Member Article

Self-assessment tax: don’t be out of pocket

Last minute self-assessments leave people at risk of wasting tax on missed allowance opportunities, warn UK finance experts.

Around 11 million people have to submit self-assessment forms in the UK each year, including the self-employed, company directors and partners, anyone earning untaxed income outside of their regular employment, and higher-rate taxpayers claiming relief on pension. And with over three million tax returns still outstanding as the January 31st tax return deadline approaches, HMRC has revealed its top ten terrible – and unsuccessful – tax excuses.

Whilst the list might be seen as an attempt by the taxman to show that he does have a sense of humour – excuses range from classics such as “the dog ate my tax return”, to the frankly baffling “Barack Obama is in charge of my finances” – there is a serious message behind the publication.

HMRC takes filing deadlines very seriously, and in the last minute rush to avoid being penalised with a potentially hefty fine for missing the online cut off at the end of this month, many people are likely to overlook opportunities to make the most of available tax allowances.

Paul Bain, wealth planning adviser at independent financial planning firm Gale and Phillipson, said: “Tax can be a complex area, and even more so if you run a business or have several sources of income. The most common areas where we tend to see people wasting tax are: savings (for example, under-using cash ISAs); retirement planning (for example, failing to make sufficient payments into pensions); inheritance tax; and capital gains tax (for example, by not holding stocks and shares in an ISA).”

Other cited areas where people often waste tax include charitable donations. Whilst charities receive basic-rate tax relief on gift aid donations (increasing the amount they receive), many higher rate tax payers aren’t aware that they can claim extra tax relief on charitable donations that they make of 20%, deducted from their self-assessment tax bill.

For the self-employed, tax-deductible expenses, which reduce the amount of income you pay tax on, include the running costs of a car used for business, travel and accommodation on business trips, and between different places of work, as well as heating, lighting, cleaning, water bills, rent, or any other general maintenance costs for dedicated business premises – even if you work from home.

Landlords who declare rental income on a self-assessment tax return can claim allowable expenses which reduce the amount they pay tax on too.

From April, the new Personal Savings Allowance will allow people the opportunity to hang on to even more of their income.

Paul said: “At the moment, banks normally take 20% off any interest earned on savings in many bank accounts, with the exception of ISAs, and hand it to the taxman.

“But in this year’s Budget, the chancellor announced the introduction of a new Personal Savings Allowance from April. It will mean that those who pay basic rate tax – less than £42,700 a year – won’t have any interest charged on the first £1,000 of savings interest that they earn. Higher rate tax payers are still entitled to the Personal Savings Allowance, but at the lower level of £500.”

“Working with a professional, such as an independent financial adviser or an accountant can help you identify all your areas of tax wastage and advise you on ways to become more tax efficient, saving you a significant amount of money over the longer term. They will also be able to inform you of any changes in tax law that could affect you, whether it’s in a bad way or a good way.”

It takes 20 working days to register with HMRC if this is your first time completing a self-assessment return - so if you haven’t done it already, you may be too late.

Paul said: “It goes without saying that it’s best to get in early to allow plenty of time to sort out any issues with your return. However, if you’re still uncertain about completing your tax return, or would like help with any aspect of tax planning, then we’d urge people to get in touch with a professional. We can help to make sure you avoid becoming an entrant on HMRC’s list of lame excuses next year!”

For information and advice on financial planning and wider tax efficiencies, contact Gale and Phillipson at enquiries@galeandphillipson.co.uk or visit: www.galeandphillipson.co.uk/resources

This was posted in Bdaily's Members' News section by Gale and Phillipson .