Tax returns – last minute tips

Charles Calkin, partner and financial planning consultant

Charles Calkin, partner and financial planning consultant

This is the week when millions of Britons race to meet HMRC’s deadline for submitting their online self-assessment tax returns. On past evidence around 750,000 will not pass the finishing post in time. Around 30,000 will be sweating the hour before the midnight deadline to get their returns in.

It is a busy time for HMRC too, so they can be forgiven for finding entertainment in some of the excuses people make subsequently. Over the years these have included a self-employed builder too overwrought by the death of his goldfish, someone claiming to be too short to reach the letter box, and a hairdresser who said: “my husband told me the deadline was 31 March, and I believed him.”

The truth is that for most of us there is no excuse and no need to risk the £100 penalty. If you are struggling to put your finger on some nuggets of required information you can still file a return and amend the details later.

Completing a tax return can be a pain; paying the bill may hurt even more. There are a number of ways you can legitimately reduce your bill to ensure that the pain is moderated.

Offsetting expenses

The easiest way is to focus on the ‘taxable income’ figure on your return. This can often be reduced with legitimate expenses and allowances.

If you work from home or are self-employed you can often offset against your taxable income necessary business expenses like travel, phone costs, office supplies, insurance and some or all of your gas and electricity bills.

Employees who need their car for work (and not just to get there and back each day) may also be able to offset these costs if their employer fails to provide a mileage allowance or is too tight to pay HMRC’s approved mileage rates (45p per mile for the first 10,000 miles and 25p thereafter for cars).

You may be able to offset purchase and repair costs of work tools and specialist uniform expenses. (Sorry, but a business suit does not count.) Be aware that HMRC staff also entertain themselves looking at some of the expenses people try to get away with – for instance, the carpenter who claimed £900 for a 55-inch TV and sound bar to help him price jobs, and the person who claimed the cost of pet food for their Shi Tzhu ‘guard dog’. These must be legitimate expenses!

Investment income

On the other side of the ledger, you must include income from investments within ‘taxable income’ but again there are mitigating allowances. Income from ISAs, National Savings Certificates and Premium Bond or National Lottery winnings are tax free as is the first £2,000 you earn from share dividends outside an ISA.

The ‘property allowance’ means the first £1,000 you earn from any properties you own is tax-free. If you rent out a room in your house for less than £7,500 a year (£3,750 if you are letting jointly), the income is tax exempt and does not even need to be reported.

Gift aid

I have written before about the benefits of gift aid donations. Higher-rate (40%) tax payers can claim back 20% on qualifying gift aid donations made during the tax year; additional rate taxpayers can claim 25%. This can be offset against your income tax bill (or carried back against last year’s if, perhaps, your rate then was higher), so keep a record of donations if you want to take advantage of this perk.

Pension allowance

We all enjoy relief at our marginal rate of tax on pension contributions but only the basic-rate relief of 20% is added by providers at source. That means higher rate and additional rate taxpayers must claim back the extra 20% and 25% respectively through their tax return. You can backdate claims from the three previous years if this benefit has passed you by – I have known clients who have claimed back thousands on this.

Marriage allowance

Many couples also miss out on ‘marriage allowance’. This only applies to basic rate taxpayers. It enables someone earning less than £12,500 to transfer £1,250 of their tax-free personal allowance to their spouse or civil partner. It can be worth up to £250 a year to some couples and you can backdate claims to 5 April 2015.

Tax-friendly investment schemes

The Enterprise Investment Scheme (EIS) and its sibling the Seed Investment Scheme (SEIS) both enable sophisticated investors with a greater appetite for risk to enjoy hefty tax reliefs on qualifying investments. Losses can be set against your income too. Investments in Venture Capital Trusts (VCTs) enjoy 30% tax relief on investment and any income or capital gains generated are tax free. These investments (particularly VCTs) are becoming more mainstream with investors who are hitting the roof on pension contributions, but we are still cautious about them – they can be costly and performance is often opaque. You are best taking advice before investing.

Pay for an expert

Similarly, it can be worth taking advice on your tax return as a whole. High earners can find the benefits outweighing the costs. But accountants too have a legion of tax return stories, usually involving people turning up in their reception area in the last week of January with a carrier bag full of dishevelled receipts. You may deserve a rebate but you will not earn a welcome if that is you. Unless, of course, you have a very creative excuse!

By Charles Calkin

Posted on 13th December 2019

A version of this piece first appeared in the Financial Times.

Opinions and views expressed are personal and subject to change. No representation or warranty, express or implied, is made of given by or on behalf of the Firm or its partners or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this document. And no responsibility or liability is accepted for any such information or opinions.

The value of an investment and the income from it can go down as well as up. And investors may not get back the amount invested. This may be partly the result of exchange rate fluctuations in investments which have an exposure to foreign currencies. Fluctuations in interest rates may affect the value of your investment. The levels of taxations and tax reliefs depend on individual circumstances and may change. You should be aware that past performance is no guarantee of future performance.

 

The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.