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How to avoid self-assessment slip-ups

Written by: Emma Lunn
Workers who complete a self-assessment tax return should make sure they claim pension and Gift Aid tax relief.

Anyone new to self-assessment needs to register with HMRC by 5 October if they need to tell the taxman about income earned between April 2018 and April 2019.

Those who need to complete a self-assessment tax return include the 4.93 million self-employed people in the UK – but more than 11.5 million people in total complete self-assessment tax returns, accounting for 16 per cent of income tax paid in the UK.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said:  “The self-assessment deadline at the end of January strikes fear into the hearts of millions of people. Meanwhile, an equally important one on 5 October is sneaking quietly under the radar.

“You don’t need to be self-employed for this to apply – in fact most people who have to complete a self-assessment tax return aren’t.”

Hargreaves Lansdown has put together advice on how to avoid self-assessment slip-ups.

Failing to register

Self-assessment isn’t just for the self-employed. You may need to register if you receive savings interest, dividends, commission, tips, money from renting out a property, to claim income tax relief, or to pay the high income child benefit tax charge.

Not claiming pensions tax relief

Most higher-rate taxpayers know they should get 40 per cent tax relief on pension contributions, but technicalities mean 15 per cent don’t know whether or not they’re actually getting it, according to Hargreaves Lansdown.

If you have a trust-based workplace scheme, your contributions are taken from your gross pay, so you get the full 40 per cent automatically. If you pay pension contributions through salary sacrifice, you’ll also be getting the tax relief.

However, group personal pensions, group SIPPs and stakeholders paid out of taxed income are treated in the same way as personal pensions: they automatically get tax relief at 20 per cent, and you need to reclaim the difference on your tax return. Make sure you use gross contributions on the form – the total of everything you paid in, plus tax relief at 20 per cent.

Not claiming gift aid

Basic rate taxpayers usually get this automatically by ticking a Gift Aid box – so if you make a £10 donation, the charity gets £12.50. If you’re a higher rate taxpayer, you’ll need to reclaim the rest through your tax return.

Not taking steps to cut the cash you need to pay by January

You can make a charity donation now, and claim it on your tax return for 2018/19. This is particularly useful when you’re a higher rate taxpayer in one year, and a basic rate taxpayer the next.

Enterprise Investment Schemes also offer 30 per cent tax relief – which can be claimed on this tax return against income for 2018/19. This is particularly handy if you didn’t earn enough income to claim all the relief against it last year. It’s worth highlighting, however, that these investments are only suitable for investors who are happy with a high level of risk.

Forgetting to divide joint accounts

If you have a joint stocks and shares, when you do your tax return, you need to split the total dividends by the number of account holders, and each put it on your own return. This may help you stay below the £2,000 dividend allowance that kicked in in 2018/19.

Ignoring mistakes on previous years

If you realise you’ve made a mistake on past returns, you can claim a refund for the past four years.

You’ll need to write to HMRC making a claim for ‘overpayment relief’, include proof that you’ve paid the tax, confirm you’ve not already reclaimed it, and add a signed declaration saying that the details are correct and complete.

Failing to take steps to cut this year’s tax bill

Make sure you make full use of your ISA allowance. Everyone can save up to £20,000 (for the 2019-20 tax year) in an ISA, with interest and returns paid tax-free.

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