Completing Tax Return In December Offers Advantages

November 2020
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Every year millions of taxpayers leave filing their return until the last minute, this not only risks incurring a penalty and interest but means that mistakes may be made. This year there is more reason to get the return completed sooner, as HMRC will enter a time to pay arrangement with those taxpayers who file on time, giving the option of spreading payments due in January over affordable instalments. Taxpayers who have overpaid may also be a due a refund and this can be paid as soon as the return is filed and agreed. 

The deadline for completing a paper return passed on 31 October, so online applications are now required and must be done by 31 January 2021 with any tax due paid by that date. Missing these deadlines incurs a penalty of £100, which increases after 3 months and interest must be paid on any tax which is paid late. The current rate of interest is 2.6%.

For those not wholly taxed under PAYE, tax is usually paid twice a year, by 31 July and 31 January following the end of the tax year. The payment due in July is a payment based on an estimate of what the individual and HMRC expects their tax bill to be, unless they have already filed their return and it has been accepted by HMRC.  Where income is expected to be lower than previous years the taxpayer may reduce the payment on account. The January payment is when a reconciliation is done with a balancing payment due and a payment on account for the current year. 

Time to Pay
Where an individual’s income has been affected adversely by the pandemic, HMRC have postponed the 31 July instalment due until 31st January 2021. Those who file before 31 January may enter a time to pay agreement for the payment due on 31 January 2021. They will not incur late payment penalties but will pay interest on the instalments, currently at 2.6%.  Where the tax due is less than £30,000 time to pay can be applied for online via the Government gateway or by calling 0300 200 3822. Filing the tax return in early December will give HMRC the opportunity to assess the tax due before 31 January deadline and give certainty to the taxpayer who can assess whether they need to use time to pay. 

For those who may be accessing Universal Credit, establishing the tax due to be paid means that funds set aside for it do not count towards the means test applied when eligibility for the benefit is assessed. 

Refunds and Allowances for 2020-21

Filing early means that any overpayment of tax can be reclaimed that much sooner. Some common reasons why a refund could be due are:-

  • Higher and top rate tax relief on private pension savings.
  • Higher and top rate relief on gift aid donations.
  • Claiming marriage allowance
  • Overpayment of tax on one off withdrawals from pensions
  • A drop in income which has left tax overpaid via PAYE, for example, High Income Child Benefit Tax, cessation of employer sponsored  private medical cover, income falling into a lower tax band.  
  • Emergency code applied to new sources of income
  • Sources of income or benefits, taxed under PAYE code adjustment, ceasing or reducing.

Reasons Why Tax May Be Owed
It is a common mistake to assume that if not asked by HMRC to complete a tax return, it is not required.  Self-assessment expects the taxpayer to know when they need to report and pay tax. 

  • Ceasing or reducing pension savings or gift aid donations, previously relieved by PAYE Code
  • Additional sources of income e.g. self employed profits over £1,000, income from property over £2,500, untaxed interest over savings allowance, dividends over £2,000
  • Pension savings in excess of the available annual allowance made 
  • Taxable expenses, employee benefits or tips and commission not taxed at source
  • Capital gains realised in excess of £12,000 (2019-20)
  • High Income Child Benefit Charge, if income is over £50,099
  • One off taxable investment realised at a profit 
  • Taxable income increasing above £100,000
  • More than one employment in the tax year

Filing a tax return only has to be done once a year and tackling it sooner makes the process less stressful, giving certainty about any amount owed and the potential to spread payments with time to pay. For an assessment on how to  save tax on savings and investments contact your usual adviser or e-mail

The FCA does not regulate tax advice.

Kay Ingram                       
Public Policy Director
November 2020

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. The contents of this blog are for information purposes only and do not constitute individual advice. All information is based on our current understanding of taxation legislation and regulations. The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.

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