Story amended Feb 25 2015
If you decide to join the National Trust or English Heritage, or even take out yearly membership of London Zoo, did you know that the taxman will pick up some of the tab?
The ability to reclaim tax on such spending, thanks to the organisations’ charitable status, is one of several less well known ways in which people can cut their tax bills when they complete their tax return, the deadline for which is Saturday, January 31 (although you can still change your return even if you've already filed it).
Follow these tips to keep your bill to a minimum while ensuring that you pay everything you owe and don’t face a surprise demand later in the year.
Claiming for payments that count as charitable donations
If you give money to a charity you are allowed to reclaim income tax on the sum, so be sure to mention any donations on your tax return. This is useful for “donations” that actually gave you something in return, such as annual membership of the National Trust, English Heritage or London Zoo, all of which are charities. Museums, art galleries and other cultural attractions may also qualify. But life memberships are excluded. You also need to be a higher-rate taxpayer to claim.
Another concession for taxpayers who give to charity is that you can donate now and have the tax relief applied to last year’s return. Normally any transaction you carry out today would affect the current tax year, not the previous one, but charitable donations are treated differently. So if, for example, you have some spare cash and want to cut your tax bill, you could give the money to charity now to reduce the amount that you send to the taxman this week.
Claiming full relief on pension contributions
Everyone knows that higher-rate taxpayers can claim full relief on pension contributions – one of the most generous tax breaks around and one that makes 40pc tax effectively optional for those who can afford to save large sums. But far fewer people realise how the system works in practice, meaning that they risk unknowingly forfeiting this tax relief and getting only the 20pc available to everyone.
If you contribute to a personal pension such as a Sipp, the company that runs it will automatically add basic-rate tax relief. For example, if you send a cheque for £800 to your Sipp firm, it will, after a short delay, credit your pension with £1,000 in total, to include 20pc tax relief. Higher-rate taxpayers are entitled to another £200 relief, taking their net contribution down to £600, but this relief must be claimed via your tax return.
Be sure to quote the gross figure, in this case £1,000, rather than the net one, on the return. Many taxpayers get this wrong, experts say.
If you forget to make this claim, you can amend your tax return for up to a year (see below). Otherwise, you have four years to claim “overpayment relief” by writing to the taxman.
But you don’t normally need to worry about contributions to company schemes, which will claim tax relief on your behalf in full. If for any reason you do need to make a claim for additional relief, the scheme should tell you, said Mike Down of Baker Tilly, the accountancy firm.
Remembering all your bank accounts
With interest rates at rock bottom, many savers are moving their money around frequently in search of current best buys. And some of the highest rates are found on current accounts that pay generous interest but only up to certain limits, encouraging customers to split their money between several providers.
When such savers come to fill in their tax return, they need to include all the accounts they used in the tax year and include all interest earned, which can be quite a big task if they used many accounts.
“Another common error is failing to split interest income on joint accounts correctly,” said Bill Dodwell of Deloitte, the accountancy giant. “It’s not helped by some banks which don’t make it clear on statements whether the amounts are 100pc of the account interest or 50pc.”
Including all expenses if you’re a buy-to-let landlord
Some of the expenses incurred by buy-to-let landlords are tax-deductible but others are not, so you need to be careful.
Mortgage tax relief is a great boon for landlords, but it applies only to the interest element of monthly repayments. Some property investors mistakenly claim for the capital element too. Equally, watch for the difference between maintenance – which is a tax-deductible expense – and improvements that increase the property’s value, for which you cannot claim tax relief.
- Nine ways to increase your buy-to-let profits
Mentioning any amendments to your tax code
If HMRC has amended your tax code to correct past overpayments or underpayments, you need to mention this on your tax return.
“This can get confusing and a lot of people fall foul of it,” said Dawn Register of BDO, another accountancy firm. “This is a good reason not to ask for any over or underpayments to be corrected via your tax code but instead to request a repayment by cheque or pay any money due directly.”
Remembering your P11D
This is the form that your employer issues to account for any tax due on perks such as company cars and health insurance. It’s important to copy over the information to your tax return.
If you forget, you may still be able to avoid a fine. HMRC operates a little known “yellow card” system that allows any penalties to be suspended while you prove “good behaviour”. You can, for example, say that you will not get your P11D information wrong next year and, provided that you keep your promise, HMRC will scrap the suspended penalty.
Amending your return after the deadline
Few taxpayers realise that you can amend your tax return both before and after the January 31 deadline. If you amend a return before the deadline the Revenue will simply look at the latest version.
But you can also amend the 2013-14 tax return until January 2016, a process that is technically called a “repair”. In this case, however, HMRC still has the right to levy penalties for supplying incorrect information in the first place, although experts said it rarely did.
To amend your return before or after the deadline, you just go online in the normal way; you don’t need to contact the taxman first.
Paying your tax bill by cheque
Some people prefer to pay their tax bills by cheque rather than by debit card, perhaps because they fear that online payments could be hacked. HMRC said you should allow three working days for your payment to reach it, so you’ve already missed the deadline. But Mr Down said that as long as you filed the return itself by the deadline, you would not face the automatic £100 fine if your cheque arrived late, although interest would be payable.
If you want to pay over the counter at a bank, building society or post office you’ll need an HMRC paying-in slip. Mr Down said the tax office had stopped sending these slips automatically, so you would need to request one.
richard.evans@telegraph.co.uk
Correction: An earlier version of this article did not make clear that in order to reclaim income tax on charitable donations you have to be a higher-rate taxpayer. We apologise for the error
