The tax return deadline is looming. Here’s how to avoid fines
Many of us are guilty of putting our personal finance admin on the back burner, opting to leave paying our bills, planning the monthly budget and checking insurance policies until the last minute.
But with the deadline of the 31st inching ever closer, leaving your self-assessment tax return until the final days of January, leaves you at risk of missing the cutoff and receiving a fine, with filing just one day late attracting a £100 penalty.
Alice Haine, personal finance analyst at Bestinvest, said: “A tax return can require detailed information and time to ensure everything is correct. This might explain why almost 5.9m people still need to file their online return for the 2024-25 tax year.
“Leave it too late, however, and you risk missing the online submission deadline at midnight on January 31, and incurring an instant fine, with additional penalties the longer the return or any tax owed remains outstanding.”
For those finding themselves scrambling to file last minute, here are some points to consider.
Never assume tax returns don’t apply to you
Many British taxpayers do not need to file an online tax return for the 2024-25 financial year, due to tax being automatically deducted from wages, pensions or savings via Pay As You Earn or PAYE.
But there are some situations where completing a return is mandatory, particularly when tax is not deducted at source or you earn extra untaxed income.
Reasons can include earning more than £1,000 from self-employment, earning more than £1,000 from letting out a property or land, such as through rental income, as well as earnings from other untaxed income including commissions, dividends and foreign income.
Others who can find themselves needing to file include partners in business partnerships and those claiming income tax reliefs on charitable donations or business expenses if self-employed.
Some rules have changed
There have also been rules changes in certain circumstances, meaning some people no longer have to file.
Those filing just for claiming higher or additional rate tax relief on pensions who pay tax via PAYE, can now claim through their personal tax account.
Meanwhile, those earning above £150,000 no longer have to return, while those under the high income benefit charge can now report and pay the charge directly through their PAYE tax code, however this is still optional.
Find your paperwork
Tracking down documents including P60s, rental statements, expense receipts and pension documents can take a substantial amount of time if they are not kept organised through the year.
Finding the appropriate documents and inputting them correctly is critical, as errors or misleading information, even when done accidentally, can lead to a penalty.
Haines said: “This is key for those with multiple income sources, such as from rental property, freelance work, savings and investments.
“Information to have ready includes all sources of income – not only from your main job but also side hustles, property income, interest on savings and dividends and coupons from investments.”
Haines also warned filers to pay particular attention to any capital gains made in the 2024-25 tax year, as assets sold after October 30 2024 are now subject to the increase in both lower and higher CGT rates.
Don’t miss out on allowances, even Vinted sales can get you cash back
Filing a return can be daunting, but there are ways to claw back some cash.
Tax reliefs can apply to working from home and even to work uniforms you need to buy and maintain.
Haines said: “There is a whole host of other allowances, such as a trading allowance of up to £1,000 for casual income.
“That might apply to those that buy and sell on trading sites such as Vinted, Depop and eBay, though remember this only applies if you have bought and sold items to make a profit. It doesn’t apply if you are simply trying to make a bit of cash from a wardrobe clear out.”
High earners should also pay attention.
If contributions to a workplace pension or a SIPP and make contributions through a relief-at-source scheme, which can include both workplace or personal pension, basic tax relief is automatically added.
But higher and additional rate taxpayers must claim the extra 20 per cent or 25 per cent themselves, with a failure to do so leading to missing a “healthy chunk of cash”.
Fund your bills and penalty appeals
Unfortunately, filing the return is only half the battle as you must also pay any tax owed from the 2024-25 tax year by the deadline, which will require sufficient funds being available in your bank account ahead of time.
This can be done through the HMRC app, online banking transfer, a physical cheque and even a one-off direct debit payment.
If you are unable to pay your whole bill, HMRC may allow you to set up a payment plan to spread the cost over a set period, but interest will apply.
In order to qualify, you must file your return, owe less than £30,000, be within 60 days of the payment deadline and have no other payment plans or debts to HMRC.
Interest will also be charged on any overdue payments.
For those who miss the deadline and have a genuine excuse for doing so can appeal a penalty if evidence is provided.
This could include the death of a partner or close relative, IT challenges or a serious illness, but without a valid reason the fine will escalate quickly from the initial £100.
After three months, there is an additional daily charge of £10, capped at £900, and gets heftier if the delay extends beyond six months.
While this can be daunting, Haines warned against “burying your head in the sand” as HMRC may use a debt collection agency to recover unpaid bills, which could harm your credit rating.
Soften your bill
Tax efficiency is becoming increasingly important now that income tax thresholds are frozen until April 2031, meaning more people will be dragged into higher bands as their income increases.
But your tax bill can be softened through topping up a pension to secure more income tax relief, taking advantage of a salary sacrifice scheme before the £2,000 cap from April 2029 and by using the £20,000 ISA allowance, protecting savings and investments from tax.