The January 31 deadline for filing self-assessment tax returns looms large. If you’ve filed already, good for you. But if you’ve haven’t yet, don’t panic. You are not alone as there are 4mn other people in the same position, according to HM Revenue & Customs, or around one-third of taxpayers due to file.
For the past two tax years, HMRC has relaxed the deadline and applied no penalties for self-assessment return filed up to a month late. But not this year; file on time if you possibly can.
What should I do if I can’t afford the bill?
You can set up a Time to Pay arrangement, which allows payments to be spread over 12 months after the deadline, without paying late payment penalties. That would save you an initial £100 as the deadline passes and £10 a day from May 1 up to £900, with extra penalties applied after six and 12 months.
But those who set up Time to Pay still face a late payment interest charge set at the Bank of England base rate plus 2.5 per cent. This puts the levy at 6 per cent — up from 2.75 per cent this time last year. According to HMRC, more than 45,000 self-assessment taxpayers have set up a late payment plan since the start of the tax year.
Do I need to pay tax on crypto?
It depends. For tax purposes, crypto is normally treated as other taxable assets, subject to capital gains tax, charged at 10 per cent for basic rate taxpayers and 20 per cent for those on the higher and additional rate. But if your crystallised profits for the year were below £12,300 you don’t need to report the gains.
Also, you can offset crypto gains against capital losses on crypto or other assets. But note these losses must be crystallised — it’s not enough to have them sitting unrealised in your crypto accounts.
Tax advisers say HMRC will focus on ensuring capital gains tax on crypto is properly declared as its research published last summer showed awareness of the tax treatment was low. According to blockchain analytics firm Chainalysis, an estimated £6.5bn was crystallised from crypto capital gains in the calendar year 2021, most of which would have fallen into the 2021/22 tax year.
Am I eligible for any reliefs?
There’s a long list of reliefs and rebates that you might be able to claim. It’s difficult to know exactly how much goes unclaimed, but estimates say it could be as much as £1bn a year.
Key ones to remember if you are a higher or additional rate taxpayer include income tax relief on charitable and pension contributions, as well as relief on tax-efficient investments such as venture capital trusts and enterprise investment schemes.
Guy Sterling, a tax partner accounting firm Moore Kingston Smith, cautioned that a common mistake people can make is forgetting to declare child benefit or declaring the benefit on the wrong partner’s tax return (should be the higher earner).
What about planning for the new tax year?
The silver tax lining of turbulent markets is the ability to offset losses against gains — which is about to become more valuable with the tax-free capital gains tax allowance set to fall from £12,300 to £6,000 in April and to £3,000 in 2024. The government estimates the move will roughly double the number of capital gains taxpayers in the next two years.
Chris Thorpe, technical officer at the Chartered Institute of Taxation, says slashing the allowance — along with the fall in the dividend allowance from £2,000 to £500 in 2024 — is a “massively underestimated change” as hundreds of thousands of people will have to start completing self-assessment tax returns for the first time, an increase of 260,000.
So what should I do about it?
If you have crystallised losses greater than gains in recent years, you should report these to HMRC. Under the current rules, excess losses can be carried forward indefinitely to be offset against future gains, provided the losses have been declared to HMRC within four years of the end of the relevant tax year.
Losses can be offset against gains across a wide range of assets from shares that are not held within a tax wrapper, to a property that’s not a main home and most personal possessions worth over £6,000, apart from a car.
Chris Springett, tax partner at wealth manager Evelyn Partners, urged people to think about any losses they could crystallise and carry forward as they “could become more valuable as the allowance falls away”. However, he stressed investors should “focus on the investment rather than tax”.
If you sell an asset to crystallise a loss, you cannot claim loss relief if you buy the same asset back for at least 30 days. You could, however, sell it and buy it immediately within an Isa or pension.