An estimated 12 million returns for the 2021/22 tax years are due to be submitted to HMRC by the 31 January 2023 deadline.

However, as at 3 January, more than five million tax returns had yet to be filed – less than a month before the cut-off point.

If you’ve left your self-assessment until the last minute, here are 10 tips from DIY investment platform and coaching service Bestinvest to help you meet the deadline and avoid fines, as well as avoid overpaying…

1) Do you need to file a tax return in the first place?

Most British taxpayers don’t need to file a tax return because tax is automatically deducted from their wages (known as Pay-As-You-Earn, or PAYE), pensions or savings. But for those where the tax is not automatically deducted or they earn extra untaxed income, filing a tax return is a must.

With tax thresholds frozen until 2028, more people will be forced to file a tax return this year because their income may have jumped above £100,000 – a salary threshold at which all earners must submit a tax return. But there are other reasons why filing a tax return is necessary for the 2021/22 tax year. These include those:

• Who were self-employed and earned more than £1,000
• Who earned more than £100,000 in taxable income
• Who earned money from renting out property or other untaxed income such as tips and commission
• Who earned income from savings, investments and dividends
• Who earned income from overseas or who lived abroad and had a UK income
• Who were a partner in a business partnership
• Who are employed but use their own money to travel and other job expenses
• Who claimed some Covid-19 grant or support payments
• Who need to claim income tax reliefs such as money paid into a personal pension, business expenses if you are self-employed and charitable donations
• Who earned more than £50,000 and you or your partner claims child benefit.

If you’re unsure if you need to file, check HMRC’s online tool.

2) Penalty incentive to avoid a £100 instant hit

Those with a genuine excuse for filing a late return will be treated “leniently”, according to HMRC, but for those without a legitimate excuse, the fines start to add up which could help deter you from missing the deadline:

• An instant £100 fine even if there is no tax to pay
• Fail to file for a further three months and you will incur additional daily penalties of £10 – up to a maximum of £900
• After six months, a further 5% of the tax due or £300, whichever is greater, will be dished out
• After 12 months, another 5% or £300 charge – whichever is greater.

This means sitting on your tax return for a whole year could cost you £1,600 – and that’s without factoring in interest on those fines.

Separately, there are also penalties for a delay in paying the tax owed at 30 days, six months and 12 months – this equates to 5% of the tax owed.

If you know you aren’t going to hit the deadline and want to know how much you will pay in penalties and interest, HMRC’s online tool calculates this for you.

3) Factor in time to register with HMRC

If you’ve never filed a tax return before then allow at least 10 working days to register – or 21 if you are based abroad. While most of the registration process is fast as it can be completed online, the final part relies on Royal Mail, and with the service affected by strike action that 10 days could stretch even longer.

The first step is to create a Government Gateway user ID for which you simply need your name, email address and a password. You must then answer security questions to verify your identity for which you’ll need your National Insurance number, passport, pay slips or P60.

Once your self-assessment account is set up online, HMRC will send you a letter with your Unique Taxpayer Reference (UTR). This is a 10-digit code you need the first time you log in.

Those who have not filed a tax return for a while or may have forgotten passwords should be able to recover the information online but if you encounter problems and need to call HMRC, remember phone lines will be jammed in January as people make a last-minute dash to complete the document.

There have been reports of people staying on hold for well over an hour and then being cut off. In fact, the Treasury Select Committee has written to HMRC to clarify details of the helpline outages and waits. Either way, start your calls early in the day at 8am to beat the queues.

4) Double check your tax return before you send it

Have you done your calculations properly and have you declared everything? HMRC can charge penalties if you make an error on the return or any other paperwork you submit even if they were made in good faith.

These include understating or misrepresenting how much tax you owe. If you have a reasonable excuse for this error, then you may be able to appeal any fine imposed. If you cannot appeal or lose your appeal, the penalty you pay depends on the type of behaviour around the error, whether you notified HMRC or not, and a percentage of the potential lost revenue.

5) Don’t underestimate the time needed to get paperwork together

It’s not just your online registration that takes time but also actually filling in the tax return itself, says Alice Haine, personal finance analyst at Bestinvest. You will need a lot of information to hand in addition to your Government Gateway login and UTR, from all your sources of income, including your employer, property income, savings and investments and even freelance work, to any charitable donations, capital gains on any assets, contributions to pensions and more.

Types of information required include:

• Pay slips and annual P60 form
• Any dividends and tax credits received during the 2021/22 tax year
• Any contributions to pensions, Venture Capital Trusts or Enterprise Investment Schemes
• Any charitable gifts that qualify for Gift Aid
• Details of possible capital gains crystallised on the sale shares or funds held outside of ISAs and pensions, as well as other assets such as the sale of a buy-to-let property
• For those with a buy-to-let portfolio, the details of all income and expenses over the course of the tax year
• Any tax reliefs that you can apply for such as working from home allowance, uniform allowance for work clothes you either pay for yourself or wash and repair at home.

Getting your hands on all this paperwork can take time, plus you want to make sure you are up to speed on all tax rules that apply to your unique situation. The last thing you want to do is leave this until the last minute and then find a vital document is missing and you don’t have enough time to source it.

Even if you have a tax adviser, the chances are they are snowed under in the run-up to 31 January, increasing the likelihood of mistakes and omissions in your tax return.

6) Have money ready as you need to pay immediately

As well as filing the tax return by 31 January, you also need to pay your tax bill by then. This is the tax you owe for the previous tax year – i.e., 2021/22 – and is known as the balancing payment. You can pay online with HMRC or pay using bank transfer, debit card or cheque or pay at your bank or building society if you have an HMRC paying-in slip.

If you set up a direct debt for the first time, allow five working days for this process to complete, so again act fast if this is your chosen payment method, Haine warns.

If you are lucky and HMRC owes you money, you will receive a payment directly into the nominated account when you fill in your return.

While you can also pay tax through your PAYE tax code, this only applies to those who submitted a paper return by 31 October 2022 or an online tax return by 31 December, owe less than £3,000 and already pay tax though PAYE – i.e., you are an employee or receive a company pension.

To reduce the hit of paying the tax in one go, sign up for the Budget Payment Plan provided by the government. While this won’t help you for the 2021/22 tax year payment, it will reduce the burden for next year as you can elect to pay weekly or monthly. The money will be used against your next bill, allowing you to pay over the course of the year rather than facing one big bill.

7) There are options if you can’t afford to pay your tax bill

If your tax bill is unaffordable don’t panic. HMRC has options for those in financial distress so burying your head in the sand and racking up fines is not the answer, Haine says.

The Time to Pay scheme is a payment plan for those who owe less than £30,000, are within 60 days of the payment deadline and plan to clear the debt within 12 months. To be eligible, you must not have any other debts or payment plans with HMRC and be aware you will be expected to tap into your own savings and assets to reduce the debt.

HMRC will want to know how much you earn, the amount you typically spend per month and how much you can afford to repay.

For those in real trouble, who may have already received independent debt advice from an organisation such as the Citizens Advice – they will accept this as evidence of what you earn and spend each month.

8) Don’t forget to declare your Covid-19 payments

During the Covid-19 pandemic, the Government launched a slew of grants and support payments for business owners and the self-employed. For the 2.9 million people who claimed at least one Self-Employment Income Support Scheme (SEISS) payment in the 2021/22 tax year, these are taxable and must be declared in the tax return.

Other Covid-19 support scheme payments should also be declared by the self-employed, in a partnership or in a business. These include the SEISS, the Coronavirus Job Retention Scheme and other Covid-19 grants and support payments such as Eat Out to Help Out and test and trace or self-isolation grants.

Abuse of Covid-19 support schemes cost the Treasury several billion pounds, which was “embarrassing for the Government”, so HMRC is likely to crack down on self-assessors who omit this information, intentionally or otherwise.

9) Mop up any unused allowances by amending previous tax returns

As well as ensuring this year’s tax return is correct, you can also amend previous tax returns too and earn yourself a rebate in the process.

You have until 31 January to tweak your 2020/21 tax return, something you can either do online if you filed your return online or by downloading a new paper return and submitting the amended pages with the word ‘amendment’ on each page along with your name and UTR.

This can be useful if you want to mop up any unused allowances such as the Work from Home allowance, which applies to anyone required to work from home during the 2020/21 and 2021/22 tax years. You are effectively claiming for the increased costs of heat or electricity and can apply for a full year’s relief even if you only needed to work from home for a day. The relief could be worth up to £280.

Other allowances you might want to add to previous years could include any charitable donations you made, or extra pension contributions to use up your pension allowance from the previous three years, known as ‘carry forward’.

Once you’ve filed your 2021/22 return, you can amend it anytime from 72 hours after you’ve filed it until 31 January 2024.

Those wanting to update a return for the 2019/2020 tax year or earlier can write to HMRC explaining which tax year you are correcting and why you want to make an amendment. Depending on what you report, you may receive a rebate, but you might also have to pay tax too. Note: you can claim a refund up to four years after the end of the tax year it relates to – so don’t leave it too long.

10) Let this year be a lesson for next year

Once your tax return is filed, don’t just put all your paperwork away and breathe a sigh of relief that you don’t have to do it again for another year. Instead, use this deadline as an incentive to fire up next year’s tax return, making sure you’ve jotted down any key information over the course of the tax year so far such as any charitable donations you have made and making early calculations of extra income you have earned, such as from freelance jobs.

If your tax bill was heavy this year, consider ways to soften the financial hit for next year such as paying more into your workplace or personal pension to secure more income tax relief, using up your £20,000 ISA allowance, or crystallising any capital gains to maximise this year’s more generous exemptions. Subscriptions to other more esoteric tax efficient schemes, such as Venture Capital Trusts and Enterprise Investment Schemes, also provide income tax rebates (at 30%), though these are higher risk and aimed at wealthier investors.

This is more important than ever this year after Chancellor Jeremy Hunt froze most personal tax allowances in his Autumn Statement in November, lowered the threshold at which the highest 45% income tax band kicks in from £150,000 to £125,140, reduced the annual Capital Gains Tax exemption and unveiled steep reductions in the annual tax-free dividend allowance.

Haine says: “For this reason, investing in a pension is the best way to reduce an income tax liability, since tax relief is provided at your marginal tax rate which is particularly attractive to the rapidly growing number of people subject to the higher tax bands. A record 5.5 million people are expected to pay income tax at the 40% band this year, a number that is sure to rise further under the planned freeze in thresholds until 2028.