HMRC service

On 19 March it was announced that HMRC planned to shut down its phone services annually during the summer months following a trial last year. From 8 April to 29 September, taxpayers would not be able to reach the tax office for assistance with their Tax Returns. Also it would only deal with priority Tax Returns when it re-opened . HMRC commented that ?it would ?allow "helpline advisers to focus support where it is most needed.'' This announcement was widely condemned and the head of the Low Incomes Tax Reform Group (LITRG) said HMRC’s digital services were “not yet at the standard required to support a forced channel shift to digital.”

It was felt that the evaluations of the ?trial helpline closures left many questions unanswered and before making permanent cuts to helplines HMRC need to evaluate whether the trials impacted the quality of Tax Returns submitted and therefore whether taxpayers were able to get their taxes right without access to the helpline. The LITRG had not seen any evidence to back up HMRC’s claim that around two-thirds of callers to the Self-Assessment helpline can deal with their enquiry online. HMRC must get a better understanding of why people are choosing to use the phone over using existing digital services.

As we are now aware the decision was reversed within twenty four hours following a backlash from MPs. A report found that during a trial of the closure last year, around 113,000 callers were told they could find the answers they needed online. However, 61% of these taxpayers called back for help within five days. Harriett Baldwin the Chair of The Treasury Select Committee ?said: “The idea that HMRC can interpret those figures as justification for making it even harder to contact them over the phone indicates something is seriously wrong at HMRC.”

?The head of the LITRG, said public backlash may have played a part in the reversal of the decision. There was considerable reaction from the public on social media and that maybe tipped the decision to reverse it. However HMRC may revisit the plan to close helplines at a later date. It us thought that HMRC are attempting to force people into digital services by withdrawing phone help, rather than taking people with them by making the online option the attractive choice.

HMRC have succeeded in getting the vast majority of Self-Assessment taxpayers to file their returns online by making the process relatively simple and easy to use. Nobody would choose to spend hours waiting on a telephone helpline if they could easily find the answer they are seeking online. It is generally agreed that HMRC need to improve their online services so that that people choose to use them rather than the telephone alternative. Perhaps then they will be able to scale down their telephone service ?without risking leaving taxpayers with no other options.

Subsequently The House of Commons debated the government's ‘U-turn’ and it featured criticisms and concerns from various MPs, highlighting the impact on taxpayers, especially the vulnerable, and questioning the Treasury's involvement and communication regarding the decision.

The debate followed the tabling of an ‘urgent question’ by Labour. The question, asking for a statement on the closure of HMRC’s self-assessment helpline, had been tabled before news of the U-turn emerged, but by the time the Commons reached this piece of business, a few hours later, the rethink had been announced.

The Financial Secretary to the Treasury (FST),?Nigel Huddleston, responded that HMRC has “listened to the feedback” and announced it would be “halting planned changes to its helpline”. While HMRC encourages taxpayers to self-serve online, he acknowledged that “more needs to be done to ensure that all taxpayer needs are met”. He confirmed that the HMRC helpline and webchat advisers will be available “for taxpayers who need support because they are vulnerable or digitally excluded or have complex affairs”.

The Shadow Financial Secretary (James Murray), asked whether any Treasury ministers had involvement in the original decision to close the helpline and whether the plan had been ‘paused’ or scrapped altogether, stating: “It is clear that yesterday’s announcement of the helpline’s closure came not as part of a comprehensive, orderly or effective plan to help customers to move online, but rather as a panicked response to the collapse of HMRC’s service levels to an all-time low”.

The FST responded that HMRC is a non-ministerial department and ministers set “strategy and work closely” with the department on its operations and communications. He supported HMRC's “overall strategy”, arguing that some issues could “easily be done digitally” such as resetting online passwords, getting one’s tax code and getting one’s national insurance number.

He said that, in the tax year 2022-23, HMRC received over 3 million calls regarding these issues, which required nearly 500 full-time employees to answer them. Huddleston reassured Murray that vulnerable taxpayers will “always be able to access services, including telephone services”.

The Chair of the Treasury Committee referenced the committee’s recent data that showed “it is increasingly difficult to contact HMRC by telephone”. She said moving people online could not be achieved by “randomly shutting down HMRC’s telephone lines” and urged the minister to consider a “gradual transition”.

A Conservative MP stated : “One of the problems is HMRC’s chronic lack of productivity”, suggesting this may relate to staff working from home. Huddleston agreed? that productivity was key and reported that the Chief Secretary to the Treasury is leading a cross-government review on that. He said he had asked HMRC to assess and monitor the productivity of staff who are working from home versus staff working in the office, and there is very little difference. ?He continued that HMRC staff are required to work in the office for 60% of the time. In another report on the debate ?there is a reference to HMRC?staff being required to work in the office for 40% of the time.

The agents dedicated line is not affected by the announcement regarding? HMRC’s phone services.

Dividend Tax Allowance

In the 2016 Budget an allowance of ￡5,000 was introduced to effectively exempt dividends up to this level from tax. In fact a 0% rate applies to dividends covered by the allowance. The allowance did not stay at this level for very long. From 2018/19 it reduced to ￡2,000 and from 2023/24? it reduced ?to ￡1,000. From 6 April the allowance will reduce further to only ￡500. That is 10% of its level in 2016.

The highest rate of tax on dividend income is currently 39.35% so the maximum that the allowance will be worth is ￡197. For those with dividend income of ￡5,000 or over the allowance was worth ￡1,905 when originally introduced.

Clearly a considerable number of taxpayers will now be affected and will be looking to reduce the impact of the reduction to ￡500.

A married couple each receive the allowance so ensuring a portfolio and income are split evenly will result in two allowances rather than one. The next simple step is to ensure maximum use is made of any ISA. Check to ascertain whether shares can be transferred into an ISA and that if circumstances permit the maximum ￡20,000 has been contributed this tax year (by Friday 5 April). All dividends received within an ISA are completely free of tax. Each married couple can contribute to an ISA and if a couple are prepared to combine portfolios they can split assets held in ISA’s evenly.

For a married couple if the above actions are in place the next step is to check the income tax rates of each party. This is because the dividend tax rates are 8.75%, 33.75% and 39.35% for taxpayers with ?income tax rates of? 20%, 40% and 45% respectively. Ensuring that shares are held in the lower taxpayer’s name can pay dividends (no pun intended). For example if one spouse is a basic rate taxpayer and the other a higher rate taxpayer the saving on each ￡100 of dividend income is ￡25.

For those higher and additional rate taxpayers who have the maximum in ISA’s and whose spouse is a basic rate taxpayer the simple solution (provided couples happy to pool resources evenly) is to place all investment shares in the name of the basic rate taxpayer. For large portfolios it is probably not worth the effort of trying to engineer a dividend of around ￡500 per annum? to a higher or additional rate taxpayer to get the benefit of the dividend allowance.

Not all shares can be held within an ISA, indeed those permissible have to be listed on a recognised stock exchange anywhere in the world. This obviously precludes shares in private companies and therefore excludes those with private companies who choose to receive some return in dividends rather than salary.

What are the chances of the dividend allowance being increased. Probably very low indeed.

?Capital Gains Tax (CGT)

There is an annual exemption that exempts an element of a gain liable to CGT. This exemption rose in line with inflation reaching ￡12,300 in 2020/21. However for 2023/24 the exemption reduced to ￡6,000 and will further reduce to ￡3,000 from 6 April 2024. If we assume a gain on the sale of shares equal to or in excess of ￡12,300 in 2020/21 compared with 2024/25 the additional CGT is ￡1,860 or ￡2,604 on the sale of residential property.

As can be seen the numbers here are potentially larger so as for dividends where a couple are married ensuring both take advantage of the annual exemption is important. However, this is less practical with property where stamp duty land tax and legal considerations apply.

The same advantages as to transferring shares to an ISA ?to avoid/ minimise dividend tax apply ?to CGT mitigation but of course this is not possible with property. Transferring to a spouse is more complex where property is involved as legalities to transfer title may need to be completed prior to sale. Fortunately there is no CGT on a transfer between spouses as the transferee inherits the transferor’s base cost.

The other major factor in seeking to avoid CGT is to “ not let the tax tail wag the dog “. The price of any asset moves and deferring a sale to take advantage of tax allowances may not always produce the best economic result. Also it is important to bear in mind that even with the significant reduction in the annual exemption the rates of CGT make the tax treatment very favourable and considerably below income tax rates. It is extremely unlikely that the annual exemption will be increased in the near future. However, the Chancellor cut?capital gains tax for higher or additional rate taxpayers selling a residential property?from 28% to 24% from 6 April 2024.