With the festive cheer of Christmas firmly in our rear-view mirror, and amid the hard slog of a dark and frosty January, it is hardly the most uplifting time to turn attention to self-assessment tax returns.
But if you’re self-employed, earn over £100,000, or need to declare any other income from 2021-22, such as savings interest (that exceeds your personal allowance), child benefit (if you or your partner’s income is over £50,000) or rental income, you need to get a move on to meet the January 31 deadline and avoid a £100 penalty.
Whether it’s your first time or you have to do this every year, completing a tax return can be a daunting prospect. Confusion about which expenses you can claim and a lack of knowledge of tax rules abound. In a survey of nearly 900 people submitting a tax return this year, Which? found six in ten didn’t know that they can make changes to their tax return after it’s been submitted, and the same number wrongly believed that you must show proof for every expense you claim.
Getting your self-assessment tax return wrong could mean paying more tax than you’re meant to, and with the cost of living remaining stubbornly high, household budgets are stretched even more tightly. So, before you wade through a year’s wad of receipts in a blind panic, consider the following advice.
First, don’t forget to claim for your expenses. For instance, if you’re self-employed, you can deduct legitimate business expenses from your taxable income, such as travel, uniforms, office running costs (such as stationery or your phone bill) and the cost of business premises (including energy bills).
Second, make the most of any reliefs and allowances that might be available to you. Contributions to a pension, for example, are eligible for tax relief. Typically schemes only apply basic-rate tax relief (20 per cent) so if you are a higher or additional-rate taxpayer you might miss out on the full amount. You should be able to claim the full relief via your tax return and if you haven’t previously claimed, you can backdate pension tax relief for four years.
Third, check if you have overpaid your taxes. This can occur if your income unexpectedly falls during a year and you pay tax by payments on account (contributions in advance based on half your previous year’s bill). Going through HMRC directly for rebates is always the most straightforward and advisable option as it’s always free; third party tax rebate firms will likely charge hefty (and hard to justify) fees.
Now you’re in the swing of things, you may have spotted some errors and want to amend the previous year’s tax return (the one for 2020-21), the deadline for which is January 31. You can correct it through the government’s self-assessment portal. To go further back and update a return for 2019-20 or earlier you can write to HMRC explaining which year you’re correcting and why.
The reward could be a rebate, but if you get it wrong you could also end up paying more tax.
Our handy tax calculator can help you make sense of your tax return. It provides clear, no-nonsense explanations about the different types of taxable income, as well as suggestions for allowances you may have missed. It also lets you file your return directly to HMRC.
Tax doesn’t have to be taxing, the old adage goes. And while it isn’t the most glamorous of activities, there are plenty of ways to take the stress out of it, while legally reducing your bill.
For more free money-saving tips and consumer rights advice, visit Which?
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