The deadline for filing 2016-17 self-assessment tax returns (tax year 6 April 2016- 5 April 2017) online is 31 January 2018.
If you miss it, you will incur a penalty. Unless you have a really exceptional excuse – long-term hospitalisation, for example (provable!) – I’d recommend that you take a deep breath and tackle the annual chore.
How to avoid a late tax return penalty
As you've missed last October’s deadline for paper returns, you must register to do so online. Do not leave this until the last minute. Simply applying for online registration by 31 January is not enough as HMRC needs to post an activation code to you before you can log on. HMRC also advises that you need to register again if you already have a Unique Taxpayer Reference (UTR) but didn’t complete a tax return last year.
It's now too late to ask HMRC to collect any underpayment through the PAYE code applied to your salary or pension: the cut-off was 31 December. And don’t wait for HMRC to send a demand: any tax due is payable on 31 January, too.
Here are some of the most common problems, and how you might still – even at this late stage – be able to reduce your tax bill legitimately.
Watch out for…
The state pension
If you receive a state pension, you should have been sent a letter last April telling you how much you would be paid. Alternatively, you can pick the amounts up from your bank statements. People make two common mistakes: first, if you are paid four-weekly there will have been 13 payments in the year, not 12. Second, the Christmas bonus and winter fuel payments are not taxable.
Tax interest changes
Changes to the way interest is taxed have caused confusion for some people this year. Since 6 April 2016, banks and building societies have paid interest without deducting tax. As a result, some people are facing an unexpected tax liability for 2016-17. Others are seeing their tax bill fall, as the first £1,000 of interest is tax-free where total income remains within the basic-rate band. Only £500 is tax-free for higher-rate taxpayers however, and interest is fully taxable if your total income exceeds £150,000.
The first £5,000 of dividends is also tax free for 2016-17, but you pay tax at 7.5% on any remaining dividends within the basic-rate band and 32.5% on any in the higher-rate band. The notional 10% tax credit on dividends has been scrapped.
Life assurance bonds
If you receive income from life assurance bonds and draw more than 5% a year, you should receive a ‘chargeable event’ certificate, which shows you the amount to put on your tax return. Sometimes these are described as chargeable gain certificates, but the gain is actually chargeable to income tax and not capital gains tax.
If you have a cash ISA or a stocks and shares ISA, you pay no tax on the income or gains within it or on any amount you take out. You don’t need to show these amounts on your tax return. And if you win a premium bond or lottery prize, they’re tax-free too.
Get some guidance
The tax system is complicated and it is easy to misunderstand the rules, so take time to read HMRC’s tax-return guidance, or contact an accountant registered with the Institute of Chartered Accountants in England and Wales (separate bodies in Scotland and Ireland) or a Chartered Tax Adviser.
If you’re not in a position to pay the amount owed, contact HMRC immediately. They may be able to put a payment plan in place. Don’t ignore the situation – it won’t go away!
How to find an accountant
Never too late?
If you find you are facing a tax liability on 31 January, you may still be able to reduce it. If you paid higher-rate tax in 2016-17, a Gift Aid payment made now can be backdated in your 2016-17 tax return, but you must make the payment before you file the tax return.
Any investments in the Enterprise Investment Scheme and Seed Enterprise Investment Scheme can also be backdated to the last tax year, saving tax of up to 30% or 50% of the amount invested. Before investing, however, take specialist advice.
No one enjoys doing their tax return – but the earlier you tackle it, the less stressful it becomes. And by seeking advice sooner rather than later, the more tax you’ll probably save…
Five ways to cut your tax bill
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