Are you submitting the self-assessment return?

To prepare for the fast-approaching self-assessment return deadline of 31st January 2022 for the tax year 2020-21, we have the following advice to ensure complete compliance with HMRC and minimize tax bills as low as possible.

Employment Income: Ensure all employment income is included in the tax return within the cut-off date of the tax year. Having the P60 and P45s (if applicable) will make life easier. If you have received any employment benefits, then ensure you have a copy of the P11D form.

Please claim any direct costs associated with each of the employment in the tax return. It will reduce tax obligations.

Employment Benefit: If an individual was receiving taxable benefits such as a company car, subsidized employers’ loans, or a housing benefit then it must be declared on the tax return and pay associated income tax.

Pension Contributions Tax Credit: Pension contributions are tax-free within a limit. Tax benefits of pension contributions are given at the basic rate. If an individual earns at a higher rate and makes pension contributions, they need to reclaim the additional income tax paid through the self-assessment return. Please ensure you have received the correct tax benefit for all your pension contributions.

Mileage Allowance: If you have been driving for your employer using your private cars, please ensure that you have claimed mileage allowance. It’s £0.45 for the first ten thousand miles in a tax year followed by £0.25 per mile for additional miles driven above ten thousand miles.

However, the alternative to the mileage allowance is to claim the actual operating cost of the car for business miles driven.

You should calculate costs under both methods and compare them before claiming the expensive one. Please note the options are mutually exclusive.

Professional fees and subscriptions: If you are paying for any professional fees or subscriptions fees related to your profession, you may be able to claim the costs of it.

Marriage Allowance: If a couple is married or in a civil partnership and if any of them earns below the personal allowance threshold currently at £12570 for the tax year 2021-22 then he/she may transfer £1260 of the personal allowance to his/her spouse. This would ensure maximum tax benefits for the household income.

Please note that if lowers earning individuals have any other types of income such as savings income or dividend income or self-employment then it may not be worthwhile. Please seek professional advice.

Individual Savings Accounts (ISAs):

You can save or invest in various ISA options up to £20,000 in the tax year 2021-22. Income received or capital gains made from savings or investments in ISAs are tax-exempt and you can spread your full contributions in various accounts as you wish except for Lifetime ISA which has a current maximum limit of £4000. Income or gains from ISA do not need to be declared in the self-assessment return.

However, unlike pension contributions, ISAs contributions are not tax-free and restrictions apply to Lifetime ISA withdrawals and transfers.

Please note that the information provided above is correct at the time of writing and applicable to the United Kingdom for the tax year of 2020-21. Information provided is for guidance purposes only and professional assistance should be sought before acting on any of the information.

Written by Justyna Witkowska

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