How to nail your tax return

In order to avoid a late penalty, HM Revenue and Customs should receive both your self-assessment tax return and tax payment by midnight on January 31 each year.

Thanks to years of frozen tax thresholds and slashed tax-free allowances, increasing numbers of people are finding themselves having to file a tax return – to pay the “high income child benefit charge”, for example. 

You need to submit your financial information relating to the 2022-23 tax year. HMRC is expecting around 12.1 million tax returns to be filed this year, but hundreds of thousands of taxpayers tend to leave the task to the last minute. 

Last year, 861,085 filed on deadline day, with 36,767 waiting until the last hour to get their tax return over the line. While this is fine if everything goes to plan, you do run the risk of getting a penalty if the task takes longer than you expect.

While most people find the process fairly straightforward, if you have multiple sources of income, or complicated tax affairs, then it can be a bit of a headache.

There are also big changes for investors, with cuts to capital gains and dividend allowances, and freelancers.

Here, Telegraph Money explains the following:

• What is a tax return?
• What tax return is due in January 2024?
• Who needs to file a tax return?
• Receipts and other records you need to keep
• Common tax return mistakes
• What if my tax return or tax payment is late?
• ‘Reasonable’ excuses for being late
• What if I’ve made a mistake?
• What if you no longer need to send a tax return?

What is a tax return?

For anyone who’s never had to submit a tax return before, it’s likely that you’ve historically had your tax payments taken automatically from your wages without you needing to think about it.

But if you’ve received income in other ways, HM Revenue and Customs (HMRC) won’t know about it, and therefore asks you to complete a tax return each year to detail the income you’ve received. 

You can do this using a paper return, which must be received by HMRC by October 31, or you can file online, with a deadline of January 31 the following year.

The tax authority uses the information you’ve provided, checking it against other information sources – such as savings details from your bank – to arrive at your tax bill. This must be paid by January 31, too.

What tax return is due in January 2024?

Tax returns due this year must detail your income received during the 2022-23 tax year, which covers April 6 2022 to April 5 2023. 

Given the tax year finished some months ago, you should hopefully have access to the final figures you need to submit a full return. If you’re still waiting on any figures, it’s better submit estimated figures (which can be updated later) than miss the tax return deadline. 

The tax return deadline for 2023-24 will be on January 31 2025.

Who needs to file a tax return?

Frozen tax thresholds, high savings rates and higher earnings are likely to mean an increasing number of people might need to start filing a tax return. 

Seeing as HMRC has struggled to keep up with demand, in an attempt to reduce the number of filers, the Chancellor announced in his Autumn Statement that as of April 2024 there will no longer be an upper income threshold that requires you to file a tax return. At the moment, you must file if your income exceeds £150,000. 

For 2022-23 tax returns, you may need to file for many other reasons. This might be the case if during 6 April 2022 and 5 April 2023 you:

• Were employed as a sole trader and earned more than £1,000 in taxable profits
• Received taxable income of more than £100,000
• Had to pay the high income child benefit charge
• Were a partner in a business partnership
• Received money from renting out a property
• Received foreign income
• Made money through tips or commission
• Received income from savings interest
• Received dividends income
• Made a taxable gain from selling a second property, shares or valuable items

If you’re still not sure whether you need to file a tax return, you can use the online tool at gov.uk.

If you’re self-employed

If you’re a sole trader, or run your own limited company, you’ll need to detail the ingoings and outgoings of your business in order to calculate your profit, which you’ll get taxed on.

The key to making sure you don’t pay too much is fully detailing your business expenses – whether that’s tools, stationery, or costs to heat a business premises. You may also be able to claim expenses, or tax relief, if you work from home.

These expenses can be deducted from your profits, which in turn reduces your tax liability, since you have less profit to be taxed on. 

Note that you may be required to pay tax via two payments “on account”, which take place in advance of you filing your tax return. The amount you’re charged is based on your previous self-assessment. If you were to begin this for 2023-24, this would work as follows: 

• 31 January 2024: pay your tax bill for 2022-23. Pay first “payment on account” for estimated tax you’ll owe for 2023-24
• 31 July 2024: pay the second half of your estimated tax bill
• 31 January 2025: file your 2023-24 tax return. If you owe more than what you’ve already paid, you’ll make a “balancing payment”. If you owe less, you’ll get a refund. You’ll also pay half of your estimated tax for 2024-25

If you’re a landlord

As you might expect, you’ll need to declare your rental income to HMRC for any properties you let out. But where landlords were once able to set things like mortgage interest tax relief against their profits, this has since dwindled to 20pc. 

It’s not a lost cause, though. You can still claim for what you’ve spent on maintenance and repairs to the property and, if you have a portfolio, you can offset any losses made on some properties against gains made by others. Overall, this can legitimately reduce the amount of tax you’ll owe.

If you’re a pensioner

Frozen thresholds aren’t just proving a headache for the working contingent, as increasing numbers of pensioners are being pushed into having to file tax returns. 

State pension income is taxable, and as the full new state pension is set to rise to £11,502 from next April, it’s getting increasingly likely for retirement income to be pushed into a higher tax bracket. 

There are ways to keep more of your retirement savings for yourself, however – such as deferring state pension payments while you’re still working, or not considering the timing of when you take a 25pc tax-free lump sum.

Receipts and other records you need to keep

When you submit your return and pay the tax you owe, it may feel like the end of the saga – it’s not. Legally, you must keep evidence records for at least 22 months after the end of the tax year the return covers. 

For example, records for the 2022-23 tax year must be kept for 22 months after April 2023, which is the end of January 2025. 

You should keep things like bank statements, invoices, receipts – anything that is relevant to the income you’ve declared on your tax return. 

There are no specific rules about how this information should be kept, but if HMRC deems it to be eligible or incomplete, then it can hand out penalties. 

Common tax return mistakes

Thanks to the tax system’s strange rules and quirks, many people get caught out when filing their tax returns every year.

According to our tax expert Mike Warburton, some of the most common mistakes include people forgetting to report their property gains – for the second time. Since property gains have to be reported within 60 days of completion, going back through this information on a tax return can easily get forgotten.

Separately, problems can arise for those who are the beneficiaries of a trust as, depending on the type, you may need to declare the income or gains as part of a self-assessment tax return.

For more on these, and the five other mistakes to avoid on your tax return, read the full article below.

What if my tax return or tax payment is late?

If you were planning to submit a paper tax return for 2022-23, you’ve already missed the October 31 deadline. As such, any paper tax returns HMRC receives after this date will be considered late, and can incur a penalty. The same goes if you miss the January 31 deadline for online submissions.

The initial fine is £100 for returns up to three months late, with further penalties of up to £10 a day to a maximum of 90 days over the three month point. If a return is six months late, you could be charged a penalty of 5pc of the tax you owe, or £300 – whichever is more.

If you’re a year late with your submission, you could face another of these penalties or, in some cases, you may have to pay up to 100pc of the tax you owe.

Tax payments are also due by January 31. If your payment is late, you’ll be charged interest set at the Bank Rate plus 2.5 percentage points (currently it’s 7.75pc), which can soon mount up. After 30 days, an extra 5pc charge will be added to your balance – and again at six months and 12 months late, all while you continue to accrue interest.

‘Reasonable’ excuses for being late

If your tax return or tax payment is late because you were forgetful, or left it to the last minute, there’s little you can do to combat the fines.

However, if something outside of your control stopped you from being able to sort these things on time, then you may have what HMRC deems to be a “reasonable excuse” – if so, the penalties may be waived.

To let HMRC know about your excuse, you can make an appeal to any fines you receive by either downloading and completing form SA370, or contacting the self-assessment helpline.

Excuses are considered on a case-by-case basis, but HMRC has listed a number of “reasonable” scenarios that may warrant a penalty to be dropped. These include:

• The death of your partner or close relative shortly before the tax return deadline
• Having a serious illness
• Delays related to a disability you have
• Having an unexpected stay in hospital that stopped you from being able to deal with your taxes

What if I’ve made a mistake?

If you’ve submitted estimated figures, or realise you’ve made a mistake on your submission, you can change it even after you’ve filed. The window to make changes is from three days after you file, to 12 months after the deadline – so, for 2022-23 returns, you’ll have until 31 January 2025 to make changes.

Your bill should be changed within three days. If you’re owed tax, you can go to the “request a repayment” section of your HMRC account to claim a refund. However, if there’s a tax payment deadline within 35 days of making the claim, you might not get the refund – instead, it may just be deducted from your next tax bill.

If you’ve made a mistake, and you either haven’t noticed or corrected it in time, then you may face a penalty. This will depend on what the mistake is, and the reason behind it. 

If, for example, HMRC believes the inaccuracy was caused by what it calls “a lack of reasonable care”, the penalty will be charged at between 0-30pc of the extra tax due as a result of correcting the mistake. 

If it deems the error to be deliberate – and presumably made for the purpose of paying less tax – the penalty rises to 20-70pc of the tax due. 

The worst offence – an error that is considered to be both deliberate, which the perpetrator has tried to cover up – can be charged 30-100pc of the extra tax due.

If you get caught out, you may be able to reduce any penalties by helping HMRC calculate and verify the extra tax that’s due.

What if you no longer need to send a tax return?

If your circumstances have changed, and you don’t think you need to submit a tax return any longer, you can inform HMRC – but there’s no guarantee it will agree.

You’ll need your National Insurance number and Unique Taxpayer Reference number to hand, and you can either fill out its online form, use the online chat function, or get in touch by phone or post. 

If HMRC agrees, it will send a letter confirming you do not need to file – but if you don’t receive this by 31 January self-assessment deadline, and don’t submit a return, then you could get fined for filing late.

You might no longer need to submit a tax return if, for instance, you don’t pay the high income child benefit charge any more, or if you’ve sold your buy-to-let property and no longer receive rental income.