Last Minute Tax Filing
Now that the Christmas tree has been removed and the decorations packed away, it’s that time to face the dreaded task you’ve been putting off all year – your personal tax return.
For those of you doing this for the first time, it might seem daunting, but we will hopefully ease some of that and run you through the whole process and point out the common pitfalls to avoid. For those who have submitted before, feel free to take this as a refresher – you might learn something new…
What you will need to hand
Anybody submitting a personal tax return requires a unique taxpayer reference number, or UTR. This would have been provided to you by letter from HMRC when you first registered to submit a tax return, and will be on any correspondence received from HMRC. If you haven’t registered yet, we will tell you how to later.
You can submit your tax return through HMRCs website by creating an account (https://online.hmrc.gov.uk/registration). Once this has been created, you will need to wait for an activation letter to arrive from HMRC – this can take a couple of weeks, so needs to be done soon!
If you haven’t got the time to wait for the code before the 31 January deadline, the return can be submitted through third party software (https://www.gov.uk/software-tax-returns). Make sure you do some research to make sure they are legitimate; otherwise you may fall foul of a scam such as this one – http://www.thisismoney.co.uk/money/news/article-2720705/Taxreturngateway-bosses-racked-7m-just-FOUR-MONTHS.html.
Once the online account is activated, you are ready to go.
If you haven’t registered with HMRC yet and you think you need to, you can do so either online here – https://online.hmrc.gov.uk/shortforms/form/SA1 or through a paper form – http://webarchive.nationalarchives.gov.uk/20111030134051/http://www.hmrc.gov.uk/sa/forms/sa1.pdf. Once this has been processed, you’ll have 3 months from the issue date of the return to submit, rather than the 31 January deadline. You may be issued with a penalty for failure to notify HMRC, however this rarely happens.
Once you’ve got your login details and UTR
Follow the relatively intuitive instructions on HMRCs online system, and use the help buttons if you have any queries. Depending on your income, you may need to complete different pages on the return:
If you received employment income
You’ll need your P60/Final P45 from the year. If your employer provided any medical insurance/company car etc, you will also need a form called a P11D – this should be requested from your employer.
If you were self-employed over the year
You’ll need details of all your income received and expenses incurred over the year. We recommend that you print off hard copies of all of your sales and purchase invoices, as HMRC can go back six years if they decide to look into your return.
If you received interest on your bank account/other investments
The total net figure of interest should be included on the return. The bank pays tax on your behalf to HMRC, so if you are a basic rate taxpayer (earning less than ~£41,000 during the year) you will have no further tax to pay on this income.
If you received rental income
Similar to the self-employment income above, you need to include your income received and the expenses incurred during the year on the rental pages.
Once all the relevant pages have been completed, click through to the final calculation, where you can see what the total damage is.
Extras you might not be aware of:
- Self-employed workers will pay Class 4 national insurance through their tax return – broadly speaking, 9% of their income over ~£8,000.
- If you have student loans repayments to make, this will be calculated in the return as well, on your total income for the year. If you have employment income and another source of income (such as self-employment), you will find yourself paying this on top of the deductions already taken through your payslip.
- On your first tax return, if the total amount you owe is greater than £1,000 (and is more than 80% of your tax deducted at source from your employment, for example) then HMRC will expect you to make ‘payments on account’ for the following year’s tax. These are by default 50% of the total tax due in January, plus another 50% in July.
Let’s say your total tax & national insurance liability is £3000. The payments HMRC expects you to make will be; by 31 January 2016 – £4500, by 31 July 2016 – £1500.
The extra £3,000 you have paid will be set against your next year’s tax bill.
If you know that your income for the following year will be lower, then you can apply to reduce these payments. However, if it turns out they are more than your reduced figure; you will need to pay some interest on the difference.
You apply to reduce the payments to £900 each – so £3,900 payable on 31 January, and £900 on 31 July. When you calculate your tax return for the next year, you find out that your tax payable is £2,200. You will therefore have to pay:
Balancing payment of £400 (£2,200 – £900 x 2)
First payment on account £1,100 (£2,200 / 2)
Interest on the balancing payment figure £9 (£200 x 3% + £200 x 3%/2)
Penalties and how to avoid them
HMRC Penalties for your personal tax return fall into two main areas;
- Late filing
- Late payment
There are also other penalties that you may come across – failure to notify (as mentioned above), and errors on submitting your return, if HMRC decide to look into the figures. These are a lot less common and are not issued automatically.
HMRC issue individuals penalties for filing their tax return late. The penalties escalate as follows;
- £100 fixed penalty for 1 day late
- £10 daily penalties for 90 days (maximum £900) – from 3 months to six months late.
- 5% of tax due, or £300 fixed penalty (if greater) for more than six months late
- 5% of tax due, or £300 fixed penalty (if greater) for more than twelve months late.
These penalties are individual, and add up – to £1,600 if the return is over twelve months late.
- 5% of tax due – for 30 days late (1 March 2016)
- 5% of tax due (of balance outstanding) – six months late (1 August 2016)
- 5% of tax due (of balance outstanding) – twelve months late (1 February 2017)
The penalties can be appealed against, and provided that HMRC accept that you have a ‘reasonable excuse’, they should be waived. There is no statutory definition of ‘reasonable excuse’ however; the HMRC helpsheet found here sets out some examples –
How to avoid penalties
- If you can’t complete the full return to 100% accuracy on time, submit something to HMRC to avoid the late filing penalties. You have one year to amend the return after it has been submitted.
- If you are unable to make the full payment of tax to HMRC, in some circumstances they will arrange a ‘time to pay’ agreement with you – to pay the total liability off over an agreed payment plan. They are more likely to agree to this if you speak to them before the payment deadline of 31 January.
- If no payment plan is reached, you still have 30 days before the first late payment penalty kicks in, so use this time to rearrange your finance to settle the liability. HMRC will charge interest on the balance (at 3% per year).
If it still seems a bit overwhelming, don’t panic. Howlader and Co are happy to answer any questions you may have, and anything that is not covered above. Feel free to get in touch on 0207 488 3614, or email at firstname.lastname@example.org.