HM Revenue & Customs issued an urgent warning to taxpayers and accountants to ensure Covid-19 support payments are fully declared on their upcoming tax return.
If you haven’t filed your return for 2020-21 yet, the deadline is fast approaching. While HMRC has extended the filing deadline to February 28 thanks to Covid-related problems, millions of people are yet to submit their information to the tax authority.
Approximately 11 million people file tax returns online, but leaving it until the last moment can risk making unnecessary mistakes, or mean you fail to claim what is rightfully yours. Ahead of the deadline, here are my top five tips to help you get it right.
How to file your tax return properly:
Don’t forget to pay tax on Covid support payments
As a self-employed worker or small business owner, if you claimed any Covid support payments during 2020-21, the funds you received are taxable as trading income and will need to be reported on your tax return.
This includes payments from the self-employed income support scheme, funding from Eat Out to Help Out or coronavirus job retention scheme (furlough) payments for employees of your sole trade. If you have spotted that you were paid too much, this can be corrected through the tax return.
Claim cash against trading losses
If you made a loss for the year despite any Covid support payments then consider how best to claim tax relief for this. You can claim to “carry back” the loss for up to three years, meaning you can offset it against profits in those earlier years and claim a tax repayment. This is designed to help businesses hit by the economic impact of the pandemic.
Cashed in on 2020 staycations?
With foreign travel impossible during much of 2020 and 2021, demand for UK holiday accommodation rocketed. If you let out a property during the tax year, you will need to report your rental income if it exceeded £1,000.
If you let out your own home, it might be possible to claim rent-a-room relief on up to £7,500 of received rent but check carefully that you qualify. HMRC receives information from third parties such as website hosts like Airbnb, so taxpayers who are not forthcoming with such additional income run the risk of receiving a “brown envelope” from HMRC later in the year with a tax enquiry.
Minimise your capital gains tax liability
If you sold stocks and shares, or other assets, and your total gains for 2020-21 exceed your annual exemption of £12,300, make sure you claim to offset any past capital losses against them. Do not forget that gains made on assets held with your spouse must be reported on both your tax returns (i.e. split 50/50 where you owned equal shares in the asset).
If you made capital losses on investments as markets fell during the pandemic, don’t forget to claim these on your tax return – unless you do, they won’t be available to use against capital gains in future years.
Maximise your charitable gifts
If you have made a gift to charity and signed the gift aid declaration, the government tops up the donation giving the basic rate tax relief due on it to the charity – this includes donations such as national trust membership and payments to museums and galleries. For higher and additional rate taxpayers, you can also claim the difference between the top tax rate (40% or 45%) and the basic rate of tax (20%) on the total (gross) value of a donation on the tax return.|
If HMRC knows about your gifts it can give you this tax relief through your tax code (i.e. against your salary). But if you have not told it about your gifts before, you can submit a tax return to claim this tax relief.
If you have a favourite charity, consider making Gift Aid donations before the deadline to provide an early benefit to the charity and elect for the donation to be treated as made in the 2020-21 tax year to accelerate tax relief. This doesn’t just have to be a benefit for you, when you get your tax refund you can always donate it to another charity.
Adapted from an article by Dawn Register who is head of tax dispute resolution at accountancy firm BDO.