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The annual deadline for completing a self-assessment tax return is exactly one week away so this is the last chance to avoid a fine from HMRC for late filing and claim valuable tax relief on pension contributions.
All returns must be submitted by midnight on Wednesday January 31, with around 12 million in total needing to file a return. Last year, two million missed the deadline and incurred an instant £100 fine plus interest on late tax due.
Almost 3.5 million have not filed their return for the 2021/22 tax year and need to get their skates on. It’s a chore but could save you money.
If you don’t usually complete a tax return you probably don’t need to bother this year either, unless your personal or financially circumstances have changed.
Freelancers, the self-employed, small business owners and partners, private landlord and those earning more than £100,000 a year do need to file, though. So do those with more than £10,000 income from savings or investments outside of a tax-free Isa, or overseas income and gains on Bitcoin and other cryptocurrencies.
Anyone earning more than £50,000 a year who does not complete a return may miss out on valuable tax relief if they have made any pension contributions, said Jenny Holt, managing director, customer savings and investments at Standard Life.
“Savers automatically receive 20 percent tax relief on every contribution they make, but higher and additional rate taxpayers need to claim the extra 20 or 25 percent tax relief.”
This money is either repaid via a rebate, a change in your tax code or a reduction in this year’s tax bill, she added.
A 40 percent taxpayer who made the maximum £40,000 in annual pension contributions will get £16,000 tax relief in total. Half of this is paid automatically, but the remaining £8,000 must be claimed.
Holt said maxing out tax relief is particularly important for those earning between £100,000 and £125,140. They face a highly punitive tax rate, as they steadily lose some of their personal allowance for each pound they earn.
This means they are taxed at an effective rate of 60 percent, but can reduce that by making pension contributions to lower their income.
“If you have failed to claim this relief, you can backdate claims for up to four tax years, potentially worth thousands of pounds.”
Holt added: “Once you start completing a self-assessment, you will be expected to complete one in each future year, so make a note in your calendar.”
Paying extra pension contributions can also help families who fall foul of the High Income Child Benefit Charge, which is triggered when one parent earns more than £50,000, said NFU Mutual chartered financial planner Sean McCann.
“For every £100 of income over that you pay back one percent of the child benefit. Once your income reaches £60,000 you repay the full amount.”
Money you pay into your pension is knocked off your income before the charge is assessed. “If it reduces your income below £50,000 you won’t need to pay at all.”
McCann said if you have given to charity via Gift Aid and pay higher rate tax, you can claim back additional tax relief through your tax return.
“So if you donate £100, the charity will claim an additional £25 and a 40 percent taxpayer can reclaim £25 for themselves. Yet the perceived effort puts many off.”
Remember to declare any capital gains if you sold or gave away shares in the 2021/22 tax year, and pay any tax due.
Many people don’t realise that they can face capital gains tax bill when they gift shares or property, other than their main home, to anyone other than their spouse or civil partner, McCann said. “Check if you have any losses available to offset any potential bill.”
Trusha Shah, tax manager at accountancy firm HW Fisher, said make a copy of your completed tax return and keep it on file. “If you are employed or a pensioner, keep all paperwork for 22 months from the end of the tax year. If you are self-employed or letting a property, keep it for five years and 10 months.”
Remember your starter rate for savings allowance, which alows you to earn up to £5,000 in interest on savings, tax-free. To find out more, visit the HMRC website.