Suffering from the January Blues? With the self-assessment tax return January deadline looming large and the sparkling memories of the festive season fading fast, many people feel gloomy and uninspired in the first month of the year.
If your tax return is keeping you awake at night, here are our top tips for avoiding the most common mistakes and getting your online assessment done right first time – crack on and tick it off your to do list – you’ll feel so much better!
Firstly, and really importantly, before you begin your online tax return, make sure you have all your financial paperwork in order, and compare your figures to last year. Full disclosure is very important as any deficiency may trigger an HMRC enquiry.
Pitfall no. 1 – The wrong tax year
You opted to have your previous year’s tax liability included in your tax code for the year rather than paying in full on 31st January, but you fail to allow for this when completing the later year’s return. This will then result in your current year’s tax liability being artificially suppressed.
Our Tip: there is a normally a full tax year’s gap, so in 2017/18 you are most likely to have 2015/16 tax in your code. Check your HMRC coding notice, if you have a standard code (for 2017/18 it is 1150L), then you are unlikely to have an issue. Remember to include payments on account made in January and July towards your final liability. Your January payment is likely to include the balancing liability or refund from the year before, so you should only include the payment on account element. If you have a refund due, remember to include your bank details.
Remember to consider whether you want to have this year’s tax included in a later year’s tax code rather than pay it and also whether you want your code in later years to be adjusted to tax other income through PAYE (e.g. rental or dividends) – your choice.
Pitfall no. 2 – Pensions
You put an incorrect amount of your received state pension on your return. Many people either:
- Record 12 lots of pension payments – the state pension is usually paid every four weeks, therefore making 13 payments per year.
- Put in the actual amounts received, including the smaller first payment – the first payment is a bit smaller as it includes the last couple of weeks of the previous tax year.
Our Tip: for four-weekly pensions, the correct figure to use is 13 x the regular payment. This should agree with your tax code operated against any private pension or employment. Also, have you checked your pension contributions statements for an index-linked increase? Do you have an old pension policy which pays gross contributions? Extra tax relief is due on your return for this.
Be aware of your pension annual allowance (including employer contributions), which is generally £40,000 (but potentially lower for those with incomes over £110k), you can possibly utilise unused allowances from the previous 3 years.
Pitfall no. 3 – Child benefit
You have an income over £50,000 and you haven’t repaid the child benefit received by you or your partner. Irrespective of who receives the child benefit, it is the higher earner who potentially has to repay it.
Our Tip: if your income is regularly just over the threshold, you could alter the timing of your income (such as dividends), or tax reliefs (such as pension contributions and charity donations) to be entitled to keep child benefit every other year.
Pitfall no. 4 – National Insurance
You are self employed or in partnership and have not included your Class 2 National Insurance Contributions.
Our Tip: depending on your personal circumstances and (self) employment history, even if you have low profits which could exempt you from paying class 2 NICs, it may be a good idea to pay this in order to gain a year’s state pension credit.
Pitfall no. 5 – student loan
You don’t include the income contingent student loan from your university days on your tax return.
Our Tip: if you have almost paid off your student loan, it may be easier to settle direct with the Student Loan Company rather than overpay HMRC and wait for a rebate. It can take some time for the money to go from HMRC to the loan company and back again!
Although considered a chore, most taxpayers can complete their tax return without the need for professional help. If you have kept detailed financial records and meet the deadlines for completing the return and paying the tax, you shouldn’t encounter any problems. There is also useful online help available from HMRC.
To minimise your future tax bills and take the panic out of your tax return, contact CRM on 01865 379272.