Avoid Tax Return Fines

The taxman handed penalties to 100,000 people last year for submitting inaccurate tax returns, according to a Freedom of Information request obtained by tax firm RSM.

Every year millions of us must complete a self-assessment return for HMRC. More than 12.2 million taxpayers were expected to file a tax return last year and of those 10.2 million did so before the 31 January deadline.

Anyone who needs to complete a tax return for the 2021-22 tax year must file by 31 January 2023 to avoid incurring late penalties.

You’ll pay a late filing penalty of £100 if your tax return is up to 3 months late. You’ll have to pay more if it’s later, or if you pay your tax bill late. You’ll also be charged interest on late payments.

As well as penalties for filing late there are also penalties for mistakes. HMRC can fine you for up to 30% of the tax due for careless inaccuracies – but if they believe the error was deliberate, then it could hit you with a 50% to 100% charge.

It is expected the number of taxpayers getting fined for inaccuracies to grow because HMRC is currently increasing the number of taxpayer enquiries back up to pre-pandemic levels.

With the deadline for self-assessment returns fast-approaching, here are a few things you need to watch out for when filing.

Forgetting about pensions

It is not just the income that triggered the need for a tax return that you must report, but also employment income and any other income, including pensions.

Taxpayers often think the state pension does not need to be reported, however “for those drawing their state pension with total income (including their state pension) higher than £12,570, there will be tax to pay”.

HMRC’s system is pretty up to date with most pensions and you will find the information is often pre-completed. Its always worth double checking though.

Getting property income wrong

Property income – rental income minus expenses like landlord insurance and advertising costs – is one that many landlords neglect to include or get wrong on their tax return.

This is because some expenses are deductible and some are not (rather are carried forward against future gains).

Also, there are phased changes to interest relief which can get complicated.

This area is where HMRC will go to first due to the complexity. If in doubt, ask for help.

Earn foreign income?

Taxpayers need to pay particular attention to the reporting of foreign income, such as money earned renting out an overseas property or interest earned in an overseas account.

Some people mistakenly think that submitting a return in the jurisdiction where the income arose satisfies their obligations but this isn’t the case.

A UK tax resident individual is normally taxed upon the 'arising basis’s which means that they are subject to UK tax upon their worldwide income and assets and need to report this to HMRC.

However, a foreign tax credit relief may apply if income or gains are reported to both HMRC and a foreign tax authority.

Don’t forget Covid support payments

All payments received under coronavirus support schemes are taxable, and even if you declared these in your last tax return, you may not be in the clear.

The schemes finished on 31 September 2021. You might have received support payments in the period 6 April 2021 to 31 September 2021 that should be reported on your tax return.”

The tax charge that can catch parents out

Many parents claiming child benefit don’t realise that once they earn over £50,000, the benefit is clawed back at 1% for every £100 they earn up to £60,000.

Those who fit these criteria must declare the liability on their tax return.

If you were previously paying the charge but your income dropped during the year due to furlough, you may have paid too much tax through PAYE, so check if you are due a refund.

Taxpayers should think about earlier years, too. If you did not spot this issue in 2020-21 or earlier, contact HMRC directly to get it put right.

The sooner you sort it out the less you will have to pay interest on tax paid late.