The nation’s taxpayers are playing with fire. With less than a week to go until self-assessment submissions must be in alongside any money owed, HMRC has warned it is still waiting for 3.5 million people’s figures.
Risking at least a £100 fine for a late submission, 760,000 will leave it until the last day and 30,000 people won’t file until the last hour before the 11.59pm, 31 January deadline, based on last year’s numbers. In fact, submissions typically peak just 17 seconds before the cut-off, says tax software provider GoSimpleTax.
But with more than 11.5 million people due to file a return this year, about 7 per cent – equating to around 810,000 people – won’t complete one, often because they incorrectly assume they don’t have to if they have nothing to pay.
A recent survey by consumer group Which? found there are still huge gaps in the nation’s basic knowledge of tax, including the submissions process. More than half the UK’s taxpayers don’t know what the individual tax-free allowance is, for example.
Despite millions of people owning an ISA, 68 per cent didn’t know when they would start paying tax on their savings. And almost seven in every 10 Britons believe you don’t have to pay income or capital gains tax (CGT) on digital currencies such as Bitcoin.
But knowing about and planning for these limits, restrictions and fines could save the average taxpayer hundreds of pounds. Luckily, though best ways to keep hold of your cash involve some forethought, there are still ways those 3.5 million people, and even taxpayers who have already filed their return can save tax for this year before the 31 January.
“If you’re yet to submit your return, there are questions you can ask yourself that can make the process simpler and cut your tax bill,” says Sarah Coles, a personal finance analyst for Hargreaves Lansdown.
“They could prove very valuable, even if you’ve already completed your return, because you have until the deadline to log back in and make changes.”
1. Did you claim any extra tax on pensions? Around 15 per cent of higher and additional rate taxpayers have no idea whether or not they need to claim tax on pensions. Some employers run a trust-based scheme and reclaim the tax on your behalf but personal pension, group personal pension scheme and group SIPP participants need to do it themselves through the tax return. Check which you’re a member of by asking your employer.
2. Did you do it properly? Make sure you enter the gross value of your pension contributions. This isn’t just a total of all the money you paid in: it’s everything you paid in, plus tax relief at 20 per cent on top. Your pension provider will be able to tell you this figure, or you’ll find it on your pension statement.
3. Can you claim for things you don’t have time to work out? If you work from home occasionally, or use your own car for work every so often, it can seem like an awful lot of trouble to keep copious records, collect all your bills, and do complex calculations, just to make a relatively modest expenses claim. If you’ve simply ignored these expenses in the past, there are two shortcuts that are worth knowing about. For homeworking, you can use a flat rate of expenses: £10 a month for 25-50 hours a month, £18 for 51-100 hours, and £26 for 101 hours or more. If you’re using your car for work purposes (and you haven’t claimed it as a business vehicle), you can claim 45p per mile for the first 10,000 miles and 25p per mile thereafter.
4. Can you claim for previous years? If you have stumbled across something this year, and realise you should have been claiming for previous years, then you can amend returns from the relevant years. You can claim a refund up to four years after the end of the tax year it relates to.
5. Can you do anything now that will still count for this tax return? There are a handful of “carry back” opportunities, including a loophole on gift aid for charitable donations. The charities themselves reclaim basic rate tax (gift aid) as long as you have completed a form to confirm you pay tax.
Higher and additional rate taxpayers need to claim the difference through their tax return. However, any gift aid donation you make up until the day you file your tax return can be included in your previous year’s tax return, so you can make a donation now, and include it in the tax return you’re filing.
This is particularly useful if your income has fallen, so you can claim gift aid in a year when you were paying a higher rate of tax. Another carry back rule applies if you have invested in an Enterprise Investment Scheme (EIS) in the current tax year, and you want to carry back income tax relief of 30 per cent to the previous year.
You can’t claim back more relief than the tax you have paid, so this is particularly useful if you won’t earn enough to offset the tax relief this year.
Don’t forget this tax year you can make major inroads into your tax bill for 2017/18, but the most dramatic difference you can make right now is to your tax bill for the 2018/19 tax year.
“The easiest way to save what can amount to thousands of pounds in tax over the years is by making full use of your ISA allowance,” adds Coles. “For savers, this ensures that no matter how much interest you earn – or whether the government tinkers with the personal savings allowance – you’ll never pay tax on your savings.
“For investors it means you’ll never pay dividend tax – even if the allowance is cut again, and you’ll never be subject to capital gains tax – no matter how much money your investments make. You have an allowance of £20,000 this year, so there’s plenty of opportunity to shelter from the taxman.”
Also think about making extra pension contributions. It’s a big ask but if, for example, you were able to contribute £16,000, the government will add £4,000 basic rate tax relief to give a gross contribution of £20,000. In your next tax return, a 40 per cent taxpayer may be able to reclaim another £4,000 and a higher rate taxpayer another £4,500.
Some employers will also agree to pay more into your pension if you do – so you’ll be getting a chunk of free money into the bargain.
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