If you've put off doing your tax return, I don’t blame you. It is hard to find the motivation to forage around for all those documents, only to part with your hard-earned cash.
The bad news is that if you haven’t already got the ball rolling on your self-assessment form for the 2015-16 tax year, chances are you won’t manage to file it before the deadline on 31 January – Tuesday of next week. You won’t be alone though. Of the 10.4m people who completed a self-assessment form last year, 890,000 missed the deadline.
With all the documents to be gathered and exemptions to be calculated, you’re bound to have some questions. Here are some answers to the biggest ones.
Do I need to fill in a tax return?
Even if you pay income tax and National Insurance on your main salary through PAYE, you may still receive income from other sources.
These include the obvious, such as freelance work or rental income from a property you own. But some are less obvious, like if the gross income from your savings and investments exceeded £10,000, you made profits on selling shares or a second home, received dividends on investments outside a pension or Isa (and are a higher or additional rate taxpayer), or received Child Benefit and earned £50,000 or more.
And if your income is £100,000 or more, you will have to fill in a tax return whatever, even if you don’t receive any extra income and have already paid income tax through PAYE.
This is because your personal allowance – the first £10,600 of anyone’s income which was exempt from tax in 2015-16 (it’s now £11,000) – decreases by £1 for every £2 over £100,000 that you earn up to £122,000, so you’ll owe the taxman more.
The tax coding system is being amended for the 2017-18 tax year, but until then, anyone who earns more than £100,000 will have to fill in a self-assessment form.
If you are unsure, it is worth consulting HMRC’s website. And remember, you’re doing your taxes for the 2015-16 tax year, not the current one.
Have I left it too late?
You will have to file your return online because the deadline for the paper form was at the end of October. You need to register on HMRC’s website and you will be sent an activation code by post.
If you haven’t already applied for this code, which takes up to seven working days to arrive, you have almost certainly incurred the £100 penalty for filing late. However, this fine only increases again once your tax return is three months late, so there’s no sense in rushing now and risking making a mistake.
If you haven’t completed the form by then, you’ll be charged an extra £10 a day for the next 90 days – or £1,000 after six months. If you file a year late, you could be charged 100 per cent of the tax you owe.
If you’re totally bewildered by the process, it might be worth paying an accountant £200 to file your return for you.
Which documents will I require?
Unless you’re self-employed, you’ll need a P60 form, which can be obtained from your employer and details your income and tax you’ve already paid, and a P11D or P9D, which list any expenses and benefits your employer has given you. And if you left a job during the 2015-16 tax year, you’ll also need a P45 from your former employer.
You need to provide the details of any bank or building society accounts which have earned you interest, and dividends you’ve been paid.
How can I reduce my tax bill?
Unfortunately, there are benefits to being organised. Paying all the tax you owe in one go, and so soon after the Christmas period, can feel like a sharp sting.
But if your tax bill is less than £3,000, you have a PAYE code (either because you receive a monthly salary or because you are enrolled in a workplace pension), and you manage to file before the end of the calendar year, you can choose to pay in equal monthly instalments from your PAYE earnings. This would be an ideal solution if you only file a self-assessment form to cover investment income.
If you’re declaring income from self-employed work, there is a large list of expenses on HMRC’s website which allow you to bring down your taxable profit. This includes things like stationery, phone bills, fuel, public transport fares, bank charges, business rates and website costs. Of course, if you’re the director of a limited company, you can declare any business costs as company benefits and deduct them from your profits before you pay tax.
Perhaps most important of all, if you’re a higher or additional rate taxpayer, you may need to fill in a self-assessment form to claim a big chunk of the tax relief you’re entitled to. Your pension provider may only have claimed for 20 per cent – known as relief at source. Higher rate taxpayers need to claim the extra 20 per cent themselves, or 25 per cent if you’re an additional rate taxpayers.
It’s too late to move your savings around to make the most of tax-free individual allowances for the 2015-16 tax year. But you’ve still got time to put up to £15,240 in Isas and £40,000 in a pension and receive tax relief at your marginal rate – the current tax year ends on 5 April. If you’ve missed Tuesday’s deadline, don’t miss that one.