In self-assessment? Plan ahead to avoid nasty tax surprises - Rob Stokes of Optimum
October 31 was once a date firmly in the diaries for those filing a paper self-assessment tax return, writes Rob Stokes, head of Accounts & Audit at Optimum Professional Services.
With the age of digital, and the vast majority opting for online filing for the January 31 deadline, the paper return is almost consigned to history.
But our accountancy team here at Optimum Professional Services believe October is still an excellent time to file a tax return. Because by filing early, you will know what your tax liability is well in advance of January, when it has to be paid.
This financial year more than ever, with so many business owners in receipt of Government Covid funding which counts as taxable income, the only way to avoid a nasty surprise in January is to file early, so you know where you stand tax-wise and ensure you have funds set aside to pay.
Are you self-employed and have you benefited from the Government's SEISS (Self-Employment Income Support Scheme) grants?
There are five tranches of SEISS and the first three have to be accounted for in the 2020/21 tax return.
At Optimum, we have clients who have claimed SEISS grants, which increased their income to a higher level than in a 'normal' trading year, pushing some into the higher tax rate bracket.
Having an increased income may also have implications for two tax benefits that are commonly claimed.
A parent or guardian is entitled to claim Child Benefit and there can be just one claimant per child.
However, if you are claiming Child Benefit and your income exceeds £50,000 it must be paid back at a sliding scale up to £60,000. Thereafter all Child Benefit claimed must be repaid via self-assessment.
Child Benefit is currently £21.15 a week for your first child and £14 a week for any children after that.
Here's an example:
If your average earnings were £48,000 annually, but dropped due to Covid to around £35,000 and you claimed three rounds of SEISS grant, then your income now will make you a higher rate tax payer. You'll lose around 70% of the Child Benefit and have to pay 40 per cent income tax on an extra £7,000 approx.
You may be taking advantage of the Marriage Allowance, whereby a spouse transfers up to £1,260 of personal allowance (that they are not able to take advantage of) to their husband/wife.
However, the husband/wife has to be a basic rate tax payer to receive this. If, due to Covid payments, they are pushed into the higher rate tax bracket they will lose this benefit, which equates to up to £252.
Self-assessment can be confusing at the best of times, so our advice is start early, submit early and set aside funds to cover the ensuing bill.
As a footnote, HMRC still accepts a paper return, and these must be submitted by October 31, 2021. They are no longer sent out by HMRC but can be requested by calling 0300 200 3310. However, filing online is a quicker, more efficient and reliable method. The online filing deadline is January 31, 2022.
If you are self-employed and would like help with self-assessment, SEISS and any tax issues, get in touch with me, Rob Stokes, head of Accounts & Audit at Optimum Professional Services in Cheltenham and Swindon.
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