Filing your Self Assessment tax return is no fun, but it can mean extra benefits and perks are open to you. Here's how to make this painful process a little more worthwhile.
We are fast heading towards the end of January, which means we are into Self Assessment season.
Plenty of us have to file a tax return, for example, because we are self-employed or are subject to the High Income Child Benefit Charge, and there’s no denying that it can be a hassle.
Take the pain out of filing your return with our top Self Assessment tips
Little wonder that so many people leave it to the last minute.
According to data from HM Revenue & Customs (HMRC), at the start of January around 5.7 million taxpayers who are required to file a Self Assessment had not yet done so.
Now, I’m not going to tell you that sorting out a tax return is a fun thing to do.
Frankly, I think you’d have to be mad to enjoy the process, almost as mad as the 3,275 who submitted their return on Christmas Day.
However, it would be wrong to think of a tax return as an entirely bad thing.
In fact, there are certain benefits open to those who submit a tax return that may not be available to those who do not.
Earning interest on your tax bill
An often overlooked perk that comes from filing a Self Assessment is the potential to earn some interest on your tax bill.
If you are self-employed, then it’s a good idea to put money aside to cover your eventual tax bill as it comes in. Personally, for example, whenever I get paid I put a healthy chunk aside into a dedicated savings account for my tax.
And because of that, I get paid interest on the balance in there, topping it up further and allowing me to have an additional ‘refund’ once the tax bill is paid.
Opting for a savings account that pays interest on a monthly basis, rather than annual means you will get rewarded throughout the year and therefore making the most of that account when it’s at its highest, before paying that tax bill.
What’s it worth to you?
This will obviously vary based on the size of your tax bill.
But if put £1,000 aside each month for your tax bill, in an account paying 3% (the current top rate for an easy access account, then over the year you will earn around £195 in interest.
The working from home rebate
Working from home wasn’t just limited to the pandemic ‒ plenty of us continue to work from home for at least part of the week even now.
And doing so may mean you can claim the working from home tax relief, which you can do through the Self Assessment.
The relief allows you to claim some money back for things that you use solely for your job, like business phone calls or energy for your work area.
It’s important to bear in mind that not everyone can claim this relief.
It will have to be the case that you are forced to work from home, for example, because you live far away from the office or your boss doesn’t have an office, rather than because you are simply choosing to work from home.
However, this only applies to the current tax year ‒ you may be able to claim tax relief for the last couple of years, even if your employer did have an office, should you have worked from home during the pandemic.
What’s it worth to you?
You can claim back tax relief at your Income Tax band, based on spending £6 a week.
As a result, basic rate taxpayers get £1.20 a week (£62.40 a year), higher rate taxpayers get £2.40 a week (or £124.80 a year), while additional rate taxpayers get £2.70 per week (equivalent to £140.40 per year).
Money back for your expenses
When I was a regular employee, there were times when I took a bit of a financial hit for doing my job.
It might have been work calls on my mobile phone, or purchasing a particular publication that I wouldn’t have bought off my own back.
Unfortunately, that was money gone, a financial sting that I had little option but to accept.
If you are self-employed, and therefore filing a return, things are a little different.
Any time you spend money on something that is specifically for work, you can claim it as a work expense. That means it is deducted from your profits to work out your tax liability, leaving you better off overall.
What’s it worth to you?
This will vary massively depending on your work-related expenditure. But as an example, an online subscription to the Financial Times for a year will set you back £319 for an annual deal.
Getting more for your pension contributions
Saving into a pension is a particularly tax-efficient move if you are a higher or additional rate taxpayer. Your contributions get topped up by tax relief from the Government, but the size of that relief is set by your Income Tax bracket.
So while basic rate taxpayers get 20% tax relief, this moves to 40% for higher rate taxpayers and 45% for those paying the additional rate.
In other words, higher earners get an even bigger helping hand in building their pension pot.
There is a slight catch, however, in that this additional tax relief has to be claimed through a Self Assessment. The additional tax relief is then paid into your bank account by the Treasury, allowing you to then add it to your pension pot.
Truth be told, it’s a more fiddly process than it really needs to be, but filing a Self Assessment does mean you get the maximum bang for your buck from your pension contributions.
What’s it worth to you?
The more you contribute to your pension, the more valuable this particular perk becomes.
To take a simple example, let’s say that you are paying in £150 a month.
Over the year, those contributions are worth £1,800, but with the basic tax relief on top, that takes them to £2,160.
However, those same contributions for a higher rate taxpayer would equal £2,520 going into the pension pot, while for an additional rate taxpayer they would increase to £2,610.
Over the course of a working life, that difference could be worth 10s of thousands when you consider the returns on the investments made in your pension pot.