BDO’s 12 tips for filling in your tax return this Christmas

As HMRC has urged taxpayers to get their Self Assessment wrapped up in time for Christmas, Dawn Register, tax partner at accountancy and business advisory firm BDO has put together 12 top tips to help you get it right.

Experience shows that many taxpayers use the quiet time over the holidays to file their tax return. In 2021, 2,828 people filed a return on Christmas Day while 8,641 filed on Boxing Day. If you haven’t filed your tax return for 2021/22 yet you only have until 31 January to file it online.

1. Claiming Child Benefit? How high was your income during 2021/22?

You will be liable to the high-income child benefit charge (HICBC) if you, or your partner, have annual income of more than £50,000 and one of you gets child benefit. If your income is between £50,000 and £60,000, then the tax charge is less than the full amount of child benefit and increases gradually to 100% as income reaches £60,000 and over. If you were previously paying the charge but your income dropped during the year due to furlough, you may have paid too much tax through your pay, so check if you are due a refund. And think about earlier years too: if you did not spot this issue in 2020/21 or earlier, contact HMRC directly to get it put right, the sooner you sort it out the less you will have to pay interest on tax paid late.

2. Declaring rental income

HMRC is actively targeting residential landlords who may not have paid the correct tax, so it’s important that you accurately declare rental income.

If you rent out a residential property, you must pay tax on the profit you make after deductions for ‘allowable expenses’. These include letting agents’ fees, buildings insurance, property maintenance and repairs, and utility bills. Although, if your expenses are below £1,000, you can claim the annual tax-free Property Allowance of £1,000 instead.

You can also declare unpaid tax by telling HMRC about rental income from previous years via the Let Property Campaign. If you have to pay a penalty, it will be lower than if HMRC find out about the income themselves.

3. Foreign income

One area of frequent errors and misunderstanding is the reporting of foreign income – for example money earned through renting out an overseas property, interest earned in overseas accounts, or funds in an overseas trust or pension.

Some people mistakenly think that submitting a return in the jurisdiction where the income arises satisfies their UK obligations, but this isn’t the case. A UK tax resident individual is normally subject to UK tax upon their worldwide income and assets and needs to report this to HMRC. However, a foreign tax credit relief may apply if income or gains are reported to both HMRC and a foreign tax authority.

4. Gains on crypto currencies & digital assets

If you dabbled in crypto currencies or any form of digital asset and made a gain during 2021/22 this may need to be disclosed on your tax return. These are treated like any other asset so if you have sold for more than you bought, the gain is taxable subject to the usual £12,300 annual allowance. Even if you make a smaller profit, if the sale proceeds were more than £49,200, they still need to be reported on your return.

5. Claim capital losses                                   

If your realised capital losses on investments during 2021/22, including crypto assets, don’t forget to claim these on your tax return – unless you do, they won’t be available to use against gains in future years.

6. COVID support payments

If you claimed any COVID support payments during 2021/22, the funds are taxable as trading income and will need to be reported on your tax return. This includes payments from the Self-Employed Income Support Scheme (SEISS) or Coronavirus Job Retention Scheme (furlough) payments for employees of your sole trade. If you spot that you were paid too much, this can be corrected through the return but failing to do so could trigger interest and penalties via a tax enquiry.

7. Working from home in the new ‘hybrid’ world

If you regularly work from home during the 2021/22 as a result of lockdowns and now the switch to more hybrid working arrangements, you can claim £6 per week as a tax deduction for the extra costs such as heating and lighting. If you didn’t claim this during the year through your PAYE tax code, you can claim it through a tax return.

8. Set up a new business?

If you started a new business online or offline you should have notified HMRC by 5 October this year. Even if you haven’t told them yet, there is still time to make the right entries on a Self-Assessment tax return for the year if your gross turnover in 2021/22 was more than £1,000. You will need to show all your income and expenses, or if your earnings were relatively modest, you can just claim a £1,000 deduction from your gross income.  Don’t forget, VAT registration also applies to businesses with a turnover of £85,000 or more.

9. Gains on a residential property

If you sold a residential property during 2021/22, you should have already reported this using a “Capital gains on UK property Account and paid any tax due within 60 days of the sale. Even if you have done this correctly, you still need to disclose the gain and the tax you paid on your full tax return for the year – so don’t miss it off.

10. Claim relief for your pension contributions

If you make personal pension contributions, you are entitled to relief at your marginal rate of tax. So if you pay contributions directly to a personal pension (ie not through a company scheme or by salary sacrifice), you will get basic rate tax relief at source but need to claim the additional 20%/25% through your tax return. Similarly, if you are a sole trade or in partnership (rather than owning your own company), you need to claim all your pension tax relief through your tax return. But take care if you have paid in large amounts or accrued large additions to your pension entitlement under an employer scheme, going over your annual allowance (including any unused allowance brought forward from earlier years) triggers a tax charge which you must put on your tax return – it’s wise to seek expert advice if you think this may be an issue.

11. Claim tax relief on your venture capital investments

Investing in a young company through the Enterprise Investment Scheme (EIS) or Seed EIS or buying units in a Venture Capital Trust carries higher risks than most other investments so don’t miss out on the tax breaks on offer. Make sure you remember to claim the tax relief through your return and don’t forget that, in the right circumstances, EIS and SEIS investments made since April 2022 can also be claimed in your 2021/22 tax return to give you tax relief faster.

12. Maximise your charitable gifts

If you have made a gift to charity and signed the gift aid declaration, the Government tops up the donation giving the basic rate tax relief due on it to the charity. However, higher and additional rate taxpayers can also claim the difference between their top tax rate (40% or 45%) and the basic rate (20%) on the total (gross) value of a donation made.

If HMRC knows about your gifts it can give you this tax relief through your tax code (ie against your salary). But if you have not told them about your gifts before, you can submit a tax return to claim this tax relief. And if you have a favourite charity, consider making Gift Aid donations before 31 January to provide an early benefit to the charity and elect for the donation to be treated as made in the 2021/22 tax year to accelerate tax relief. This doesn’t just have to be a benefit for you, when you get your tax refund you can always donate it to another charity!

- ENDS

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