Don’t get caught out: the things you didn’t realise had to be included in a self-assessment form
With the self-assessment registration deadline nearing, Sarah Coles, head of personal finance at Hargreaves Lansdown outlines some often unknown things that need to be included
Coles rightly reminds us that “self-assessment angst” usually rears its ugly head in January, but there are some people who need to “get their skates on well before that” she says. That’s because they need to register for self-assessment before the 5th of October deadline.
“Those who have started a business or partnership are likely to be well aware of this, but there are other groups of people who may have no idea they need to sign up for the first time.”
Coles describes the tax system as a “rabbit warren” and apologises that she can not include all exclusions and rules. However, she suggests that everyone even vicars must go through the self-assessment process, as do most people who earn just £1 of income overseas and those who earn over £100,000.
However, there are nine lesser-known reasons why you may need to do a tax return, and might have no idea it’s necessary. Even those who have been freelancing for years may not realise they need to include certain items or situations. Coles outlines some here:
You’re a higher-rate taxpayer who pays into a pension
“If you pay into a personal pension, or your employer runs a scheme on a ‘relief at source’ basis, you’ll get basic rate tax relief and need to claim the rest from HMRC.”If you pay into a personal pension, or your employer runs a scheme on a ‘relief at source’ basis, you’ll get basic rate tax relief and need to claim the rest from HMRC.
The exception: Tax relief depends on how you pay into a pension. If your employer makes contributions before tax (known as net pay), full tax relief is automatic. The same is true if you have a salary sacrifice arrangement. If you’re not sure what basis your workplace pension works on, it’s worth checking.
In addition, if you have extra relief to claim then technically you can either do a tax return, or if you’re employed you can write to your HMRC tax office. However, if you opt for a letter you’ll need a new one every time your salary or contributions change significantly, which might actually end up taking more effort.”
You receive child benefit and have an income above £50,000
“This will mean you’re subject to the high-income child benefit tax charge. This kicks in at £50,000 and means you have to repay 1% of the benefit for every £100 you earn over the threshold. You need to complete a tax return to find out how much you need to pay and to make the payment.”
The exception: Once you earn over £60,000 you’ll need to repay all your child benefit, so most people find it easier to claim it but tell HMRC not to make any payments – which saves the bother of repayment but means you still get National Insurance credits, which count towards your State Pension.
You’re a higher-rate taxpayer who gives to charity
“You will automatically get 20% gift aid, but you can claim back the rest of the tax relief through a self-assessment claim.”
The exception: if this is your only reason for completing self-assessment, then there are alternatives. You can fill in a separate form to make the claim, or contact HMRC and ask them to amend your tax code instead.
You make more than £6,000 in capital gains
“Capital gains are the profits you make when you sell (or ‘dispose of’) something that’s increased in value. Confusingly it normally also applies if you give something away to anyone other than a spouse or civil partner during your lifetime, so even if you’re not personally making the profit, the tax is due. The threshold is £6,000 and is set to fall to £3,000 from April. After this, you must complete a tax return and pay capital gains tax.”
Exception: There’s a ‘real time’ system for tax on second properties, which needs to be paid more quickly. You can use that for other gains too if you want to pay the tax more quickly.
You make a capital loss
“If you make a loss you can set it against other gains in the same year, or carry it forward to offset losses in a future tax year.”
Exception: If you’ve never made a capital gain and you don’t otherwise need to do a tax return, you can write to HMRC instead.
You make £10,000 in interest and/or dividends
The exception: If you make over your personal savings allowance (£1,000 for basic rate taxpayers, £500 for higher rate taxpayers and £0 for additional rate taxpayers) or dividend allowance (£1,000 this year) you will usually have to pay tax, but if you’re employed you can ask HMRC to adjust your tax code to take the money.
“If you have interest over your allowance, you’re not employed, don’t get a pension and don’t complete a tax return, HMRC will contact you at the end of the tax year with a tax demand, if applicable.”
You have a side hustle and make more than £1,000 a year
“You have a £1,000 trading allowance, which can cover things like selling off unwanted items through eBay, or making and selling stuff in your own time. Any more than this and you normally need to do a tax return.”
You rent out a room and make more than the rent-a-room limit
“You can make up to £7,500 a year tax-free by renting out a furnished room in your home – including through Airbnb. Any more than this, and you need to register for self-assessment. Rents have gone through the roof recently, so there’s a chance you put the rent up over this threshold without considering the implications.”
You invest in an EIS or VCT
“Some investments come with tax benefits you can claim via self-assessment.”
Exception: If this is your only reason for filing a tax return you can arrange for the tax to be repaid through an amendment to your tax code.