains of individuals eligible for the four-year exemption for new arrivals.

A temporary repatriation facility will be available to individuals who have been taxed on the remittance basis which will enable them to remit foreign income and gains arising before 6 April 2025 and pay tax at a reduced rate on the remittance for a limited period after the remittance basis has ended. The length of this period has yet to be announced.

Inheritance tax

The current inheritance tax rules are domicile based. This will cease to be the case from 6 April 2025 when inheritance tax will also become residence based. This change will affect the property within the charge to inheritance tax.

The proposal is that a basic test will apply to determine whether non-UK assets are liable to UK inheritance tax. This will depend on whether the person has been resident in the UK for ten years prior to death or another chargeable event and will be subject to a proviso that will keep the person within the scope of UK inheritance tax for ten years after they leave the UK.

The use of excluded property trusts to keep assets outside the scope of inheritance tax will also be brought to an end.

If it works correctly, the tax that is collected under PAYE will exactly match the tax that is due for the year. However, in practice, this balance may be disturbed, for example, because benefits included in a tax code change or a wrong tax code is used, and an employed taxpayer may pay too much or too little tax as a result. Where this is the case, HMRC will send out a letter. This may be a tax calculation letter (P800) or a Simple Assessment letter. The letter will explain how to pay any taxed that is owed or, where the taxpayer has overpaid tax, how to claim a refund. A letter will only be sent out where the taxpayer is employed or in receipt of a pension. Where the taxpayer is within Self Assessment, over and underpayments are dealt with through the Self Assessment system.

The letters are normally sent out between June and the end of November each year. A person may receive a tax calculation letter if the wrong tax code has been used, if they finished one job and started another in the same month and were paid for both jobs in that month, they started receiving a pension or received Employment and Support Allowance or Jobseeker’s Allowance.

A Simple Assessment letter will be sent where a person owes tax that cannot be collected via an adjustment to their tax code, they owe tax of more than £3,000 or have tax to pay on their state pension.

Claiming a refund

HMRC have changed the way in which they deal with refunds where tax has been overpaid under PAYE. Previously, where a refund had not been claimed, HMRC would send a cheque out automatically 21 days after the issue of the tax calculation letter. They no longer do this and, where tax has been overpaid under PAYE, the taxpayer will only receive a refund if they actually claim it. The tax calculation letter will explain how to do this.

Where the letter states that the refund can be claimed online, this can be done by visiting the Gov.uk website at www.gov.uk/tax-overpayments-and-underpayments/if-youre-due-a-refund. The refund can be made via bank transfer. Alternatively, a cheque can be requested.

Refunds can also be claimed through the taxpayer’s personal tax account or the HMRC app. A taxpayer can also contact HMRC on 0300 200 3300 and request a cheque.

Taxpayers who do not receive a tax calculation letter but who think that they have paid too much tax under PAYE should contact HMRC.

If you are entitled to a refund of tax deducted from savings and investment income, you can claim the refund using form R40 if you do not complete a Self Assessment return. If you do complete a Self Assessment tax return, you do not need to make a separate claim as any tax due to you will be taken into account in computing the amount due or repayable under Self Assessment. A claim can be made on form R40 for the current tax year and the previous four tax years.

If you are making the claim for yourself, you make the claim online or by using the postal form. If you are making the claim on behalf on someone else, you will need to use the postal form, which is available on the Gov.uk website at www.gov.uk/guidance/claim-a-refund-of-income-tax-deducted-from-savings-and-investments.

To make the claim, you will need to provide your personal details and details of your income. This will include employment income, pension income, state benefits, interest and dividend income, income from trusts, settlements and estates and income from UK land and property. You will also need to provide details of payments made under gift aid, and indicate whether you are entitled to the blind person’s allowance and/or the married couple’s allowance. You must also provide details of the address to which the repayment should be sent.

Using an agent

An agent can also make a refund claim on your behalf. Since 30 April 2024, agents claiming a refund of income tax deducted from savings and investment income on behalf of their clients must use the new standard HMRC R40 form. In the event that the agent is the nominated third party to whom the repayment is to be paid, they must complete the nomination section on the new form and provide their agent reference number (ARN). If the claim is made on a different version of the form, it will still be accepted, but the nomination section will be disregarded and the claim will be paid direct to the client rather than to the agent. The client will also need to complete the section of the form indicating that they are nominating a professional to act on their behalf. If this section of the form is not completed correctly, the repayment will be made to the client rather than to the agent.

R40 claims for interest paid on payment protection insurance

Where the R40 repayment claim relates to interest on payment protection insurance (PPI), evidence of the original PPI payment must be submitted when making the claim. The document must show the gross interest, the tax deducted and the net interest. This could be a certificate from the company that made the refund, showing the tax deducted from the refund, or a final response letter from the company making the refund.

As outlined before the election, the new Government are to go ahead with their proposal to impose VAT on school fees. Legislation was published in draft on 29 July, together with a technical note.

From 1 January 2025, education services and vocational training supplied by a private school will be liable to VAT at the standard rate of VAT. Where fees are paid on or after 29 July 2024 in respect of a term starting on or after 1 January 2025, these too will attract VAT at the standard rate of 20%. Boarding services which are closely related to the supply of education services and vocational training will also be liable to VAT at the standard rate of 20% from 1 January 2025. The funds raised by the imposition of VAT on private school fees are to be used to fund education in the state sector.

For these purposes, a ‘private school’ is defined as a school at which full-time education is provided for pupils of compulsory school age, or an institution at which education is provided for those over compulsory school age but under the age of 19 (such as a sixth-form college), and in respect of which fees are paid for the provision of that education.

Nurseries, whether standalone or attached to a primary school, are to remain outside the VAT charge, which will apply from the first year of primary school.

Education provided at private sixth-form colleges, whether standalone colleges or attached to a private school, will be within the charge. However, education and vocational training which is provided by further education colleges will not be subject to VAT. Education and boarding provided by state schools remain exempt from VAT.

Private schools will also be required to charge VAT on any other services that they provide, for example, education provided before or after school and for extra-curricular activities, such as arts and sports clubs. However, where before and after-school clubs and holiday clubs only provide childcare and there is no education element, VAT will not be chargeable.

Pre-payments

The tax point is normally the time at which the services are performed. However, if a payment is made or a tax invoice is issued before the service is performed, this may instead be the tax point. To prevent parents from escaping VAT on payments for education services provided on or after 1 January 2025 by paying the fees in advance, retrospective legislation is to be included in the Finance Bill to provide that, where a payment is made on or after 29 July 2024 for education to be provided on or after 1 January 2025, VAT will be due on the fees. This will render attempts to save VAT by paying multiple years’ fees in advance ineffective. The Government have stated that they will challenge the validity of lump sums paid before this date which do not relate to specific fees and will seek to collect VAT on fees where they believe this to be due.

Private schools who are not currently registered for VAT will be able to register from 30 October 2024.

There are three ways in which former students with student or post-graduate loans can make loan repayments:

• from deduction from their wages or salary through the PAYE system;
• to HMRC through the Self Assessment system; or
• direct to the Student Loans Company (SLC).

Students will normally start making repayments from the start of the tax year after that in which they finish or leave their course.

Where an individual is employed, their employer deducts the repayments from their wages or salary and pays them over to HMRC, who pass them on to the SLC. Here, we look at how repayments are made through the Self Assessment system.

Repayment thresholds

Loan repayments are only made where an individual’s income exceeds the repayment threshold for the loan that they have. For 2023/24 and 2024/25, the annual thresholds are as follows:

Loan type	Annual repayment threshold
	2023/24	2024/25
Plan 1 student loan	£22,015	£24,990
Plan 2 student loan	£27,295	£27,295
Plan 4 student loan	£27,660	£31,395
Post-graduate loan	£21,000	£21,000

For Plan 1, Plan 2 and Plan 4 student loans, repayments are made at the rate of 9% of income in excess of the relevant threshold; for post-graduate loans, repayments are made at the rate of 6% of income in excess of the relevant threshold.

The repayments are the same regardless of the repayment method.

Repaying through Self Assessment

Taxpayers who are self-employed or who have another source of income (other than one taxed through PAYE) and who need to complete a tax return will make repayments through the Self Assessment system. Where an individual is employed but also has income which they need to declare on a tax return, for example, from a self-employment, they will make repayments both through PAYE and through Self Assessment. However, any amounts repaid through PAYE will be deducted in determining the amount to be paid through the Self Assessment system.

Unearned income

Unearned income is taken into account in calculating student loan repayments if it exceeds £2,000 in the tax year. This would include income from savings (before deducting the personal savings allowance) or rental income (after deducting the property allowance where relevant). However, if unearned income is less than £2,000, it is ignored in calculating student loan repayments.

Example

Martha has a job in 2023/24 in which she earns £30,000. She also has profits of £4,000 after deducting the trading allowance from her freelance knitwear business and interest on savings of £800 a year. She has a Plan 2 student loan.

Her earnings from her job in 2023/24 exceed the Plan 2 threshold of £27,295 by £2,705. Her employer deducts student loan repayments of £243 (9% (£30,000 – £27,295)).

Martha completes her 2023/24 tax return. Her total income for the year is £34,800. However, as her unearned income of £800 is less than the £2,000 threshold, it is ignored in calculating her student loan repayments for the year, and the repayments are calculated by reference to income of £34,000. Consequently, she is required to pay back £603 (9% (£34,000 – £27,295)). However, she has already paid back £243 through the PAYE system, leaving a balance of £360 to be paid by 31 January 2025 through the Self Assessment system.

Beware payrolled benefits

Last year HMRC were forced to apologise after they miscalculated student loan repayments. The error arose because payrolled benefits were taken into account in calculating the repayments when they should have been ignored. HMRC wrote to those affected, who were offered the choice of a refund or the option to leave the amount as a loan repayment. While HMRC are now aware of this, it is prudent to check that payrolled benefits have not been taken into account is calculating amounts due.

Class 2 National Insurance contributions are flat rate contributions which for 2023/24 and earlier tax years are payable by the self-employed where their profits exceed the relevant trigger threshold.

For 2023/24 and 2022/23, the liability to pay Class 2 contributions arose where profits exceeded the lower profits threshold (set at £12,570 for 2023/24). For those years, self-employed earners whose profits were between the small profits threshold (set at £6,725 for 2023/24) and the lower profits threshold were treated as having paid Class 2 National Insurance at a zero rate, giving them a qualifying year for state pension purposes for zero contribution cost. For years prior to 2022/23, self-employed earners whose profits exceeded the small profits threshold were liable to pay Class 2 contributions.

Self-employed earners whose profits from self-employment are below the small profits threshold can opt to pay Class 2 contributions voluntarily to secure a qualifying year. This is a cheaper option than paying voluntary Class 3 contributions.

The liability to pay Class 2 contributions was abolished from 2024/25. However, self-employed earners with profits below the small profits threshold remain eligible to pay Class 2 contributions voluntarily.

Collection through Self Assessment

Class 2 National Insurance contributions are collected through the Self Assessment system, as for income tax and Class 4 National Insurance contributions. They are payable by 31 January after the end of the tax year to which they relate. However, unlike Class 4 contributions, they are not taken into account in calculating payments on account.

The collection of Class 2 contributions has not been without problems, and there have been reports of HMRC reversing the Class 2 charge in the Self Assessment calculation because the self-employment has not been recorded correctly on HMRC’s National Insurance computer system. Further problems arose in respect of Class 2 contributions paid voluntarily for 2022/23 where the payment was made on or slightly before the due date of 31 January 2024.

Repayment of 2022/23 voluntary contributions

As a result of a delay by HMRC in processing payments, voluntary contributions paid on time for 2022/23 were treated as having been paid late, with HMRC reversing the voluntary Class 2 charge. As a result, the self-employed earner may have received a refund from HMRC. If they have not received a refund, the payment will either be showing as a credit in their Self Assessment account or have been allocated to a different Self Assessment liability.

If you are self-employed and you paid Class 2 contributions voluntarily for 2022/23, you can check on the HMRC app to see if the contributions paid for that year are showing on your National Insurance record. If the contributions have been refunded, held as a credit or allocated elsewhere, the year will not be a qualifying year, and this may affect your state pension entitlement. You can call HMRC on 0300 200 3500 for assistance.

The professional bodies have been pressing HMRC to resolve this issue. However, HMRC have now advised that they are unable to do so. The need for individuals to call HMRC for help will place further pressure on HMRC helplines which are already struggling to cope.

It is important that individuals check their National Insurance record and state pension forecast regularly so that errors can be rectified before it is too late.