Income Tax, unsurprisingly, is a tax on income. To be more specific, it is a tax on the income of individuals and non-incorporated businesses. However, there are some types of income where no Income Tax is payable. We have summarised below some of the main income type that are and are not liable to Income Tax.

In most circumstances, taxpayers will not be required to pay tax on all their income, even if it is all taxable because they receive a tax free Personal Allowance (2018-19: £11,850). There are a number of variables that can affect the amount of the Personal Allowance such as claiming the Marriage Allowance, which can increase the amount of the allowance. Taxpayers earning over £100,000 may see their Personal Allowance gradually reduced or wiped out.

The following lists show the main income types that are and are not taxable.

Taxable income includes:

• Earnings from employment
• Earnings from self-employment
• Pensions income
• Dividend income
• Rental income (unless using the rent-a-room scheme)
• Trust income
• Interest on savings over your savings allowance
• Certain state benefits (including the State Pension).

Non-taxable income includes:

• The first £1,000 of income from self-employment
• The first £1,000 of income from property you rent (not applicable if using the rent-a-room scheme)
• Income from tax exempt accounts such as Individual Savings Accounts (ISAs) and National Savings Certificates
• Dividends from company shares within the dividends allowance (£2,000 for 2018-19)
• Some state benefits
• Premium Bond or National Lottery wins

The First-Tier Tribunal (FTT) recently heard a taxpayers appeal against penalties imposed for the late filing of his self assessment return in respect of the 2014-15 tax year. The taxpayer had income from five separate employments during the tax year in question. The total income from all these employments meant that a small proportion of his income was chargeable at the higher rate tax band, but his employers were unable to collect the tax due.

HMRC sent a calculation to the taxpayer on 27 October 2015, showing that he owed an additional £321 of Income Tax. HMRC were unable to collect this amount through the coding system and issued a voluntary payment letter on 29 October 2015. A further voluntary payment letter was sent in January 2016. The letter requested that the taxpayer arrange settlement or otherwise the sum might need to be collected through self assessment.

After no payment was received, a notice to file was sent to the taxpayer on 21 April 2016 with a deadline of 28 July 2016 for submitting an electronic return. The taxpayer did not file the return so HMRC imposed penalties. In total, HMRC issued a £100 late filing penalty, daily penalties of £900 and a 6 month late filing penalty of £300. The taxpayer finally submitted his return on 28 March 2017.

The FTT was clear that the taxpayer did not have a reasonable excuse for failing to submit his return on time. However, based on a technicality, the notice to file served by HMRC was invalid. Since no valid notice was given to the taxpayer he had no obligation to file a return and the taxpayers appeal was allowed.

The Tax-Free Childcare Scheme (TFCS) helps support working families with their childcare costs. The scheme provides for a government top-up on parental contributions. For every 80p in the £1 contributed by parents, an additional 20p or 20% is funded by Government up to a maximum total of £10,000 per child per year. This gives parents an annual savings of up to £2,000 per child (and up to £4,000 for disabled children until the age of 17) in childcare costs.

The scheme is open to all qualifying parents, including the self-employed and those on a minimum wage. The scheme is also available to parents on paid sick leave as well as those on paid and unpaid statutory maternity, paternity and adoption leave. To be eligible to use the scheme, parents will have to be in work at least 16 hours per week and earn at least the National Minimum Wage or Living Wage. If either parent earns more than £100,000, both parents are unable to use the scheme.

In addition, parents of three and four year old children living in England can apply for 30 hours of free childcare. HMRC advises that taxpayers may be able to claim compensation if they applied or reconfirmed before the relevant deadline, but technical issues meant they were unable to take up a 30 hours free childcare place or have paid out for childcare that would have been free. These claims can be made under the existing compensation scheme for users affected by system issues that plagued the launch of the TFCS.

The First-Tier Tribunal (FTT) recently heard three joined appeals that concerned the availability of tax relief for employee expenses. In each of the cases the expense claims related to the costs incurred cleaning and sanitising working clothes together with the cost of toiletries for personal hygiene. The FTT collectively referred to these costs as cleaning expenses. All three taxpayers were appealing against PAYE coding notices where HMRC denied the cleaning expense claims.

Two of the taxpayers worked in the sewerage industry and the third taxpayer was an environmental worker involved in outdoor maintenance services. HMRC at no time disputed that some valid expenditure had been incurred on cleaning ‘special clothing’. However, it was the amount that the taxpayers claimed that appeared to have riled HMRC with each taxpayer claiming £2,200 for each of the tax years under appeal. This figure seemed to tally with HMRC’s requirement that anyone claiming relief for expenditure over £2,200 needs to make a self-assessment return. We are advised as part of the Tribunal proceedings, that a higher figure had initially been calculated for the taxpayer’s cleaning expenses but had been revised down for this reason.

HMRC argued against this appeal on a number of different fronts. This included the fact that there were no valid receipts presented by the claimants and that no tax relief was available for cleaning ‘ordinary clothing’. HMRC also argued that a significant amount of the expenditure incurred by the appellants was not incurred wholly, exclusively and necessarily in the performance of the duties of their employment as the equipment and washing powder was also used for the family wash.

The Tribunal came down on the side of HMRC and dismissed the three appeals. The Tribunal did agree that the taxpayers were entitled to the fixed £60 flat rate relief, which HMRC agreed to allow for cleaning costs. The Tribunal also commented that whilst this figure has been fixed since 2008-9, HMRC has itself stated that a higher claim can be made where there is proper evidence of the actual costs incurred.

Any employees required to pay for the upkeep of protective clothing used in their work, should examine whether they ought to claim the flat rate amount or make a claim based on the actual costs involved.

The 2017-18 tax return deadline for taxpayers who continue to submit paper Self-Assessment returns, is 31 October 2018. Late submission of a Self-Assessment return will become liable to a £100 late filing penalty. The penalty usually applies even if there is no liability or if any tax due is paid in full by 31 January 2019.

We would recommend that anyone still submitting paper tax returns, consider the benefits of submitting the returns electronically and benefit from an additional three months (until 31 January 2019) in which to submit a return.

Taxpayers with certain underpayments in the 2017-18 tax year can elect to have this amount collected via their tax code (in 2019-20), provided they are in employment or in receipt of a UK-based pension. The coding applies to certain debts, and the amount of debt that can be coded out ranges from £3,000 to £17,000 based on a graduated scale. The maximum coding out allowance only applies to taxpayers with earnings exceeding £90,000.

Daily penalties of £10 per day will also take effect if the tax return is still outstanding three months after the filing date up to a maximum of £900. If the return still remains outstanding further higher penalties will be charged from six months and twelve months late.

Taxpayers that received a letter informing them that they have to submit a paper return after 30 July 2018, have an extended deadline which runs for three months from the date they received the letter to submit a paper return.