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Petertide ordinations: A taxing time for new clergy

11 July 2014

Michael Wright advises on personal finance

NEW Ministers of Religion will need to submit a self-assessment tax return every year to HM Revenue and Customs. This might be a new experience for people who were formerly employees.

The return must include details of all taxable income and benefits. A tax year runs from 6 April to 5 April, with a deadline for filing of 31 October for paper returns, and 31 January for online submissions (but see below).

There is a less publicised deadline of 30 December. If you file online before this date and owe tax of less than £3000 on top of any PAYE deductions, tax may be collected through your PAYE coding notice over 12 months, starting in April 2015. This is a useful mechanism for spreading payments over 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 a paper tax return;
  • file using specialist tax software;
  • instruct a tax adviser to submit your tax return.

To file your 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 in 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;
  • hospitality;
  • books, and Church Times sub;
  • robes;
  • secretarial expenses;
  • heating, lighting, cleaning and gardening.*

Service benefits, i.e. things that could be deemed payment in kind, are taxable. If you receive help with heating, lighting, cleaning, and gardening, this will be the "HLC" you see on your payslip. You would also need to calculate your service benefit cap, to account for the cap on your taxable benefits. However, given that you may claim up to 25 per cent of the relevant cost, it is a tax-saving measure as opposed to a restriction. If your annual stipend is less than £8,500 per annum there will be no tax imposed.

If you are in any doubt, it is best to 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 31 January, unless you opt to have the liability collected through your tax-coding notice.

Once HMRC have received your tax return, 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.

*Changes to Heating, Lighting, Cleaning and Gardening Benefit (Church of England): The service benefit received relating to heating, lighting, cleaning and gardening, used to be reported annually on your P60. Last year, for C of E ministers, the Church Commissioners began removing this from P60s. The figure is now reported on a form named P11D, which will therefore be required when preparing self-assessment tax returns.


Five basic errors to avoid on your tax return

(based on our experience with clients)

Mistaking the gross amount for the net amount on the interest- received section.

Not using the "notes" section to explain material variances year on year. This can be a useful mitigation technique in helping to avoid an HMRC enquiry.

Failing to include underpayment restrictions as per your coding notice, on your tax return.

Entering non-taxable income such as interest from ISAs. This should not be on your tax return.

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 return.

Child tax credits

If you are 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 that will offset against your income for tax-credit purposes. This reduction in income, reported to HMRC, will usually increase the tax credits you receive (so you can give more away).

Renting property

Clergy commonly let out their home to tenants, as they reside in church accommodation. Big changes were introduced for the tax-return period ended 5 April 2014 affecting those letting unfurnished and partly furnished properties. Up to 5 April 2013, clergy who let unfurnished and partly furnished properties were able to claim a renewals allowance to replace 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; there is no longer a choice to opt for the original renewals allowance. Wear-and-tear allowance is designed to cover movable 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.

Seven dates for the diary

31 July 2014

- deadline to renew tax credits if applicable to you.

5 October 2014

- latest date to register for self-assessment for new ordinands.

31 October 2014

- deadline to file your self-assessment tax return if you opt for paper filing.

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.

31 January 2015

- online filing and payment deadline for your self-assessment tax return.

28 February 2015

- if you do not pay your tax by 31 January 2015, this is the deadline to avoid paying a penalty of five per cent of the tax owed.

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-a-day penalties.

Michael Wright is clergy tax adviser for Holdings Ecclesiastical Limited, trading as Clergy Tax EU: www.clergytax.eu.

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