Almost 5.7 million people are still to file their tax return with less than a month to go until the self assessment deadline, HMRC has revealed.
More than 12 million people are expected to file a tax return for the 2021 to 2022 tax year by 31 January – and experts are warning that HMRC will not be as quick to waive late payment fines as it was in 2021 and 2022.
HMRC also revealed that some people managed to avoid the last-minute panic by using the New Year weekend to get their tax affairs in order.
Taxing times: HMRC says that almost half of self assessment tax returns are yet to be completed with less than one month until the deadline.
More than 42,500 customers chose to see in the new year by submitting their return on 31 December or 1 January.
HMRC also revealed that 129 people chose to celebrate the start of 2023 by submitting their tax return on 1 January between 00:00 and 00:59 on New Year’s Day.
With less than four weeks to go, HMRC is warning customers that the deadline to submit a paper return has passed and tax returns can only be submitted online.
It is also warning that anyone who files after 31 January may face a penalty charge.
However, it says those who provide HMRC with a reasonable excuse for filing late before the 31 January deadline can avoid a penalty after this date.
Late tax returns: What are the penalties?
The penalties for late tax returns involve an initial £100 fixed penalty, which applies even if there is no tax to pay, or if the tax due is paid on time.
After three months, additional daily penalties of £10 per day, up to a maximum of £900 will be added.
Then after six months, a further penalty of whichever is greater out of 5 per cent of the tax due or £300 will begin being charged. After one year, another 5 per cent or £300 charge will be added.
Online-only: With less than four weeks to go, HMRC is warning customers that the deadline to submit a paper return has passed and tax returns can only be submitted online
There are also additional penalties for paying late. This will be 5 per cent of the tax unpaid at 30 days, 6 months and finally 12 months.
For the last two years, HMRC has waived late filing and late payment penalties for a month after the 31 January Self Assessment deadline to ease Covid pressures, but according to the accountancy and business advisory firm BDO, people shouldn’t bank on the same level of goodwill this year.
BDO is warning taxpayers who are in arrears that HMRC is expected to get much tougher when it comes to recovering tax debts in 2023.
HMRC’s debt collection powers have expanded over recent years. It can recover some debts directly from bank accounts, ask for security for tax debts, use bailiffs and, in some cases, seek to transfer a company’s liabilities to its directors.
The tax authority has also recently announced that its officers will take card readers with them when they visit taxpayers’ premises or homes to pursue tax debts.
Festive fun: More than 42,500 customers chose to see in the new year by submitting their return on 31 December and 1 January
Dawn Register, head of tax dispute resolution at BDO said: ‘The number of people filing their tax returns over the Christmas period was down almost 30 per cent versus last year, and HMRC’s warning that there are 5.7million people still yet to file their returns should be a wake-up call to many that they need to take prompt action.
‘During the pandemic, HMRC did show some forbearance. The result was that tax debt ballooned.
HMRC is unlikely to give any waiver for late filing or late payments, and is expected to get tougher on those with outstanding debts.
‘While it has worked hard to reduce this, the latest figures show total tax debt currently stands at £46.9bn.
‘That’s more than double the pre-pandemic level at the end of March 2020 when tax debt was £19bn.
‘As a result of this huge increase, HMRC’s debt management teams will be under considerable pressure to bring in the cash.
‘While HMRC is offering time to pay arrangements to those who are genuinely going to find it difficult to pay their tax on time, they’re unlikely to give any waiver for late filing or late payments and are expected to get tougher on those with outstanding debts.
‘Those paying late will also be hit with higher interest charges this year. The late payment interest rate is set to rise to 6 per cent on unpaid taxes from 6 January 2023, the highest rate since November 2008. Taxpayers in arrears should take note.’
No-nonsense: Accountants are warning taxpayers who are in arrears that HMRC is expected to get much tougher when it comes to recovering tax debts in 2023
Top tips for filing your tax return
This year, many taxpayers are choosing to settle their Self Assessment tax bill via the HMRC app which launched in February 2022.
Since that time, more than 50,000 taxpayers have used the app to make £50m in Self Assessment payments, according to HMRC.
HMRC has a wide range of resources to help customers complete their tax return, including online guidance, webinars and YouTube videos.
Those who are unable to pay may be able to help by arranging an affordable payment plan, known as Time to Pay.
With so many people still to complete their tax return there is a concern that people may rush the process, missing out on important tax reliefs in doing so.
More than 50,000 taxpayers have used the HMRC app to make £50m in Self Assessment payments since February.
‘HMRC’s systems are at risk of being overloaded with nearly half of the 12 million expected returns still outstanding as the new year starts,’ says Tim Stovold, head of tax at Moore Kingston Smith.
‘It’s human nature to put off the dreaded task of calculating your tax liability. Last year, 630,000 tax returns were filed on the normal deadline day of 31 January 2022 but the waiving of penalties for late filing had already been announced by then.
‘There is no waiving of penalties expected this year and the deadline day filers could easily exceed 1million.
‘Leaving filing your tax return until the last-minute means that valuable reliefs for pension contributions or charitable donations are missed.
‘For those struggling to pay, they are leaving it until the eleventh hour to agree a time to pay arrangement with HMRC.’
This is Money spoke to Dawn Register, head of tax dispute resolution at BDO on what the crucial factors for taxpayers to consider when filling in their returns this year.
1. Claiming Child Benefit
Once someone begins earning £50,000 per year, child benefit starts to be withdrawn. This benefit pays £1,133 a year for a first child, and £751 per additional child.
People get no child benefit at all once the income of the highest earner in a household hits £60,000.
Income includes taxable benefits received from a job, like a company car or medical insurance.
Register says: ‘You will be liable to the high-income child benefit chargeif you, or your partner, have annual income of more than £50,000 and one of you gets child benefit.
‘If your income is between £50,000 and £60,000, then the tax charge is less than the full amount of child benefit and increases gradually to 100 per cent as income reaches £60,000 and over.
‘If you were previously paying the charge but your income dropped during the year due to furlough, you may have paid too much tax through your pay, so check if you are due a refund.
‘And think about earlier years too: if you did not spot this issue in 2020/21 or earlier, contact HMRC directly to get it put right. The sooner you sort it out the less you will have to pay interest on tax paid late.’
2. Declaring rental income
This will be important for any landlords as they must pay tax on any profit they make from renting out property.
How do you know if you have to do a tax return?
1) You are self-employed or a sole trader, and have earned at least £1000 in income in the past tax year
2) You’re a partner in a partnership business
3) You’re a director of a limited company
4) You’ve earned tips or commission equating to £1000 or more
5) You have income from property
6) You have income from foreign sources
7) You have income from savings, investments or dividends
8) You need to claim tax relief, such as on pension contributions
Their profit is the amount left once they’ve added together their rental income and taken away the expenses or allowances they can claim.
If they rent out more than one property, the profits and losses from those properties are added together to arrive at one figure of profit or loss for their property business.
However, profits and losses from overseas properties must be kept separate from properties in the UK.
Register says: ‘HMRC is actively targeting residential landlords who may not have paid the correct tax, so it’s important that you accurately declare rental income.
‘If you rent out a residential property, you must pay tax on the profit you make after deductions for ‘allowable expenses’.
‘These include letting agents’ fees, buildings insurance, property maintenance and repairs, and utility bills.
‘For furnished residential lettings you may also be able to claim a ‘wear and tear’ allowance.
‘The first £1,000 of your income from property rental is tax-free. You can also declare unpaid tax by telling HMRC about rental income from previous years via the Let Property Campaign.
‘If you have to pay a penalty, it’ll be lower than if HMRC find out about the income themselves.’
3. Foreign income
Foreign income is anything deriving outside England, Scotland, Wales and Northern Ireland. The Channel Islands and the Isle of Man are classed as foreign.
The information you need to have to hand
Unique taxpayer reference
National insurance number
P60 and P45
Your total income and any income from property, investments and shares
Details of your business expenses if you’re self employed
Any contributions to charity or your pension
Taxpayers may need to pay income tax on foreign income, such as wages if they work abroad or on foreign investment income such as dividends and savings interest.
It also relates to rental income on overseas property and income from pensions held overseas.
Register says: ‘One area of frequent errors and misunderstanding is the reporting of foreign income.
‘Some people mistakenly think that submitting a return in the jurisdiction where the income arises satisfies their UK obligations, but this isn’t the case.
‘A UK tax resident individual is normally subject to UK tax upon their worldwide income and assets and needs to report this to HMRC.
‘However, a foreign tax credit relief may apply if income or gains are reported to both HMRC and a foreign tax authority.’
4. Gains on cryptocurrency and digital assets
Anyone who has sold cryptocurrency during the 2021/22 tax year may need to pay capital gains tax (CGT).
Britons are only required to pay CGT if the gain they make exceeds their £12,300 tax-free allowance in a single tax year.
Register says: ‘If you dabbled in cryptocurrencies or any form of digital asset and made a gain during 2021/22 this may need to be disclosed on your tax return.
‘These are treated like any other asset so if you have sold for more than you bought, the gain is taxable subject to the usual £12,300 annual allowance.
‘Even if you make a smaller profit, if the sale proceeds were more than £49,200, they still need to be reported on your return.’
What do you owe? Anyone who has sold cryptocurrency during the 2021/22 tax year may need to pay capital gains tax
5. Claim capital losses
Anyone who has realised capital losses on investments during 2021/22, including crypto assets, needs to claim these on their tax return.
Those failing to do so, won’t be available to use them to offset against any capital gains in future years.
6. Covid support payments
Anyone who claimed any Covid support payments during 2021/22 tax year will find that the funds are taxable as trading income and will need to be reported on their tax return.
This includes payments from the Self-Employed Income Support Scheme (SEISS) or from furlough payments for employees of your sole trade.
Register says: ‘If you spot that you were paid too much, this can be corrected through the return but failing to do so could trigger interest and penalties via a tax enquiry.’
Currently Britons are only required to pay CGT if the gain they make exceeds their £12,300 tax-free allowance in a single tax year
7. Working from home or hybrid working
Those that regularly worked from home during the 2021/22 as a result of lockdowns and the switch to more hybrid working arrangements can claim £6 per week as a tax deduction for the extra costs such as heating and lighting.
If they didn’t claim this during the year through their PAYE tax code, they can claim it through a tax return.
8. Set up a new business?
Anyone who started a new business online or offline should have notified HMRC by 5 October this year.
Even if they haven’t told the taxman yet, there is still time to make the right entries on a Self-Assessment tax return for the year if their gross turnover in 2021/22 was more than £1,000.
Register says: ‘You will need to show all your income and expenses, or if your earnings were relatively modest, you can just claim a £1,000 deduction from your gross income.
‘Don’t forget, VAT registration also applies to businesses with a turnover of £85,000 or more.’
Top tips to save on CGT
By Natalie Field, partner accountant at TaxScouts
1. Use your annual allowance of £12,300. It’s ‘use it or lose it’ so you can’t carry it forward to future tax years if not fully utilised
2. Most assets can be transferred tax-free to spouses or civil partners, so it may be worth transferring to the individual who pays tax at a lower rate or who has more allowance to use
3. Offset your losses against your gains. For example, you may have some underperforming shares which you can sell at a loss to then offset against gains made on your better performing investments
4. Reduce your taxable income. The rate at which you pay income tax denotes which rate you pay for capital gains tax
5. Make investments in Isas as any gains are tax-free
6. Spread gains over several years to make the most of the yearly allowances and lower tax brackets
9. Gains on a residential property
Anyone selling their main home will be shielded from paying any tax on capital gains by something called principal private residence relief.
However, it’s slightly different for those selling a second property, such as a buy-to-let or holiday home.
Anyone who sold a second property during the 2021/22 tax year, should have already reported this using a ‘Capital gains on UK property Account’ and paid any tax due within 60 days of the sale.
However, even if they have done this correctly, they still need to disclose the gain and the tax they paid on your full tax return for the year – so don’t miss it off.
When it comes to property it’s worth noting that the tax rate is higher than with other investments.
Basic rate taxpayers will be charged 18 per cent of any gain and higher rate taxpayers will be charged 28 per cent of any gain.
10. Claim relief for your pension contributions
Those making personal pension contributions are entitled to relief at their marginal rate of tax.
People can typically pay up to £40,000 towards their pension every year and be entitled to tax relief, unless they have reached their lifetime allowance of £1,073,100.
Register says: ‘If you pay contributions directly to a personal pension rather than through a company scheme or by salary sacrifice, you will get basic rate tax relief at source but need to claim the additional 20 per cent or 25 per cent through your tax return.
‘Similarly, if you are a sole trade or in partnership, rather than owning your own company, you need to claim all your pension tax relief through your tax return.
‘But take care if you have paid in large amounts or accrued large additions to your pension entitlement under an employer scheme, going over your annual allowance (including any unused allowance brought forward from earlier years) triggers a tax charge which you must put on your tax return – it’s wise to seek expert advice if you think this may be an issue.’
11. Claim tax relief on your venture capital investments
Venture capital schemes offer tax relief to individuals to encourage them to invest in companies and social enterprises that are not listed on any.
Depending on the scheme, people may be able to claim both income tax relief and capital gains tax relief.
Offset your losses against your gains: Investors may have some underperforming shares they can sell at a loss to then offset against gains made on better-performing investments
Register says: ‘Investing in a young company through the Enterprise Investment Scheme (EIS) or Seed EIS, or buying units in a Venture Capital Trust carries higher risks than most other investments so don’t miss out on the tax breaks on offer.
‘Make sure you remember to claim the tax relief through your return and don’t forget that, in the right circumstances, EIS and SEIS investments made since April 2022 can also be claimed in your 2021/22 tax return to give you tax relief faster.’
12. Maximise your charitable gifts
For those who have made a gift to charity and signed the gift aid declaration, the Government tops up the donation giving the basic rate tax relief due on it to the charity.
However, higher and additional rate taxpayers can also claim the difference between their top tax rate (40 per cent or 45 per cent) and the 20 per cent basic rate on the total value of a donation made.
BDO says: ‘If HMRC knows about your gifts it can give you this tax relief through your tax code – ie against your salary.
‘But if you have not told it about your gifts before, you can submit a tax return to claim this tax relief.
‘And if you have a favourite charity, consider making Gift Aid donations before 31 January to provide an early benefit to the charity and elect for the donation to be treated as made in the 2021/22 tax year to accelerate tax relief.
‘This doesn’t just have to be a benefit for you, when you get your tax refund you can always donate it to another charity.’