Confusion about which expenses you can claim, and a lack of knowledge of tax rules means those who pay tax by self-assessment may be paying more than they need to.
In November 2022, we surveyed 881 people who are personally submitting a tax return this year and found that six in 10 don’t know that they can make changes to their tax return after it’s been submitted, while six in 10 wrongly believe that you must show proof for every expense you claim. In fact, you don’t have to show proof in instances where you claim a flat-rate of tax relief.
Three in 10 people who are submitting a tax return told us they were concerned about paying their tax bill this year. But, not knowing the rules on expenses, allowances and tax reliefs could mean that you end up with a tax bill that’s far higher than it needs to be.
Remember, you have until 31 January to submit your tax return online and make a payment. Failure to do so will likely mean you incur late penalties. Those paying late will also be hit with higher interest charges this year.
So, don’t be like the two million people who missed the deadline last year – instead, follow these tips from Which? to help you save money on your tax bill.
1. Don’t forget your expenses
Self-employed business expenses
HMRC allows you to deduct legitimate business expenses from your taxable income. These can include travel and transport, uniforms, office running costs such as stationary or phone bills and the cost of business premises, including energy bills.
If you work from home, you can claim a proportion of your bills for the time you are working and the area of your home that you work in.
In most cases, you can choose between totting up and deducting actual expenses, or using the ‘trading allowance’. This deducts £1,000 from your gross self-employment income. However, if you use the trading allowance, you won’t be able to claim for any actual expenses you’ve incurred.
Expenses if you’re employed
For certain job-related expenses – either where you’ve not been reimbursed by your employer or where you were reimbursed but have been taxed on what you received.
As a general rule, you’re only allowed to claim costs for items or services you’ve bought ‘wholly and exclusively’ in relation to your job. You’ll receive tax relief on what you’ve spent.
Landlords can generally claim for the expenses of running and maintaining their buy-to-let property, including things such as letting agents‘ fees, landlord insurance, accountant’s fees and many more.
2. Make the most of reliefs and allowances
Taking full advantage of tax reliefs and allowances can knock significant sums off your bill. We’ve outlined some of the main ones to be aware of below.
Tax relief for charitable giving
If you’re a higher-rate or additional-rate taxpayer and have made Gift Aid declarations when giving to charity, you can use your tax return to claim back the difference between the basic tax rate and the rate you pay.
It can be easy to forget how much you have given over a year, especially if you’ve made small ad-hoc donations, so go through your bank statements and emails carefully to check.
Tax relief on pension contributions
Contributions to a pension are eligible for tax relief. If you contribute to a workplace pension, your employer may apply full tax relief for the tax rate you pay before you get your pay cheque (known as a ‘net pay’ arrangement).
But if your employer uses a ‘relief at source’ approach, or if you have a personal pension, you will only receive basic-rate tax relief. If this is the case, higher and upper-rate taxpayers can claim the extra via their tax returns. If you haven’t previously claimed, you can backdate pension tax relief for four years.
Capital gains tax (CGT) allowances
If you are declaring a capital gain – where you’ve made a profit through selling shares or an investment property, for example – you get an annual allowance before CGT is payable. You can also offset losses from the same or a previous tax year to reduce your bill. Just register the losses on your self-assessment form.
Tax relief for landlords
Landlords are no longer able to deduct any mortgage expenses from their rental income to reduce their tax bill – instead, they can receive tax relief payments based on the amount of mortgage interest they pay.
The relief is paid as a tax credit, based on 20% of your mortgage interest payments.
3. Reclaim overpaid taxes
If your income unexpectedly falls during a year, you may find that you’ve been taxed more than you should have done – particularly if you pay tax by payments on account, where you make contributions based on your earnings from the previous tax year.
Self-employed taxpayers can claim tax refunds through self-assessment. This means that any overpayments will be dealt with once HMRC has received your next tax return.
When completing your return, you should be told that you’ve overpaid. You can then choose how you’d like the money to be paid back to you – for example, by bank transfer. Alternatively, you can put the money towards your next tax bill.
If you’ve paid too much tax as a result of making a mistake on your self-assessment, the first step is to correct the relevant tax return. You can do this through the government’s self-assessment portal – the same place that you completed your return in the first place – then request a repayment.
For more information, you can check HMRC’s guide to claiming a tax refund.
4. Claim any unused allowances by amending previous tax returns
You have until 31 January to tweak your 2020-21 tax return, so if there are any allowances you forgot to take advantage of in the last financial year, then this is your last chance to do so.
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.
You can make amendments up to four years after the end of the tax year in question, but if you want to update a return from 2019-20 or earlier you’ll need 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 more tax, too.
5. Pay your tax bill on time
Be mindful of deadlines, and the penalties and fines you’ll face if you miss them.
Unless you have what HMRC considers a ‘reasonable excuse’, such as the death of a partner or an unexpected hospital stay, failure to file by 31 January will see you face a penalty fee – which can rise steeply if you’re several months late.
The deadline for paying the tax bill is also on 31 January. If you miss it you’ll be charged interest from the date the payment was due, and interest is currently set at 6%.
Last year, in response to Covid pressures, HMRC waived the late filing charges during February and late payment charges until 1 April 2022. No similar measures have been announced for this year, meaning penalties for filing and paying late will kick in as usual after the 31 January deadline.
Try the Which? tax calculator
You can also use the Which? tax to get to grips with your tax liabilities and allowances.
It provides clear, no-nonsense explanations about the different types of taxable income, plus suggestions for allowances you might have missed. You can even use the tool to file your return directly to HMRC.