This time of year can fill even the most organised and prepared of us with dread: if you're self employed the end of January means tax return submission time!
Local accountants Ashdown Hurrey have some excellent top tips on factors to consider for your tax return - and how to plan ahead with some elements for next year's submission.
This refers to the "Gift Aid" question that crops up when you donate to charity. If you're a taxpayer and you tick the Gift Aid box, the charity you're donating to is able to claim 25p worth of tax relief on every pound that forms part of that donation.
For higher rate and additional rate taxpayers this can make a difference to their tax returns, as those charitable donations really can add up over the year. And because they are are eligible to claim relief on the difference between the basic rate and their highest rate of tax, it can make a difference to the submission amount.
To see how this works in real life, here's an example:
You donate £500 to charity. Claiming Gift Aid in effect means the £500 donation to the charity is actually £625. An additional tax amount can be claimed back by the taxpayer at the rate of:
If you'd like to plan ahead for the next tax year and you're a higher rate or additional rate taxpayer, did you know you could reduce your tax bill for the last tax year by carrying back a charitable contribution from the current tax to year to last year? This mean that you can make a gift to charity in the current tax year which can affect your tax return for last year.
The only rule to remember is that in order for this to qualify, the carry back request must be made before or at the same time as the self assessment tax return for 2017-18 is completed (i.e. before 31 January 2019).
The marriage allowance is a tax benefit for married couples where one partner is a low earner or not working. If you or your spouse or civil partner doesn’t pay tax or has an income below the personal allowance (for 2018-19 this is £11,850) then you will be eligible.
Why is it important?
It enables lower earning couples to share part of their personal tax-free allowance, meaning the lower earning partner can transfer up to £1,190 (increasing to £1,250 in 2019-20) of their personal tax-free allowance to their spouse or civil partner.
The allowance can only be used for those recipients who are within the basic 20% rate of Income Tax tax bracket - those with an income that is between £11,851 and £46,350 (£12,500 to £50,000 in 2019-20). The limits are slightly different if you live in Scotland.
Now is the time to plan ahead.
Couples have up to four years to claim backdated annual allowances. If you meet the eligibility criteria and you haven't yet claimed your allowance, you are able to backdate your claim as far back as 6 April 2015. This means you could find yourself receiving a total tax break of up to £900 for the last four years.
The marriage allowance application must be made by the non-taxpayer who is transferring their allowance, and can be applied for by phone or online.
If after completing and filing your tax return you have Income Tax liabilities to pay, then these are usually pain in three instalments each year. The first two payments are due on:
These first two payments on account amount to 50% of the previous year’s net Income Tax liability. The third (or only) payment of tax will be due on 31 January following the end of the tax year e.g. for the 2017-18 tax year a final payment is due 31 January 2019. This is the same for any Capital Gains Tax due.
This means that each year the January payment each year can comprise two elements: any balance of tax for the previous tax year plus any payment on account due for the current tax year.
It's worth remembering that you don't need to make any payments on account where your net Income Tax liability for the previous tax year is less than £1,000 or if more than 80% of that year’s tax liability has been collected at source.
Thinking ahead to next year, you can start preparing now for your next year's tax return, particularly if you know that your current earnings are going to be lower than they were the previous year. Doing so could end up boosting your cash flow this year and avoid overpaying HMRC.
You can take action now and put in a request to HMRC to reduce your payment on account for 2018-19. You will need to claim by 31 January 2020 to reduce your payments on account for 2018-19.
If you find your taxable profits have actually increased you don't need to notify HMRC as your underpayment of tax for 2018-19 will form part of your next tax return and simply be due 31 January 2020.
If you leave the UK to work or live and you know you will be away for a full tax year, then you will need to complete a P85 form (which can be found on the GOV.UK website) to advise HMRC that you have left the UK.
This will help you claim any tax refund you are entitled to, as well as helping HMRC decide how you should be treated for the purposes of any continuing liability for UK tax. Liability will be depend on whether you're resident and / or ordinarily resident and / or domiciled in the UK
You can either complete and submit an online form, or there is a postal form available that needs to be completed by an agent.
Remember: even if you're abroad it may be worth continuing with your National Insurance payments. Doing so may help secure state pension credits, and may be important if you're considering returning to the UK.
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