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10 ways your tax return can help you claw back money

Paloma Kubiak
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Paloma Kubiak

Filing an annual tax return is anything but fun and it can be expensive too. But it’s also an opportunity to claim back your money from the taxman. Here are 10 ways to pay less tax.

The deadline to submit your 2019/20 tax return falls on Sunday 31 January 2021.

Each year, while millions make the deadline, hundreds of thousands are fined for missing the date.

This year may be tougher for many who are due to submit tax returns given the financial strain families are experiencing as part of the coronavirus pandemic.

But rather than just focus on the tax you’ll need to pay, you should use your tax return to work for you.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “Your tax return isn’t just an opportunity to watch the tax bill mount up. If you know all the ins and outs of filling out the form, there are plenty of ways to claim it back too.

“There may be extra money you can claim for this tax year, which could come in handy. And for self-employed people, if you’re going to struggle to pay your bill on time, you can deal with that too.”

Coles lists the 10 ways to legitimately pay less tax:

1) Claim extra pensions tax relief

This is a major area of confusion, which means many higher rate taxpayers have no idea whether or not they’re getting 40% relief. This could be costing them hundreds or even thousands of pounds.

If you work for yourself and have a personal pension, you’ll get tax relief at 20% and need to reclaim the extra on your tax return.

However, if you have a workplace pension, you’ll need to do a bit of digging. If you have a trust-based workplace scheme, higher rate taxpayers get 40% tax relief automatically. The same is true for other workplace schemes run through salary sacrifice. For other kinds of pension, you’re probably getting tax relief at 20%, and you need to reclaim the difference on your tax return.  If you don’t know how your scheme is run, ask your HR department.

When you’re claiming extra tax relief on a pension, make sure you’re entering the gross value of contributions. This isn’t just a total of all the money you paid in: it’s the total of everything you paid in, plus tax relief at 20%.

2) Claim as much as possible for working from home

Sole traders have two options for claiming the cost of working from home (and using your own car for work). You can calculate what you spend on it for work purposes, or you can claim a flat rate. It involves a bit more legwork to calculate the actual cost, but once you’ve worked out what you spend, you can use the government’s simplified expenses checker to see the best way to claim.

3) Claim for all allowable expenses

There’s a useful allowable expenses list on the government site, so check you’re claiming for everything you can. This can include everything from car breakdown cover to magazines or newspapers and clothing with your logo on it – depending on what you use for work.

4) Claim Gift Aid

Ticking a box to claim Gift Aid means the charity can reclaim 20% tax on your donation from the taxman, but if you’re a higher rate or additional rate taxpayer, you can reclaim the rest of the tax on your donation through your tax return. Only 22% of higher rate taxpayers bother, but it can really add up. You don’t just get Gift Aid on cash donations – you also get it on gifts of land, property or shares you make to charity.

5) Make a charity donation now to reduce your tax bill for last year

If you have the cash spare, you can make a donation now, and use it to reduce the 2019/20 tax bill. This is because donations can be claimed in either the current year or the previous one. This is particularly useful if you paid higher rate or additional rate tax last year and a lower rate this year – because you can get more tax relief on your donation.

6) Invest in an Enterprise Investment Scheme

Enterprise Investment Schemes offer 30% tax relief – to encourage adventurous investors to invest in younger and smaller companies. Generally you get this relief to set against your income in the year you invest. But if you’re paying a lower rate of tax this year – or your tax bill this year isn’t big enough to claim all the relief – then can set it against income for 2019/20 instead.

7) Correct previous years

If you go through the process and realise you’ve made a mistake in previous years, you can claim a refund for overpayments for any time during the past four years. You’ll need to write to HMRC explaining that you’re making a claim for ‘overpayment relief’, include proof, a signed declaration saying that the details you’ve given are correct, and outline how you want the repayment to be made.

8) Act now if you can’t afford to pay

Some people have resorted to dipping into the money they put aside to pay their tax bill. They were able to put off their payment on account, so 31 January is when the crunch comes and the money is due. The government has said you can arrange to pay in instalments (subject to interest) but you need to do it sooner rather than later. If you leave it more than 60 days past the deadline, you can’t set up instalments.

9) Make it less painful next time

When you’re calculating gains from stocks and shares – and possibly discovering that you’re going to have to pay capital gains tax or dividend tax – it’s a useful reminder that by holding them in a stocks and shares ISAs, you wouldn’t have to pay tax. Even better, even if your gains fell within the annual allowances, details of assets in an ISA don’t need to be included in the tax return, so you’d save yourself an admin task.

10) Claim for working from home

Lockdown kicked off in the 2019/20 tax year, so if you were told to work from home, and your employer didn’t provide an extra allowance to cover it, you can claim tax relief to cover the extra costs of being at home. This is actually easiest to do separately, through the government site.

To claim for a couple of weeks of the 2019/20 tax year, and the whole of 2020/21, you just enter the details of when you started working from home into this site, and the taxman will apply the relief. A basic rate taxpayer will get tax relief of £1.20 a week. You don’t have to have worked from home for the whole of 2020/21 in order to claim the whole year’s worth.