In the United Kingdom, the tax year begins on 6 April and runs to 5 April the next calendar year. This means if you are filing 2020/21 self-assessment taxes, you have up until 5 April 2021 to do that. From 6 April 2021, the 2021/22 year begins.
Filing taxes can be a tedious exercise for first-timers or people who generally do not fancy playing around with numbers. Because of this, some taxpayers get fatigued and just fill in the forms without looking at opportunities to save on taxes. This article dives into the best end of year tips and practices to help you get maximum benefits when filing your tax return.
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Claim Your Tax Credits
Tax credits are income distributions aimed at people on lower incomes to help them make ends meet. Look at them as government payouts, giving you some extra money to help lift you out of welfare dependency and incentivise you to work.
There are two main types of tax credits in the UK- Working Tax Credit and Child Tax Credit. UK residents responsible for children can claim child tax credit in addition to child benefit. The good news is that you don’t need to be working to claim your tax credits.
Working tax credit was designed for people who are working either for themselves or an employer but are on low incomes. Your circumstances including your household income will determine whether you qualify and the much you are entitled to. In the 2021-22 year, you can get up to £2,005 in working tax credit. The income threshold for child tax credit for the 2021-22 year is £16,480.
Maximise on Employer’s Pension Scheme
Every employer pension contribution you make is taken off your gross pay and this includes any voluntary contributions. This means the taxable income gets reduced and as a result, you pay lower taxes.
If your rate of income tax is 20%, you’ll get a tax relief claimed on your behalf by your pension provider which is then added to your pension pot. This is referred to as relief at source.
When doing your self-assessment tax return, you can claim tax relief on money you put aside in a private pension of up to 20% of the income which you’ve paid 40% tax on. Also, you can get relief of up to 25% of the income you’ve paid 45% tax on.
As an example, assume you earn £60,000 out of which you pay 40% tax on £10,000. If you put £15,000 into a pension fund, you first get tax relief on the full £15,000. Then you can claim an extra relief of 20% of £10,000 which amounts to £2,000 on your self-assessment return.
Take Advantage of Marriage Allowance
If you have a partner or are married, you can benefit from marriage allowance if one of you earns less than the personal allowance. The lower-earning partner can transfer their unused credit to the higher-earning partner.
In the 2020-21 season, you can transfer up to £1,260 and this can save you about £252. However, for this to apply, the income of the lower earner must be below the personal allowance threshold currently at £12,570. Also, the higher-earning partner must be in the 20% bracket which falls between £12,501 and £50,270.
There is also an option to backdate your marriage allowance up until 5 April 2016. This means the higher-earning partner can enjoy reduced tax bills for any of the years between 5 April 2016 to date they qualified.
Claim a Refund for Overpayments
If you were put on an emergency tax code when you began your job, or your PAYE was on the wrong tax code, you may be entitled to a tax refund from the HMRC. This also applies to people in the construction industry scheme or those entitled to work expenses tax reliefs.
Whatever the case, if you have overpaid your taxes, you need to claim a refund. At times HMRC automatically notifies you through the P800 tax notice that you have a tax overpayment. The excess tax will be paid out to you in the next wage packet.
However, in some cases, you may have to claim your refund through the refund application process. Here, you use the self-assessment system that you set up on the Government Gateway Account to claim your tax refund. You have up to 4 years from the end of the tax year to file your claim failure to which you lose your entitlement to the claim.
Call HMRC or fill out the R40 form to claim your tax refund. It can take up to 12 weeks for it to be processed by the HMRC depending on how busy they are. If you find that your refund has delayed and you have an urgent need for cash, you can apply for guarantor loans low apr to help you bridge your cash flow deficit. With these loans, you can borrow up to £15,000 and enjoy flexible repayment terms.
Submit Your Returns in Time
Save yourself from unnecessary penalties by filing and paying your returns in time. Missing the deadline can cost you £100 even if you have no tax liability for the tax year. Filing your returns later than 3 months will cost you more in penalties and interest on the penalties.
Remember, you are required to send in a tax return if, in the year of income, you were self-employed and earned over £1,000. You also need to submit a return if you were a partner in a business partnership. However, if you only have wages or pension as income, you do not send in a return.
While the filing of tax returns may seem to be a complex exercise, with proper planning and having the right information at hand, you can make lots of savings. Remember to claim your tax credits, any refunds on overpayments, and take advantage of pension schemes. They can save you a few hundreds or thousands in reliefs. Above all, make sure you submit your returns in time to avoid being penalised unnecessarily.