As the deadline to submit tax returns online and pay outstanding bills from HMRC fast approaches, the financial pressures of the cost of living crisis make it even more important that people get the process right.
Which? has shared its top tips to help consumers avoid incurring penalties and even shave money off their tax bills.
1. Make the most of reliefs, expenses and allowances
Take full advantage of tax reliefs, expenses and allowances that might be available – as they can significantly reduce your bill. For example, self-employed workers are able to deduct legitimate business expenses from their taxable income, including travel, uniforms, office running costs, and the cost of business premises – including energy bills.
Higher-rate or additional-rate taxpayers who have made Gift Aid declarations when giving to charity can claim back the difference between the basic tax rate and the rate you pay.
You can also get tax relief on pension contributions. For workers who contribute to a workplace pension, the employer may apply full tax relief for the tax rate you pay before you get your pay cheque. If the employer uses a ‘relief at source’ approach, or if you have a personal pension, you will only receive basic-rate tax relief. In this instance, higher and upper-rate taxpayers can claim the extra via their tax returns. You can backdate pension tax relief for up to four tax years.
Finally, if declaring capital gains – through selling shares or an investment property, for example – you get an annual allowance before CGT is payable. For 2021-22, that’s £12,300. You can also offset losses from the same or a previous tax year to reduce your bill. Just register the losses on your self-assessment form.
2. Claim tax relief when working from home
If you work from home for all or part of the week, you might be able to claim tax relief on additional household costs you incur – such as higher household bills. Tax relief rules were relaxed during the Covid-19 pandemic when most workers were told to work from home. If you haven’t claimed tax relief from working from home during the 2020-21 or 2021-22 tax years, you should still be able to claim back £60 per year if you’re a basic rate taxpayer, or £125 per year if you pay higher-rate tax.
However, for 2022-23, the rules have reverted, meaning fewer people will be eligible to claim. You can still claim tax relief if your job requires you to live far away from the office, or if your employer doesn’t have an office – but not if you’re opting to work from home.
You can either claim a flat-rate of tax relief on £6 a week, or the exact amount of extra costs you’ve incurred – but you’ll need evidence such as receipts, bills, or contracts.
3. Reclaim overpaid taxes
Those whose income has unexpectedly fallen during the year, or who pay tax by payments on account might find they’ve been taxed more than they should have done. HMRC assumes your personal allowance is equally used each month, and bases payments on account on your previous year’s earnings. To reclaim overpaid tax you can use HMRC’s online guide.
4. Claim any unused allowances by amending previous tax returns
The deadline for making changes to a 2020-2021 tax return is 31 January, so if there are any allowances you need to take advantage of from the last financial year – there is still a bit of wiggle room. Once a 2021-2022 form is filed you can amend it anytime from 72 hours after you’ve filed it until January 31, 2024.
If you want to update a tax return for the 2019-2020 tax year or earlier you can write to HMRC explaining which tax year you are correcting and why. Depending on what you report, you may receive a rebate, but be aware that you might also have to pay more tax.
5. Pay your tax bill on time
Around 12 million people are expected to submit a self-assessment tax return each year. Missing the deadline can be costly, and easily avoided. Those making an online submission have until 31 January 2023 to send in their return. Missing the deadline incurs an automatic penalty of £100, even for those who don’t owe any tax.
The deadline for paying the bill is also the same as filing and if you miss it you’ll be charged interest at a rate of 6 per cent from the date the payment was due.
6. Use the Which? tax calculator
You can also use the Which? tax calculator to get to grips with your tax liabilities and allowances. It provides clear, no-nonsense explanations about the different types of taxable income, plus suggestions for allowances you might have missed. You can even use the tool to file your return directly to HMRC.
7. Save on your tax bill
Consumers who pay tax via Pay As You Earn (PAYE) should check if they’re on the correct tax code, to be sure they’re not paying more tax than necessary. Those on the incorrect code might be entitled to pay less tax in the coming months, or receive a rebate from HMRC for previous overpayments. Someone might find themselves on the wrong tax code, or an emergency tax code if they’ve started a new job and their new employer doesn’t have a P45, if they’ve recently had a change in salary, or if they’ve started or stopped taxable state benefits. For example, basic-rate taxpayers given an emergency tax code that excludes their personal allowance could pay an extra £2,514 in the 2022-23 tax year.
Consumers should check their tax code each year, or after changing jobs, to make sure it’s correct for their situation. Find out the most common ones in Which?’s guide to understanding your tax code.
Reena Sewraz, Which? Money Expert, said:
“There are lots of ways to reduce your tax bill legally, whether you’re an employee or self-employed, a landlord, investor or pensioner. Simple checks can boost your take-home earnings with minimal effort.
“It is always worth doing a quick check to make sure you’re on the right tax code – if this is incorrect you could be eligible for reduced tax or a refund from HMRC. You can also easily check if you’re eligible to claim additional tax reliefs and allowances from the government.”
Notes to editors:
- Over the coming months, Which? will be highlighting free and useful money-saving advice every Monday to help consumers manage the ongoing cost of living crisis. The series will cover a range of topics, from how to save money on household bills, to childcare and travel.
- Understand your tax code
- How to fill in a self-assessment tax return
- 6 tax changes to watch out for in 2023
Which? is the UK’s consumer champion, here to make life simpler, fairer and safer for everyone. Our research gets to the heart of consumer issues, our advice is impartial, and our rigorous product tests lead to expert recommendations. We’re the independent consumer voice that influences politicians and lawmakers, investigates, holds businesses to account and makes change happen. As an organisation we’re not for profit and all for making consumers more powerful.
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