Tax affects thousands upon thousands of Ministers of Religion, and our guest blog today is provided by clergy tax specialists – Holdings Ecclesiastical Ltd – trading as Clergy Tax EU – contact details being – Email, Website: www.clergytax.eu Clergy Advice Line: 0844 4145 120. Given the sheer number of Ministers who also let investment property, to either supplement their income, or as a retirement plan whilst living in Church provided accommodation, we felt this feature would be a vital source of information for our blog readers.
Despite one of the most complex tax systems going, we are repeatedly told “tax doesn’t have to be taxing.” Thank you Moira Stuart.
So today, we outline the taxation responsibilities facing the clergy, along with tax news updates and a few tips.
As a Minister of Religion, you will be need to submit a self assessment tax return every year to HM Revenue & Customs. Your tax return will include details of all your taxable income and benefits.
A tax year runs from 6th April to 5th April, with a deadline for filing of 31st October for paper returns and 31st January for online submissions. Therefore, a tax return will be required, reporting on the tax year ended 5th April 2014, by 31st January 2015 if filed online.
There is a somewhat less publicised deadline of 30 December 2014. If you file online before this date, should you owe tax of less than £3,000 and your PAYE deductions are sufficient, tax may be collected through your PAYE coding notice over 12 months, from April 2015 onwards, providing a useful mechanism to spread the cost over a period of time.
You are currently unable to file your tax return online at the HMRC website. Therefore, the three choices open to a Minister of Religion are:
- File via a paper tax return
- File using specialist tax software
- Instruct a tax adviser to submit your tax return
To file your tax return, you will need details of all your sources of income. This includes, but is not limited to, income from your P60, benefits (such as HLC benefit) from your P11D, bank interest, dividends, and rental income if applicable. New Ordinands may well need to report their student loan figures too on the Minister of Religion tax return pages.
Any ministerial expenses you have incurred pursuant of your ministry, which have not already been reimbursed by the parish, can also be entered. These costs may include:
- Travel costs
- Printing, postage and stationery
- Telephone and broadband
- Office equipment
- Secretarial expenses
- Heating, lighting, cleaning and gardening
If your parish pays you for any services or goods where tax has not been imposed, these are benefits in kind. If these benefits in kind arise from your Church provided house, the benefits are named service benefits. This will be the HLC you see on your payslip. If you receive a heating, cleaning, lighting and gardening benefit, you would also need to calculate your service benefit cap, to account for the cap on your taxable benefits. However, as above, given you may claim up to 25% of the relevant cost, it is a tax saving measure as opposed to a restriction. If you are in any doubt, it is recommended you seek professional advice.
Once you have finished your tax return, if you owe tax, payment may be made at any time, ensuring you meet the deadline of 31st January, unless you opt to have the liability collected through your tax coding notice. If you are due a refund, this can either be received via a cheque, or direct to your bank account. Once HMRC have received the tax return submission, they will often revise your tax coding notice and send out a statement of your account. You can then put your feet up, and look forward to the next tax year!
High Five! Five basic errors to avoid on your self assessment tax return
1. Mistaking the gross amount for the net amount on the interest received section.
2. Not utilising the “notes” section to explain material variances year on year. This can be a useful mitigation technique in helping to avoid an HMRC enquiry.
3. Failing to include underpayment restrictions as per your coding notice, on your tax return.
4. Entering non-taxable income such as interest from ISAs. This should not be on your tax return.
5. Not realising that you can repair your tax return if you later discover a mistake. You have until 31 January 2015 to repair your 2012/13 self assessment tax return.
Changes to Heating, Lighting, Cleaning and Gardening Benefit (Church of England):
The service benefit you receive relating to heating, lighting, cleaning and gardening, used to be reported annually on your P60. Last year, for Church of England ministers, the Church Commissioners began removing this from your P60s. The figure is now reported on a form named P11D, which will therefore be required when preparing your self assessment tax return figures.
Increase your donations to charity via your child tax credits:
If you are a Minister of Religion making gift aid donations, remember to declare these to HMRC for child tax credit purposes. A gift aid donation of £100 will be “grossed” up to £125, and it is the latter amount which will offset against your income for tax credit purposes. This reduction in income reported to HMRC, will usually increase the tax credits you receive, and consequently, will provide you with further money to make increased donations.
Watch out, watch out, the tax man is about:
Commonplace with clergy is to let out your home to tenants, as they reside in church provided accommodation. For the tax return period ended 5th April 2014 onwards, big changes are affecting those letting unfurnished and partly furnished properties. Up until 5th April 2013, clergy letting unfurnished and partly furnished properties were able to claim a renewals allowance on replacing free-standing movable assets such as furniture, white goods and so forth. Landlords of furnished properties will now have to claim for the wear and tear allowance, with there no longer being a choice to opt for the original renewals allowance. Wear and Tear allowance is designed to cover moveable items such as fridges, washing machines, beds, sofas and carpets.
Although the renewals allowance is still in existence, it serves only for the replacement of small tools, such as hammers, utensils etc. The difference however would be if, for instance, a fridge was an integral part of a fitted kitchen, and thus, part of the entirety of the property. The like-for-like replacement here would be classified as a repair cost, and therefore claimable against rental income.
Lucky I checked! 7 dates for your diary:
1. 31 July 2014 Deadline to renew tax credits if applicable to you.
2. 5 October 2014 Latest date to register for self assessment for new ordinands.
3. 31 October 2014 Deadline to file your self assessment tax return if you opt for paper filing.
4. 30 December 2014 Deadline to file your tax return online if you wish to add your self assessment tax liability to a future tax code.
5. 31 January 2015 Online filing and payment deadline for your self assessment tax return.
6. 28 February 2015 If you do not pay your tax by 31st January 2015, this is the deadline to avoid paying a penalty of 5% of the tax owed.
7. 30 April 2015 If you miss the online filing deadline, this is the deadline for filing your self assessment tax return to avoid the £10 per day penalties.
This feature was provided by Holdings Ecclesiastical Limited, trading as Clergy Tax EU.