5 steps to avoid New Year tax trauma
You have just 22 days to complete your tax return online to avoid a £100 fine.
Of the 11.4 million people who have to fill in a tax return annually, around 5.5 million are yet to file for 2017/2018, according to official figures.
As the October 31 deadline for posting a paper version is long gone, the only option now is to submit one online by January 31.
Here, Money Mail talks you through how to make this financial headache as painless as possible.
Who needs to file a tax return?
If your only income is from wages or a pension, tax is typically deducted automatically under the pay-as-you-earn (PAYE) system. But even then some people will be required to file a tax return as well.
These include any shareholders, those who earn more than £100,000 a year, get income from abroad or make more than £2,500 a year from renting out a property, commission or freelance work.
Parents who receive child benefit where either of them has an income of more than £50,000 must also file, along with those who receive income from a trust or owe capital gains tax.
You can check if you need to send in a tax return online at (gov.uk/check-if-you-need-tax-return) or call 0300 200 3310.
How to be on time
First, you need to register on the HMRC website (hmrc.gov.uk/log-in-file-self-assessment-tax-return). However, it can take more than a week to set up an account.
HMRC will then send you a ten-digit Unique Taxpayer Reference through the post, which can take up to ten working days to arrive.
Once you have this, you can sign into your online account to file your return.
You need to pay any tax you owe for the same tax year (2017/2018) by the end of this month.
Anita Monteith, a tax manager at the Institute of Chartered Accountants in England and Wales, says: ‘Putting your tax return off until the last minute can lead to mistakes — and you may have to pay a fine.’
Gather up your paperwork
The tax year you are filing for this January ran from April 6, 2017 to April 5, 2018.
Tell HMRC how much income you received during this period including earnings, pensions, dividends, savings interest, rent collected and any capital gains you have made of more than £11,300 — excluding any profit made on selling your own home. You might have paid tax on most of this already, but there could still be some owing.
As of last January, information about money earned through PAYE should be automatically filled in on your form.
If you are self-employed, you will also need records of any expenses relating to work and you may also have to pay class 4 national insurance contributions.
You don’t need to fill in a tax form just for interest you have earned from your savings accounts if you’re employed or get a pension. In this instance, HMRC collects any tax owed through your tax code and will adjust it depending on how much you earned that year.
On ordinary savings accounts you have a personal savings allowance which entitles basic-rate earners to £1,000 of tax-free interest. Higher-rate payers get a £500 allowance, while additional rate 45 pc payers get nothing. When filling in your return you need to enter the total amount of interest received — not just the sum above your personal savings allowance. You do not need to include earnings from Isas or Sipps (Self-Invested Personal Pensions) as this form of interest is tax-free. If you hold shares or funds outside these tax-free wrappers, you must fill in a return if you earn more than £10,000 in dividend payments.
You don’t have to pay any tax on the first £5,000 you earn, and above that you will owe 7.5 pc of your dividend income as a basic-rate payer, 32.5 pc as a higher-rate payer and 38.1 pc if you are an additional rate taxpayer.
As of the tax year 2018/2019 the dividend allowance was cut to £2,000, which will affect you when you file next January.
PAYING BACK CHILD BENEFIT
Child benefit is worth just under £1,789 a year for a family with two children (£20.70 a week for the eldest and then £13.70 a week for any additional child).
However, if you or your partner earns more than £50,000 you may have to pay what is known as the High Income Child Benefit Charge (HICBC).
It means that for each £100 you earn over £50,000, you must repay 1 pc of the child benefit received. Those on a taxable income of more than £60,000 must repay the full amount.
It doesn’t matter if the higher taxpayer is not the parent — what counts is that they are living at the same address as the child. The charge applies to the partner with the highest income, regardless of who receives the child benefit.
You can choose to not claim the benefit, but many families are advised to continue to, as it counts towards state pension entitlement when one partner is a stay-at-home parent.
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This article was written by Sylvia Morris from Money Mail (Daily Mail) and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to firstname.lastname@example.org.