This is the month when millions of Britons race to meet HM Revenue & Customs’ deadline for submitting online self-assessment tax returns. On past evidence, about 750,000 will not pass the finishing post in time. About 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 its staff can be forgiven for finding entertainment in some of the excuses people make for not filing in time. 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 March 31, 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.
The easiest way is to focus on the “taxable income” figure on your return. This can often be reduced by offsetting legitimate expenses and allowances.
If you work from home or are self-employed you can often offset 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 tzu “guard dog”. These must be legitimate expenses.
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, Premium Bonds 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 own house for less than £7,500 a year, the income is tax exempt and does not even need to be reported under the government’s Rent a Room scheme.
I have written before about the benefits of gift aid donations. Higher-rate (40 per cent) taxpayers can claim back 20 per cent on qualifying gift aid donations made during the tax year; additional rate taxpayers can reclaim 25 per cent. This can be offset against your income tax bill, so keep a record of donations if you want to take advantage of this perk.
We all enjoy relief at our marginal rate of tax on pension contributions but often, only the basic-rate relief of 20 per cent is added by providers at source. That means higher rate and additional rate taxpayers must claim back the extra 20 per cent or 25 per cent 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 of pounds in this way.
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 April 5 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 per cent 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 should take 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 outweigh 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!
Charles Calkin is a financial planner at wealth manager James Hambro & Partners. The views expressed are personal.