Make ‘filing your tax return’ one of your New Year’s resolutions urges BDO

With 5.4 million people yet to file their tax return, taxpayers are being encouraged to file their returns early in the New Year to avoid being hit with a late filing penalty.

Commenting ahead of the 31 January 2025 deadline for submitting a tax return for the 23-24 tax year, BDO tax partner Paul Falvey said:

“The clock is now ticking to fill in and submit your tax return before the deadline of midnight on 31 January.

“Not everyone has to file a tax return. If you’re not sure there is a useful checking tool on the gov.uk website. However, if you are required to submit a return, filing on time is absolutely critical if you want to avoid being hit with a penalty.

“There is an automatic £100 late filing penalty if your tax return is submitted after 31 January 2025 - even if you paid the tax on time or there was no tax due. This increases to £10 a day if you are more than three months late, up to a maximum of £900.

“If you owe tax and are even later in filing, the penalty costs start to mount up quickly. At the three and six month dates HMRC will add another 5% of the tax due – with a minimum of £300 - as a penalty. There’s also a 5% surcharge added on to any tax outstanding on 1 March 2025, with further 5% surcharges added after 6 and 12 months if the tax has not been paid.

“On top of all this, you may be charged late payment interest which is currently at an eye-watering rate of 7.25% - and due to go up by another 1.5 percentage points in April 2025.

“There is therefore a huge incentive to submit and pay on time but if you’re going to struggle, it’s always worth contacting HMRC. A Time to Pay arrangement can be set up fairly easily online if you owe under £30,000, and this will help you spread the payments.”
 

BDO has put together the following 10 top tips to help you fill out your 23/24 tax return

Don’t forget to claim tax relief on pension contributions

If you make personal pension contributions, you are entitled to relief at your marginal rate of tax. If you pay contributions directly to a personal pension, you will get basic rate tax relief at source. However, if you are a higher rate or a top rate taxpayer, you’ll need to claim the additional 20% or 25% through your tax return. And if you are a sole trader or in a partnership you will need to claim all your pension tax relief through your tax return. Broadly speaking, on your 2023/24 tax return you can claim relief for pension contributions made during the tax year from 6 April 2023 to 5 April 2024.

Reduce or cancel out your High Income Child Benefit Charge

For the 23/24 tax year, if you or your partner claims child benefit, your benefit will begin to be clawed back if you or your partner’s salary hits £50K a year. When the salary of the higher earner rises to £60K a year, you will have to pay back the whole benefit.

If you increase your pension contributions to bring your taxable salary down below the £60K limit, you can reduce the level of your high income child benefit charge (HICBC). If you can bring it down to below £50K, you won’t have to pay the charge at all. So, it is important to include details of any pension contributions for this reason.

The threshold for the HICBC for the current tax year (6 April 2024 to 5 April 2025) rises to £60K a year. For those with income between £60K and £80K, the HICBC will equal one per cent for every £200 of income that exceeds £60K. If you haven’t yet made any pension contributions during 2024/25 and you are affected by the HICBC, it is worth considering if you want to make any pension contributions for the current tax year before 5 April 2025.

Keep your personal allowance and entitlement to Tax-Free Childcare

You can get up to up to £2,000 a year for each of your children to help with the costs of childcare. If you earn above £100K you lose the eligibility for tax-free childcare and your personal tax allowance is tapered away. So, if someone with two children on a salary of £105K has made a £5K gross pension contribution, they will retain the right to £4K in free childcare and make a tax saving of £2,000*.

Claim tax relief on charitable donations

If you have donated to charity using gift aid, the Government tops up the donation giving the basic rate tax relief due on it to the charity. However, higher and additional rate taxpayers can also claim the difference between their top tax rate (either 40% or 45%) and the basic rate (20%) on the total (gross) value of a donation made. Don’t forget to claim for both regular donations as well as one-off gifts. Gift aid donations also work to re-instate your entitlement to the personal allowance, where your income is over £100k. You can claim relief for any charitable donations made during the 2023/24 tax year as well as elect to carry back any made in this tax year up to the date you file your tax return. So, if you wait to file until the deadline, you can claim relief for gift aid donations made between 6 April 2023 to 31 January 2025.

Working from home? There’s a tax relief for that

If you have to work from home for all or part of the week under your employment contract, you may be able to claim tax relief for additional household costs. You can either claim tax relief on £6 a week or on the exact amount of extra costs you’ve incurred above the weekly amount (such as business phone calls or gas and electricity for your work area) but you’ll need evidence such as receipts, bills or contracts to claim the higher amount. But remember, you cannot claim this tax relief if you simply choose to work from home.

Declare all your rental income and gains from property sales

HMRC is homing in on residential landlords who may not be paying the correct tax, so it’s important that you accurately declare all rental income received.

If you rent out a residential property, you must pay tax on the profit you make after deductions for ‘allowable expenses’, and make sure you also declare any profit from letting out holiday property, either in the UK or overseas. The only exceptions are where the profit is less than £1,000 each year. If you let a room in your home (for example to a lodger) you can claim tax relief of up to £7,500 as a deduction against the costs.

When you sell a residential property there is now a requirement to complete a specific land return and pay any tax due within 60 days. However, if you also complete a tax return, you still need to include the disposal on your tax return and include details of the payment reference for any tax you have already paid.

Report your foreign income

One common pitfall is the reporting of foreign income – for example money from renting out a property abroad, interest earned in overseas accounts, or funds in an overseas trust or pension.

You might think that submitting a return in the jurisdiction where the income arises satisfies your UK obligations, but this isn’t the case.

If you are a UK tax resident, you will normally be subject to UK tax upon your worldwide income and assets.

While foreign income or gains are automatically reported to HMRC under the Common Reporting Standard, you must still include them on your tax return but you can claim relief for foreign tax paid on these sources.

Don’t forget to declare earnings from your side-hustle

Where you earn over £1,000 from selling goods or services you may need to complete a tax return. HMRC have recently launched a new tool to help you work out whether you need to file a return.

New rules which came into force from January 2024 require digital platforms to pass on information about their users’ income to HMRC. The first reports will be delivered to HMRC by 31 January 2025. As a result, HMRC will have more accurate information with which to detect and tackle tax evasion, and there will be fewer places to hide for those seeking to conceal income and gains.

Bank interest outside of ISAs

As the Bank of England base rate rose to a high of 5.25% during 23-24 you may have exceeded the £500 savings allowance (or £1,000 for basic rate taxpayers). Make sure all interest is fully reported on your return. It is important to check the interest earned across all personal and joint accounts.

Don’t forget your crypto gains

With 12% of UK adults now owning some kind of crypto asset, according to the latest FCA research, many people now need to declare their crypto gains on their tax returns. In simple terms, HMRC views the profit or loss made on the buying and selling or swapping (i.e. using to make a purchase or changing into a different crypto currency) of exchange tokens as within the charge to Capital Gains Tax. Amid concerns that many people may not be aware of their obligations, HMRC recently launched a nudge campaign targeted at those who have failed to declare historic crypto tax liabilities.

It's also worth remembering that any crypto losses must be declared to HMRC in order to be carried forward and available to offset future gains.

ENDS

Note to editors

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BDO LLP operates in 18 offices across the UK, employing 8,000 people. It has UK revenues of £1bn.

It provides Audit, Tax, Deals, and Consulting, Risk & Outsourcing services predominantly to mid-sized, entrepreneurially-spirited, high-growth businesses that are driving growth in the UK economy. BDO calls this segment of the market the UK’s economic engine.

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Contacts

Frank Shepherd
frank.x.shepherd@bdo.co.uk
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