Seven big mistakes to avoid on your tax return

I had a case once where a trust gain was correctly reported on the trust return and all the CGT was paid. However, the gain was not also reported on the self-assessment return of the beneficiary. Two tax inspectors flew down from Edinburgh to my office in Cheltenham to meet the client to negotiate a 5pc penalty. I rather doubt if this covered their flight costs, let alone their time.

3) Higher earners should claim their full pension relief allowance

Pension contributions to a self-invested personal pension, known as a Sipp, are made with basic-rate income tax relief given at source, but you will miss out on any higher-rate relief if you do not complete the box to claim this on your return.

4) Double check your pension contributions 

On the subject of pensions, the lifetime allowance may have gone, but many taxpayers are being trapped by the annual allowance tax charge. Although the allowance rose to £60,000 this April it was £40,000 a year for 2022/23, or equal to your salary, whatever is lowest. 

With the additional complications of the high income allowance taper and carry forward exemptions for unused allowance, it is easy to calculate the wrong amount for your tax return. 

I find the HMRC calculator helpful, but you may also need a cold towel (or stiff drink).

5) Remember parental benefit is not child’s play  

If a camel is a horse designed by a committee, I wonder which committee dreamt up the child benefit rules, and in particular the “High Income Child Benefit Tax Charge”. The system was clearly perverse from the day it was first announced but we seem to be stuck with it. 

If you or your partner have claimed it and your income was over £50,000, it will need to be declared on your self-assessment return. That is unless your partner had higher income and reported it.

6) Pay tax due on your company shares 

More people are benefiting from company share incentive schemes. Unless the scheme is a qualifying tax favoured scheme, there is a charge to income tax when you become beneficially entitled to the shares, based on the market value of those shares. 

This amount should be included as income on the tax return. However, for shares in a listed company this will have been dealt with under their pay-as-you-earn system, usually with a sell to cover arrangement. 

In effect, the share award is treated as a bonus with income tax and National Insurance (NI) applying on the share value less any payment you made for them. Sufficient shares are then sold in the market to reimburse your employer for the tax and NI. For your tax return you need to check that your P60 takes this “bonus” into account.

7) Reclaim double taxes on overseas income 

Foreign income can be complicated. This is particularly the case with dividends on shares where tax has been withheld overseas. Many overseas companies withhold tax at a higher rate than the reduced rate set under the relevant double taxation treaty. 

Unfortunately, you can only claim relief on your tax return at this reduced rate. You will then need to make a separate reclaim from the overseas tax authority for the difference.

These are not be the only ways you fall foul of the tax system. Several readers have contacted me to say that they submitted returns on paper by the October 31 deadline last year, as they are entitled to do, but have not yet been sent details of the tax due. 

HMRC has encouraged online filing because this saves them money but some people do not trust the tax authority with digital information following earlier data breaches. HMRC must not ignore those who choose paper filing.