The weather may have turned arctic, but frostbitten fingers won’t get you out of doing your tax return. HM Revenue & Customs has issued a list of the most bizarre (and unsuccessful) excuses it received from customers who missed last year’s self-assessment deadline. They included “My boiler had broken and my fingers were too cold to type”.
If you have been putting off the day when you have to gather up all your bits of paper and sit down and fill in the form, you are not alone.
With just six days to go until the deadline of 11.59pm on Thursday 31 January, it emerged this week that as many as 3.5 million people still haven’t filed their tax return. This was the figure as of Wednesday this week – it will probably have come down a little since then. Just over 8m returns had been sent in.
So make this the weekend that you get your form done and dusted. Here are our top tips for reducing the financial pain.
Take advantage of new allowances
Good news for Airbnbers and eBayers: you can now get a £1,000-a-year tax-free allowance for property income and trading income (if you have both types, you will get a £1,000 allowance for each). So if your annual gross income from renting out a property, land or a room is £1,000 or less, you won’t have to tell HMRC or declare it on your tax return. That could include money you made from letting out rooms on Airbnb or renting out your driveway as a parking space.
Similarly, if your annual gross income from self-employment (such as selling items on eBay, at car boot sales or via classified ads, or baking cakes), or from casual jobs such as babysitting or gardening, or from hiring out your equipment such as power tools, is £1,000 or less, you won’t usually have to declare this.
Don’t miss out on pension tax relief
The way it works depends on what scheme you are in. “Net pay” arrangements are used by many traditional workplace pension schemes and don’t require you to do anything to get tax relief. With these, your pension contributions are deducted from your salary by your employer before income tax is calculated on it, so you get relief on the amount immediately at your highest rate of tax, says the Low Incomes Tax Reform Group.
However, the rules are different if you are in a “relief at source” arrangement that is used by personal and stakeholder pensions, as well as some “automatic enrolment” workplace schemes. If you are a 20% taxpayer, no further adjustment needs to be made. But higher-rate and additional-rate taxpayers must make a claim via their tax return to receive the extra relief due to them.
Some big schemes operate on a “relief at source” basis: for example, the publicly owned Nest (National Employment Savings Trust) scheme, set up by the government as part of the automatic enrolment revolution, is one of them. Nest has more than 6.4 million members.
Many people who earned above £45,000 in 2017-18 are failing to claim the valuable extra relief due to them, effectively handing the government a cash windfall. It is an incredibly widespread issue at this time of year, says Tim Stovold, head of tax at accountant Kingston Smith. If you are not sure which kind of scheme you are in, check with your employer.
Use buy-to-let tax breaks
Landlords are up in arms about the fact they are losing valuable tax relief on their buy-to-let mortgage costs. However, if you pay tax at 40% or above and are a buy-to-letter, you can claim tax relief on 75% of any mortgage interest payments on your 2017-18 tax return, says Sean Jones at wealth management firm James Hambro & Partners. This interest relief is being slashed from 100% to zero, with the change being gradually phased in between April 2017 and April 2020. It is being replaced by a new 20% “tax credit”.
Avoid tax penalties on child benefit
Thousands of families have been dragged into self-assessment because one or both parents have an income of more than £50,000. Under the government’s high income child benefit charge, these people have their benefit clawed back on a sliding scale. This is probably more relevant for next year’s tax return, but there are ways you can reduce the tax hit and, in some cases, escape the charge completely – most notably by paying more into your pension. Any contributions made into a company or personal pension scheme will reduce your “adjusted net income” (your total taxable income, minus things such as pension contributions), which is what the tax charge is based on. For example, you could pay additional voluntary contributions into your occupational scheme.
Claim gift aid at the higher rate
Donating through gift aid means charities can claim an extra 25p for every £1 you give. It won’t cost you any extra. And if you are a higher-rate taxpayer, you can claim the difference via your tax return. Let’s say you donated £100 to a charity and it claimed gift aid to make your donation £125. You pay 40% tax, so you can personally claim back £25 (20% of £125).
Make a charity donation now to reduce your tax bill for last year
You normally only declare things on your tax return that relate to the previous tax year, but with gift aid you can also claim tax relief on donations you make in the current tax year (in fact, right up to when you send in your return). In other words, says Sarah Coles at investment firm Hargreaves Lansdown, if you have the cash spare, you can make a donation now and use it to reduce your tax bill for 2017-18. “This is particularly useful when you are a higher-rate taxpayer in one year and then pay the basic rate the following year, and want the higher rate of relief on your donation.”
Make the most of your spouse or civil partner
The marriage allowance is a tax break that took effect in 2015 and millions of couples are eligible, but by all accounts take-up has been dismal. You could benefit as a couple if your earnings in the 2017-18 tax year were less than £11,500 and your partner’s income was less than £45,000. For the purposes of your tax return, the allowance lets you transfer £1,150 of your personal allowance to your husband, wife or civil partner if they earn more than you. This reduces their tax by up to £230 in the 2017-18 tax year. For more information go to gov.uk/marriage-allowance.
Don’t forget to claim for expenses
“If you subscribe to magazines or newspapers for work, you should be claiming these as expenses,” says Coles. “You can also claim for any clothing you use exclusively for work. You can’t claim for a suit – even if you only ever wear it for work – but outfits featuring your work logo, uniforms and protective clothes all count.”
Have you declared everything?
People often forget what savings accounts and/or investments they have, which means they end up leaving out one or more sources of income. For example, you have to include interest you have received from peer-to-peer loans, credit union and friendly society accounts, and interest on payment protection insurance compensation payouts.
Don’t forget the penalties
The initial fine for a late tax return is £100, which applies even if there’s no tax to pay. After three months, there are additional daily penalties of £10 a day, up to a maximum of £900. After six months there’s a further penalty of 5% of the tax due or £300, whichever is greater, and after 12 months, another 5% or £300 charge. There are also penalties for paying late.
So who needs to do a tax return?
Broadly speaking, you need to if any of these apply: you are a self-employed sole trader or limited company director; you earned more than £2,500 from renting out property; you are a shareholder; you or your partner received child benefit and either of you had an annual income of more than £50,000; you received more than £2,500 in other untaxed income, for example from tips or commission, or are an employee claiming expenses totalling more than £2,500; you earn more than £100,000 a year; or you earned income from abroad that you need to pay tax on.
Have you registered?
The bad news is that if you didn’t do a return last year, you will need to sign up first and, according to HMRC, this can take up to 20 working days. That’s because after you register, you will get a letter that contains your unique taxpayer reference, which you use to enrol for the self-assessment online service. Once you have done this, you will be sent an activation code in the post so you can sign into your online account and file your return.
‘My fingers were too cold to type’
Five bizarre excuses HMRC received from customers who missed the self-assessment deadline (from the past year):
• My mother-in-law is a witch and put a curse on me
• I’m too short to reach the postbox
• I was too busy: my first maid left, my second maid stole from me and my third maid was very slow to learn
• Our junior member of staff registered our client in self-assessment by mistake because they were not wearing their glasses
• My boiler had broken and my fingers were too cold to type
Five dubious expenses claims that people included on their tax returns:
• £900 for a 55-inch TV and soundbar to help a carpenter price his jobs
• £40 on woolly underwear … for five years
• £756 on pet insurance for a dog
• A music subscription “so I can listen to music while I work”
• A family holiday to Nigeria