For many taxpayers not completing a tax return could mean over- paying tax by not claiming reliefs, or not paying enough and incurring interest and penalties. Tax codes issued by HMRC to payroll providers are only as accurate as the information which HMRC holds about each taxpayer. Where it has no information, it is based on assumptions. If these are incorrect, it can result in overpayment or under payment of tax. Adjustment for relief can be backdated up to 4 years. HMRC may reopen earlier years where there is under reporting and indefinitely in cases of fraud.
While not everyone is required to complete a self - assessment tax return, it is not HMRC’s responsibility to say whether they do or not. The clue is in the name, self- assessment means that it is every taxpayer’s responsibility to know how much tax they owe, to report their income and gains to HMRC and to pay their tax by 31 January following the tax year end.
- An incorrect tax code has been applied, this can often be the case where there has been a change of circumstances, for example, starting to draw a pension, reducing working hours, fluctuating bonuses, less investment income. One of the flaws of self assessment is that HMRC’s default position is that whatever happened last year forms the basis of the tax code.
- For those with income in excess of £50,000 additional tax relief may be due on charitable donations under the gift aid scheme or on pension savings.
- Investment in Venture Capital Trusts and Enterprise Investment Schemes can also create a claim. Professional subscriptions, training costs and fees essential to pursuing a trade or profession can be offset against tax.
- A one off withdrawal from a pension scheme can give rise to over payment of tax. Up to 25% of the fund value can be withdrawn tax free. Any excess is taxable as income. The way the excess is taxed on flexible withdrawals is for HMRC to assume that the payment is a first monthly instalment. £10,000 of taxable income withdrawn in April will be taxed as though £120,000 will be paid throughout the year. Standalone claims for repayment can be made before the tax year end or via self assessment.
- Tax may be owed where taxable savings income exceeds the tax free allowance for the tax year. For dividends £2,000. For interest £1,000 if a basic rate taxpayer, £500 for higher rate taxpayers and nil for top rate taxpayers. Overall allowances will be higher if there is unused personal allowance or starting rate band for savings that can be used. Banks and building societies no longer deduct tax at source.
- The State pension is taxable but is paid without deduction of tax. If total taxable income exceeds available allowances then tax must be paid on the State pension – the tax payable on the state pension is normally taken via PAYE from other income if the individual has other pension or earned income.
- Those whose income is near one of the “cliff edges” of our income tax regime need to notify HMRC of any change in income or risk paying too much or too little tax.
- Parents in receipt of child benefit with income between £50,000 to £60,000 (based on the higher earner if a couple). The High-Income Child Benefit Charge gradually taxes child benefit, so that once income is over £60,000 it is taxed at 100%. The deadline for reporting an increase in income in the previous tax year is 5 October, unless a tax return is submitted by 31 January.
- Many parents waive child benefit  to avoid getting involved in self -assessment, but if income is nearer to the lower threshold and there is more than one child, this could mean giving up income which is still partially tax free, so reassessing this decision is advisable especially if income varies from year to year. Parents Can Eliminate Child Benefit Tax
- Where income is between £100,000 and £125,000 the personal income tax free allowance of £12,500 is gradually withdrawn, at a rate of £1 for every £2 income over £100,000. Those with fluctuating income around these levels may need to complete a self -assessment return to make a claim for a refund or pay the extra. Paying pension contributions or making charitable gift aid donations can help restore the personal allowance and reduce the tax payable.
31 October 2019 is the last date that paper-based tax returns may be submitted to HMRC for the tax year 2018-19. After then returns can only be submitted online via the Government Gateway. They must be filed, and all tax paid by 31 January 2020.
Director of Public Policy, LEBC
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. A pension is a long-term investment. The fund value may fluctuate and can go down. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. If you are unsure of the suitability of any investment or product for your circumstances, please contact an adviser. All information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation, are subject to change. Taxation advice is not regulated by the Financial Conduct Authority.
 Although it should always be registered for in order to receive NI credits.
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