FEW people like handing money over to the taxman and you could be hit with a shock bill for some little-known reasons.
Tax season is here again, and nearly 5.7 million people have just over two weeks left to file their 2022-23 tax return.
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People who miss the self-assessment deadline on January 31 face a penalty of £100 if their tax return is up to three months late.
Most workers don’t need to file a tax return because tax is automatically deducted from their wages, pensions or savings through Pay-As-Your-Earn (PAYE).
This is the system the government uses to collect tax and National Insurance from employment.
But Alice Haine, a personal finance analyst at Bestinest, said many people may not be aware that they could owe cash to the taxman.
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She said: “Never assume that you are exempt from filing a tax return as there are instances where an individual needs to file, so it is important to double check if this applies to you.”
From child benefit to selling on Vinted, we explain the scenarios where you will have to file a tax return.
Child benefit
The High Income Child Benefit charge kicks in at £50,000, meaning you’ll start to be taxed on the money you claim.
If either you or your partner earn over this threshold, the higher earner will need to submit a tax return.
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Alice said: “This charge claws back child benefit from higher earners, which means for every £100 of income earned above the £50,000 mark, 1% of the child benefit must be paid.
“Once an income reaches £60,000 the full child benefit amount must be paid back.”
Even if you start having to pay tax, you can financially profit from claiming.
You could put the Child Benefit into a high-interest savings account to earn money before having to pay the tax back.
Other reasons to claim include the automatic NI enrolment and state pension protection.
‘Vinted tax’
Since January 1, digital platforms like eBay, Airbnb, Etsy, Amazon and Vinted, have been told to share seller information with HMRC as part of a crackdown.
Alice said: “It is important to declare this on your tax return.
“If you are earning more than £1,000 across all these platforms, then you may be considered to have used up your £1,000 trading allowance and could be liable for tax.
“But if you are only selling your goods online to clear out your house, for example, these online sites will only pass your information over to HMRC automatically if you sell more than 30 items in a single year or your total earnings top 2000 euros, which is just over £1,700.”
It’s important to note that this isn’t a new tax.
Those who earn over £1,000 have always had to declare income and fill in a self-assessment tax return, but it gives the taxman greater visibility over what you earn.
While your data won’t be shared with HMRC if you earn between £1,000 and £1,700, you’ll still need to pay tax as normal.
However, you’re unlikely to be affected if you only sell a handful of second-hand items online each year.
Tips
If you work in a service job like in a bar, or a restaurant, then you may get tips on top of your wage.
Alice said: “Whether you pay tax on tips depends on how that income is paid to you.
“If tips are handed to you as cash directly by a customer, then this must be declared on your tax return.”
But if your tips are paid through work, then it’s likely that you won’t have to report them.
“If tips are paid electronically and passed to you by your employer or through a separate system for pooling workplace tips (known as a tronc), then they can be added to your pay by your employer with any income tax you owe deducted when you get paid.”
If you’re not sure how your tips are paid, it’s a good idea to ask your employer who’ll be able to shed a light on what you should do.
Renting out property
“While the first £1,000 of property income is exempt from tax, income between £1,000 and £2,500 needs to be reported to HMRC,” Alice said.
If your rental income is above £2,500 after deducting rental expenses, or above £10,000 before allowable expenses, this must be reported on a tax return.
Allowable expenses include things like general maintenance and repair, accountant’s fees, insurance and letting agent and management fees.
Alice added: “The tax rate applied to your property income will depend on your level of taxable income from your job and other sources of income such as side hustles and pensions.”
The rules are slightly difference if you’re just renting out a room in your house, like through the Rent a Room scheme.
The scheme lets you earn up to a threshold of £7,500 per year tax-free.
If you earn more than this, you must complete a tax return.
Savings
Anyone with a bank account where they earn interest on their savings could be bit with an unexpected tax bill.
That’s because rising interest rates mean more people are making money from the cash they have stashed away.
Plus if you make over a certain amount, you’ll have to pay tax on it.
But everyone has what is known as a personal savings allowance.
This currently stands at £1,000 and £500 for basic rate and higher rate taxpayers respectively.
Alice said: “If you earn more interest than your allowance, HMRC will typically change your tax code so that you pay the tax automatically at your marginal rate of tax – but you still need to declare savings interest if you use a self-assessment tax return.
“Plus, you may have to file a tax return anyway if your savings interest is high and if it tips you above the £100,000 total earnings level.”
Income from overseas
If you are a UK resident and earn income from overseas you will have to fill in a self-assessment tax return.
Alice said: “This can include property income, a job abroad or foreign-based investments and savings.
“You must also declare this on your tax return, even if a foreign tax has already been applied.”
Self-employment
“If you are running your own business, such as a mobile hairdresser with several customers, and earn more than £1,000 then you need to file a tax return,” Alice said.
This also applies if you are selling goods and services to make a profit or freelancing in your chosen line of work.
The £1,000 threshold represents the tax exemption for the first £1,000 of earnings.
Alice added: “This can include self-employment, such as running your own gardening business and casual services such as babysitting.
“Earn above £1,000 and you must file a tax return.”
Pension tax relief
Topping up a pension is one of the best ways to reduce the amount of income tax you owe, Alice told The Sun.
Over time this can make a significant difference to how much goes into your pension.
But in some cases, you will need to claim on your tax return to get the full amount you are entitled to.
Basic rate tax relief is usually added to your contribution but if you are a higher or additional rate taxpayer you may need to claim the extra 20% or 25% tax relief through self-assessment.
You won’t need to put in a claim if your pension is set up as a salary sacrifice arrangement.
If your pension is set up under a net pay arrangement, then the correct tax relief will also be taken.
But if your pension is set up under what is known as relief at source then you will need to claim the extra tax relief via self-assessment.
Alice said: “While a workplace pension typically pays the full tax relief for higher and additional rate taxpayers into their pension pot, those contributing to a pension outside of their workplace scheme, such as into a Self-Invested Personal Pension (SIPP) must claim the additional tax relief through their tax return.”
Charitable donations
Have you sponsored a friend to run for charity? HMRC provides some tax relief on charitable donations, which can be included.
Donations to charity from individuals are tax-free. You can get tax relief if you donate:
- through Gift Aid
- straight from your wages or pension, through Payroll Giving
If you pay income tax above the 20% basic rate, you can claim back the difference between the tax you’ve paid on the donation and what the charity got back when you fill in your Self Assessment tax return.
How do I fill out the self-assessment tax return?
Before you can complete and submit your tax return, you’ll need to have a unique taxpayer reference (UTR) and activation code from HMRC.
This can take a while to receive, so if it’s the first time you’re completing a self-assessment, make sure you register online as soon as possible.
To sign in or register visit the “Self Assessment tax return” section of HMRC’s website.
If you’ve already signed up for self-assessment, you can find your UTR on relevant letters and emails from HMRC.
HMRC accepts your payment on the date you make it, not the date it reaches its account – including on weekends.
If you need to change your tax return after you’ve filed it, you can do so within 12 months of the original deadline or you can write to HMRC for any changes after that.
Filling in your tax return can seem daunting, but with our step-by-step guide you’ll have it sorted in no time.
What happens after you’ve submitted your self-assessment?
Once you’ve submitted your tax return, you will be told how much tax and, if you’re self-employed, National Insurance Contributions (NICs) you will need to pay.
HMRC accepts your payment on the date you make it, not the date it reaches its account – including on weekends.
If you can’t afford your tax bill, you should still file your return, as the fines for late payment are lower than the fines for late filing.
You might also be able to avoid penalties and set up a payment plan to pay in instalments, but you should contact HMRC as soon as possible.
You can do so by calling the Business Payment Support Service on 0300 200 3835.
Martin Lewis reminded employees to check their tax code to avoid being overcharged hundreds of pounds.
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