While 2021 continued the trend set in 2020 and has been another relatively strange year, some may find it stranger still that Christmastide will see thousands of individuals complete their UK self assessment tax returns.
Whether 2021 will mark a new high remains to be seen, however, as the number of those filing their forms online fell to 31,400 between 24 and 26 December 2020, down from the Christmas 2019 high of 34,200, according to data from HM Revenue & Customs (HMRC).
Of the 2020 days, Christmas Eve remained the most popular day from previous years with some 20,200 tax returns completed. On Christmas Day, meanwhile, 2,700 sets of financial records were filed inbetween (we hope) people enjoying their turkey and presents. Boxing Day then saw another 8,500 returns submitted.
What is important to bear in mind, when looking to file any tax returns, is that a careful review of all of your financial affairs, including any wealth structuring, could mean your family will achieve your financial goals quicker. Even though some amounts suggested in the pointers below may be small, they add up.
Meanwhile, HMRC has stated that those filing returns should also be very careful that they are using the right website and forms on the back of almost 800,000 tax-related scams that have been reported in the last year. The tax authority also reported receiving nearly 360,000 bogus tax rebate referrals.
And while Santa and you are making your lists, and checking them twice, we wanted to highlight some pointers to help you plan ahead and be able to rejoin any family festivities.
It’s easy to procrastinate about our pensions and most do, as shown by the fact a staggering 95% of contributions are left in the employer-selected funds according to the trade body Tax Incentivised Savings Association. However, even if you haven’t reallocated the underlying investments, it’s worth remembering that any contribution paid into your pension, including a self-invested personal pension (SIPP), reduces your level of taxable income.
You can currently put up to £40,000 in annually – through a combination of employer and employee contributions – although the limit may be as low as £4,000, if you have accessed any of your pensions or earn over £240,000 a year. You can also backdate pension contributions and pay in up to three years’ worth, if you haven’t used your allowances to date.
You also have to take into account the lifetime limit, which remains unchanged at £1,073,100 for 2020/21 – a level that will be frozen until April 2026. This limit is important as it includes the money paid in, as well as any investment gains. If you do exceed the lifetime allowance, hefty tax charges could be applied once you withdraw the money and/or celebrate your 75th birthday. The lifetime allowance excess charge may also be relevant to the beneficiaries of your pension, with the onus of the calculation and payment of a charge resting with the executors of your estate.
While ISAs are not declared on self assessment tax forms, as there is no need to disclose any income and gains due to their nature, you will need to disclose subscriptions to enterprise investment schemes and venture capital trusts. This is because you get tax relief on any amounts contributed to these structures and you need to claim the relief due, given there is no tax relief at source.
Given the pandemic’s ongoing impact on the economy, many business owners may have seen or experienced trading losses in 2020/21, such as on the disposal of a capital asset or within a property rental business. If that loss resulted before 5 April 2021, whether you are filing as an individual, partner or trustee, any loss relief you may be able to claim has to be reported in your self assessment tax return.
However, only certain trade losses may be offset against general income or chargeable gains in the same year, as the latest toolkit from the UK government explains. And while it may also be possible to carry trade losses back to earlier years, or forward to your next submission(s), various trade loss relief restrictions may apply. In addition, there are limits on the amount of income tax relief that an individual may claim by way of a deduction from total income in each tax year.
Given the allowance for dividend income received is £2,000 per person, it is worth determining whether you might defer dividend income if you are a business owner and if this would push your income level above a nearby threshold. For example, if taxable income is based on basic tax rates, you would not have to pay tax on the first £1,000 of savings income received, while higher rate taxpayers do not have to pay tax on their first £500 of savings income.
Similarly, if you are close to earning over £100,000, a deferral may make sense as your personal allowance goes down by £1 for every £2 over the threshold and, as such, by £125,000 your allowance will have reduced to zero.
Of course, while Nedbank Private Wealth does not provide tax advice, we can work with your other advisers – or introduce you to one – and work to develop a comprehensive wealth plan. Not only will this help you understand the impact of your current expenditure on your future goals and aspirations, it will also set you on the right path for the next year, enabling you to manage more of your finances in a tax-efficient manner.
According to HMRC, there were around 1.8 million self assessments filed late in 2020 and, given the 31 January falls on a Monday in 2022*, HMRC is again urging people to get ahead. And, of course, we recommend the same, not least as any outstanding amounts after this day see fines imposed, even if you’re just one day late, as well as interest charges of 2.6%. Further fines become due the longer you delay payment and although HMRC does allow certain ‘reasonable excuses’ for being late, food poisoning from any left-over turkey isn’t one of them.
* Please note since the publication of this article, HMRC announced that it will not impose late filing penalties on tax return submissions as long as they are received by 28 February 2022.
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Any examples of investments and structures used are for illustrative purposes only. The inclusion does not constitute an invitation or inducement to buy any financial investment or service. None of the content constitutes advice or a personal recommendation. Nedbank Private Wealth does not provide individual tax advice, and instead works with clients’ existing advisers or can provide an introduction if needed. Individuals should seek professional advice, based on their jurisdiction and personal circumstances, before making any financial decision.
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