Were you one of the 600,000 taxpayers who failed to file their self-assessment return by January 31? If you simply neglected to do this, HM Revenue & Customs will fine you £100.
But many people will have faced more urgent priorities — such as caring for a loved one struck down by illness. Perhaps surprisingly, HMRC is remarkably tolerant about this. It will listen to reasonable excuses — and, more helpfully, it enables you to correct many things later to reduce your tax bill. Lots of entitlements are easily forgotten.
How do these entitlements work?
Let’s start with pensions. When you make a pension contribution from taxed income the government adds back the tax you paid. It does this automatically for basic-rate taxpayers. So a basic-rate taxpayer making a contribution of £4,000 into their pension would see it lifted by 25 per cent, to £5,000. If this is confusing — the basic rate of tax is 20 per cent, after all — remember that the government is reinstating the tax you paid. Someone who has paid the basic rate of tax and is left with £4,000 earned £5,000 before tax.
The government does the same if you are a higher-rate or additional-rate taxpayer.
You have to claim back the difference between the basic 20 per cent rate and the 40 per cent or 45 per cent you paid. (You need not put this extra money into your pension — many people just offset it against their tax bill.) You can reclaim tax deductions on pension contributions that you paid in the past four years. Many people forget this. I have had some clients who saved thousands by claiming back tax relief from previous years.
Under what are confusingly known as “carry forward” rules, you can take advantage of unused pension allowances from the previous three tax years. This is particularly helpful to those who receive a big bonus one year and had previous unused allowances, but it can also benefit those who missed making contributions in past years and now bump up against contribution limits — which can be much less for high earners than the typical £40,000 allowance.
Does the same approach work in other areas?
Yes. The government’s position on Gift Aid charity donations is similar to its approach to pensions. It automatically gives the charity you donate to the basic rate tax you have paid — equating to a 25 per cent uplift again — as long as you have completed a Gift Aid form. Higher-rate and additional-rate taxpayers can claim back the difference in tax for themselves.
It can take several hours to round up all the records, but it is well worth it for those who are generous — helping them pay less tax or leaving them more money to give away. You can enjoy tax relief on donations from the four previous years.
What about expenses relating to work?
During the 2020-21 and 2021-22 tax years when Covid was forcing workplaces to close, you could claim back tax on expenses incurred working from home, even if your employer had an office. You could also claim for the whole year — in the 2020-21 tax year it is £6 a week (the previous year £4 a week) multiplied by your relevant income tax rate, with no evidence required, or more if you have all the receipts.
A growing number of people now work from home all or part of the week. If your employer does not have an office or you have to live a long way from it (lifestyle choices don’t count) you can claim gas and electricity for your work area at home and business phone calls. There is a long list of other work things that can be claimed for, set out in the government guidance. Most importantly, you have four years from the end of the tax year in which you paid the expenses to do so.
Is there any leeway on investment losses?
Potentially. You can offset “allowable losses” against capital gains tax liabilities. This might be losses on the disposal of an investment asset outside a pension or Isa wrapper. The definition of what is allowable can be complex, and you may need to ask your adviser or accountant, but at least you have up to four years after the end of the tax year that you disposed of the asset to declare the losses, which can be carried forward indefinitely to be offset against future gains.
Tax laws are subject to change; the rules are not simple and apply depending on your situation, yet our tax system is also remarkably flexible. Your tax return has to be right, but if you rushed to get it completed and failed to claim all your entitlements there is a good chance you can correct it.
Nathan Valbonesi is a chartered financial planner and leads the investment and wealth advice team at Weatherbys Private Bank