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Can we claim exemption from digital tax reporting?

My husband and I have been retired for over a decade. We bought a city centre flat in the 1980s, which we have rented out ever since, and the income provides a nice top-up to our pensions. We have kept the same paper systems in place for recording the rent, expenses and our tax liabilities since the property was first acquired. We are both getting on in years, and we understand that some people may be exempt from the mandatory transition to digital income tax reporting in the next couple of years. Is it likely we will qualify, and would it make our lives easier?

Headshot of Zena Hanks, partner at accountancy firm Saffery Champness
Zena Hanks, partner at accountancy firm Saffery Champness

Zena Hanks, partner in the private wealth team at the accountancy firm Saffery Champness, says that when Making Tax Digital (MTD) for income tax is rolled out in April 2024, all individuals with business or property income over £10,000 a year will have to submit digital records of their income and expenses to HMRC in real time.

If you or your husband fall into this category, you should proceed on the assumption that you will be subject to the mandatory transition to digital income tax reporting and prepare accordingly.

As you say, HM Revenue & Customs has said that certain taxpayers — those who consider themselves to be “digitally excluded” — can apply for an exemption to mandatory MTD for income tax. This means that it is not practical for you to use software to maintain digital records and submit them to HMRC.

Old age is listed as a reason why this might be the case. However, no specific criteria or details have been given for what constitutes “old age” in this context so the onus may be on you to explain in your application why and in what ways you feel you are digitally excluded.

Whether or not you qualify for an exemption, you are right to ask if it would actually make your lives easier. While the prospect of moving to digital tax reporting can sound somewhat daunting, once you get up and running, MTD should be more time-efficient, cost-efficient and less hassle than the analogue and paper systems that preceded it, even if you are not very tech savvy.

Having software in place to manage and submit your digital income records can remove much of the pressure on you to meet HMRC’s deadlines, send and receive paper documents and returns in the post, and liaise with your bank, pension provider, letting agent, stockbroker and so on to get records of your income and expenses. Each of these steps requires an investment of your time, which in theory, software allows you to circumvent.

Even the most diligent taxpayers can make mistakes when filling out tax information manually and it can be a challenge to rectify this later. Software can reduce the potential for human error and if any questions are raised by HMRC about any of the information inputted, you should have immediate access to the relevant digital records, and to IT support, to help get to the bottom of the issue quickly.

The system records data in real time which also allows you to assess your profit or loss position, in turn allowing you to budget for future tax liabilities.

The main challenge of MTD for income tax, for elderly people and younger people alike, is getting over the initial hump of implementing digital record-keeping and software. Tax advisers and accountants can help you with this step and software providers can guide you through set-up and installation. We are already seeing lots of innovation and improvement on these platforms and that is only likely to become more prevalent in the coming months and years, so we can look forward to more efficient and user- friendly record-keeping software.

Must we pay shock bill for a granny annexe on our house?

My wife and I are adding a small granny annexe to our home for my elderly mother-in-law. We’ve gained planning permission but now the local council has sent us a £24,700 community infrastructure levy (CIL) bill out of the blue, which we know nothing about. Do we really have to pay this?

Headshot of Alun Oliver, managing director at property tax specialists E3 Consulting
Alun Oliver, managing director at property tax specialists E3 Consulting

Alun Oliver, managing director at property tax specialists E3 Consulting, says that extensions to an existing home should be exempt from the CIL but that achieving this is not always entirely straightforward.

Contrary to many people’s expectations, any exemptions or reliefs are not automatic and need to be applied for before work starts. Once a spade has hit the ground it is difficult to claim exemptions and your rights of review or appeal may be lost.

CIL was introduced through the Planning Act 2008 for permissions in England and Wales to fund vital infrastructure, such as roads, parks and doctors’ surgeries.

It came into force in 2010 and since then more than 180 local planning authorities (LPAs) have adopted the levy. Homeowners in London have to contend with both borough CIL and mayoral CIL, making the applicable composite rates pretty expensive.

CIL is calculated per square metre of floorspace and applies to new developments exceeding 100 sq m or creating one or more new dwellings. People undertaking a self-build of their own home, extension or annexe should be exempt — subject to compliance with the criteria and processes.

Where work has not begun you should be able to gain your exemption. The self-build exemption application Form 8 (deals with annexes) would need to be submitted to your LPA.

Although seemingly not in this case, normally other CIL forms will already have been submitted (Form 1 Additional Information) — often sent with the original planning application — and Form 2 (Assumption of Liability). 

After the grant of permission, the LPA issues the relevant liability notice to the applicant detailing the CIL charge. With a successful grant of a self-build exemption, the liability notice is revised, and reduced to nil.

Additionally, you may need to submit a commencement notice (Form 6) advising the council of the date you intend to start work and get confirmation of safe receipt before works begin.

CIL case law is still a developing area, addressing the realities of project issues against the theoretical and often linear expectations of the regulation’s poor drafting.

Ultimately, to “CIL-proof” a development property, owners should take early advice to know the regulations and ensure any exemptions or reliefs are safely secured.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

Our next question

My wife and I have four grown-up children. Our house is solely in my wife’s name. She is considering setting up a trust so she leaves her estate to our children with me having the right to continue to live in our home for the rest of my life. Our house is worth about £500,000 and she has other assets of £200,000, mainly from inheritances. I feel I will seem like a lodger in this scenario! What are my rights and can she do this? We are happily married. I think she just doesn’t want any disputes with family if she were to die first. I am 73 and she is 62.

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