Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
The clock is ticking. With the 31 January deadline fast-approaching if you’re due to submit your self-assessment tax return and make any payment due, you need to get it done now.
Tax doesn’t have to be taxing, or so HMRC likes to tell us, but it can be expensive if you don’t play by the rules. Or if you make a mistake.
According to figures from consumer watchdog Which? of the 10 million-plus people who submit a tax return to HMRC each year, around one in five make a mistake that will have cost them financially.
Property income is most likely to cause confusion, Which? says, with 34% of people struggling to understand the rates and allowances. A similar number (32%) have difficulty getting to grips with the tax rules for dividend income, while 31% say they struggle with the rules on pension contributions.
There are all sorts of people who have to fill out a tax return, including the self-employed, ministers of religion, partners in a business and directors of limited companies, and parents.
You must complete a self-assessment tax return if between 6 April 2019 and 5 April 2020 you were self-employed as a sole trader and earned more than £1,000 (before taking off anything you can claim tax relief on) or you were a partner in a business partnership.
You may also need to complete a self-assessment form if you have any other untaxed income, such as if you have one or more properties that you rent out (accidental landlords included), received tips and commission.
You will also need to complete a return and pay what’s due if you or your partner earn more than £50,000 and your receive child benefit. You will need to complete a self-assessment return and pay the High Income Child Benefit Charge, which can add up to every penny of child benefit you have received from April to April.
The fact is that making a mistake on your tax return could end up costing you money; whether it’s an additional tax bill or a penalty for a miscalculation, HMRC’s system of penalties could be as much as 70% of the tax owed.
Follow these tips to make sure you don’t fall foul of the rules and end up paying the price.
1. Pay at least what you think you might owe
For the first time in the 24 years that self-assessment has been a feature of the tax-year calendar, late-filing penalties have been waived, because of the pressures already being faced during the pandemic. That means there is no longer the threat of the £100 fine that usually is immediately triggered if you don’t submit your return by 31 January. As long as you file your return before 28 February that is acceptable this year.
However, you cannot put off dealing with your tax bill altogether until then. While you have been cut some slack in terms of filing, you still have to pay up. Annual interest of 2.6% will still be charged from 1 February on any outstanding tax due. Late payment attracts a fine of 5% of the tax unpaid at 30 days, six months and 12 months after the deadline.
The advice from HMRC is to pay an estimated amount based on your income, even if you have yet to file your return. There are a number of ways to pay, including by cash or debit card. Full details are on the HMRC website.
2. Watch out for typos
The most common mistake is also the most basic – simple error. Double-check all your figures and make sure you’ve filled in every part of the form that’s relevant to you.
For additional income not covered by the main tax return, you will need to include supplementary pages. Whether that’s for interest from gilt edged and other UK securities, life insurance gains, income from share schemes, foreign income or a taxable lump sum from an overseas pension schemes, declare it and make sure you also submit the relevant supplementary pages.
3. Declare your pension contributions
If you pay money into a pension, you need to make sure you’re entering those contributions onto your tax return, in the correct box and for the right amount. If you make a mistake here, you could either miss out on tax relief or claim too much - in which case HMRC could charge interest on the underpayment.
However, if your employer deducts your pension contributions from your salary, you don’t need to enter these separately on your tax return, as the available tax relief will have been applied through your net salary.
4. Claim tax relief on charitable giving
If you’re a higher-rate taxpayer and you’ve made any donations to charity under the Gift Aid scheme, remember to record these donations in the main section of your tax return. Fail to do so and you’ll miss out on some tax relief that’s due to you.
5. Don’t forget to file your return by 28 February at the latest
Finally, don’t forget to actually submit your self-assessment return.
Every year hundreds of thousands of people miss the deadline. This year it is expected to be worse than usual, with HMRC having been warned that as many as 2.5 million will miss the deadline for 2019-2020 self-assessment returns, which are due on 31 January. Because of the pandemic that won’t trigger an automatic fine this year, but you still need to get the virtual paperwork completed before 28 February.
And if you do make a mistake
If you do make a mistake on your tax return you usually have 12 months to correct it. If you’ve submitted your return online, you can also make any changes online. Go back into your tax return, make the changes you need to and then make sure you submit it again.
For errors or amendments spotted after the 12 months is up, you’ll need to write to HMRC directly. Include in your letter the tax year you’re correcting, why you think you’ve paid too much or too little tax and by how much. You can claim a refund up to four years after the end of the tax year it relates to.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.