Most people working in the UK pay their tax through the PAYE system and don’t have to report their financial affairs to the taxman – because he already knows all about them. However, more than 12.1 million people have slightly more complicated financial affairs, and so need to complete a self-assessment tax return each year. If you are self-employed, earning more than £100,000, a company director or simply renting out a property you could be among them.
The deadline for completing your tax return for the 2021/22 tax year online is Tuesday 31st January 2023. In 2022 HMRC estimated more than 2.3 million people missed the deadline completely and more than 600,000 left it to the last minute. Tax paperwork can be stressful – but leaving things to chance can be more so. There are automatic interest charges and penalties that apply for failure to file your tax return and pay your tax on time.
But on the positive side, your tax return can be the key to paying less tax. At Continuum we are looking at four ways on how to get to grips with your self-assessment form, which could help you save tax or maybe even claim some back.
Get your pension to save you tax
Tax relief helps make your pension one of the best investments you will probably ever make.
If you’re a UK resident under 75 you’ll get tax relief paid in automatically into your pension by the government. A basic rate taxpayer who pays in £8,000 to their pension will see the government pays in £2,000 (20%) in tax relief, giving them a total of £10,000 in their pension pot.
But if you pay tax at the higher rate of 40%, you could get another 20% in tax relief. So that £10,000 would cost you as little as £6,000.
You need to claim through your tax return.
Include the gross value of your pension contributions. That’s the total of what you’ve paid in plus the 20% tax relief from the government. Additional tax relief will then either be paid to you directly, or HMRC will adjust your tax code or reduce your tax bill.
Claim all your expenses
If you work for yourself, or a have a business or rental property as a sideline, you will have a variety of running costs. You can deduct at least some of these expenses from your profits before tax, cutting down your tax bill as a result.
What is allowable and what isn’t can be complicated. Anything from advertising and your energy bills to office supplies and repairs could be covered, as long as it is a legitimate business expense.
If you are your own boss, as a sole trader or a partner and work from home you can even cover costs such as a proportion of your home heating and lighting, plus things like wear and tear. You can either itemise expenses on your tax return, or take advantage of a flat rate scheme known as simplified expenses.
Do your homework about what is allowable and what isn’t. You can find some guidance in the HMRC website.
Filling in your tax return may not leave you feeling charitable, but thinking about giving while you are doing the paperwork can pay dividends, for your favourite good causes and for you.
If you pay tax above basic rate, you could claim tax relief on charitable donations made using Gift Aid. You don’t just get this on cash donations either – you also get tax relief on gifts of land, property or shares you make to charity.
Ticking the ‘Gift Aid’ box when you make a donation lets the charity claim 20% back from the taxman. But if you pay tax above the basic rate, you can reclaim any further tax relief on your donation through your tax return.
This could help you pay less to the taxman. Making a charitable donation before 31 January deadline could reduce your tax bill for the 2021/22 tax year.
Claim back tax from previous tax years
You can claim a refund for any overpayments you’ve made in the last four tax years. So if you stumble across something you could’ve claimed for previously, or a mistake in previous years’ tax returns, write to HMRC explaining that you’re making a claim for ‘overpayment relief’. You’ll need to include proof you’ve overpaid tax through self-assessment and a signed declaration that your details are correct.
Need some help?
Tax can be complicated, and navigating the maze of HMRCs rules and regulation is a great deal easier if you have an expert you can call on.
At Continuum we have the expertise you need – and we are only a phone call away.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation, you should seek independent financial advice before embarking on any course of action.
Levels and basis of reliefs from taxation are subject to change and depend upon your personal circumstances.
The Financial Conduct Authority does not regulate taxation advice.