Self-Assessment tax return: 10 tips to avoid penalties and overpayments

According to HM Revenue and Customs, 3.8 million people are yet to file their online tax return for the 2022/2023 tax year (as at 23 January 2024). Nearly 50,000 customers spent New Year’s Eve or New Years’s Day completing their returns, with 127 ringing in the new year with a submission in the first hour after midnight.

For everyone else, the pressure is on to file a completed return with HM Revenue & Customs before midnight on 31 January. Leave it too late and you could receive:

• An instant fine
• Additional penalties if your return is filed late
• Additional penalties if any tax owed is paid late

Here are 10 straightforward tips to help you file your online self-assessment tax return on time, and limit overpayments and other penalties. 

1. Do you need to complete a tax return?

Most British taxpayers don’t need to file a tax return for the 2022/23 tax year because tax is automatically deducted from their wages (known as Pay-As-You-Earn, or PAYE), pensions or savings.

But for those where the tax is not automatically deducted or they earn extra untaxed income, filing a tax return is mandatory. 

With tax thresholds frozen until 2028, more people paid through PAYE will file a tax return this year because their salary may have jumped above £100,000 – the threshold at which all earners must submit a tax return.

There are several other reasons why people need to submit a tax return for the 2022/23 tax year: 

• Self-employed earning more than £100,000 (this will increase to £150,000 for the 2023/24 tax year, and the threshold will be abolished from the 2024/25 tax year)
• Rent from property or other untaxed income such as tips and commission 
• Income from savings, investments and dividends 
• Overseas income or if you live abroad and earned a UK income 
• Partner in a business partnership 
• Income tax relief claims such as money paid into a personal pension
• Business expenses if you are self-employed
• Charitable donations
• Those who earned more than £50,000 and you or your partner claims child benefit 

For those unsure if self-assessment applies to them, HMRC has a handy tool to check if you need to file a tax return. 

2. File your self-assessment tax return on time or you will face instant penalties 

While people with a genuine reason for filing a late return before 31 January 'may avoid a penalty’, according to HMRC, those with no legitimate excuse will face the following fines:  

• £100 instant fine – even if there is no tax to pay or if the tax due is paid on time
• £10-£900 additional daily penalties if you fail to file for a further three months 
• £300 or a further 5% of the tax due, whichever is greater, will apply after six months
• £300 or another 5%, whichever is greater, after 12 months

If you know you aren’t going to hit the deadline and want to know how much you will pay in penalties and interest, HMRC’s online tool calculates this for you.

If you have a valid reason for missing a deadline, such as the death of a partner or close relative, a serious or unexpected illness or IT challenges, then you can appeal any fine imposed. 

3. Allow time for online registration or sign-in glitches 

If you need to complete a self-assessment tax return for the first time, allow at least 10 days to register or longer if you are abroad.  While most of the registration process is completed online, the final part relies on the postal service. 

The first step is to create a Government Gateway user ID for which you simply need your name, email address and a password. You then answer security questions to verify your identity for which you’ll need your National Insurance number, passport, pay slips or P60.   

Once your self-assessment account is set up online, HMRC will send you a letter with your Unique Taxpayer Reference (UTR) - a 10-digit code you need the first time you log in.

It can take up to 10 working days to receive a UTR code by post – 28 days if requesting a new one.  

4. Allow enough time to complete your tax return  

It’s not only the online registration that takes time but also filling in the tax return itself, particularly if you have multiple income sources.

Information to have at hand includes:

• Government Gateway login and UTR
• All sources of income – from your main employer to side hustles, property income, savings and investments and even freelance work
• Any charitable donations
• Capital gains on any assets
• Contributions to pensions and more 

Types of information required:  

• Pay slips and annual P60 form  
• Any dividends and tax credits received during the 2022/23 tax year  
• Any contributions to pensions, Venture Capital Trusts or Enterprise Investment Schemes 
• Any charitable gifts that qualify for Gift Aid, details of possible capital gains crystallised on the sale shares or funds held outside of ISAs and pensions, as well as other assets such as the sale of a buy-to-let property or cryptoassets. For those with a buy-to-let portfolio, the details of all income and expenses over the course of the tax year  

5. Understand your tax allowances – you could save money

Make sure you are up to speed on all the tax allowances and tax reliefs that apply to your finances – a great way to claw back some cash. After all, there is no point saying no to free money and paying tax on things you don’t need to.

Tax reliefs can include a working from home allowance, uniforms you need to buy or repair and maintain for work and charity donations plus a whole host of other allowances, such as a trading allowance of up to £1,000 for casual income. Gathering all this information together takes time. The last thing you want to do is leave this until the last minute and then find a vital document is missing.  

Get up to speed on all tax rules that apply to your unique situation. Even if you have a tax adviser, the chances are that they are snowed under in the run-up to 31 January, and you will need time to check through the tax return before it is sent. 

Check your pension tax relief – you may need to make a claim

Unclaimed pension tax relief could be down to either a lack of awareness or simply forgetfulness. Bestinvest’s expert investment commentator Jason Hollands shares his insights:

Personal pensions

• Anyone in the higher tax brackets and contributing to a personal pension needs to make sure they are claiming for their higher or additional rate relief by completing a self-assessment return
• You would think that most people who are savvy enough to open a self-invested personal pension would know about higher and additional rate tax relief, so in those cases it would seem to be a very costly oversight

Workplace pension

• In workplace schemes it’s perhaps more likely that some savers assume that all their tax relief is addressed through their payroll
• Check what contribution system your employer uses: if it is a net pay or salary sacrifice scheme, you generally won’t need to do anything; but if it is a ‘relief at source’ system then you will only receive basic rate relief automatically and the rest must be claimed back via self-assessment
• Increasingly, workplace schemes are set up as a salary sacrifice or exchange arrangement where the company makes a gross contribution in lieu of pay or bonus, and many are run on a net pay basis, where again the employee shouldn’t need to take action to claim their reliefs. However, some workplace pension schemes still use relief at source arrangements, so those eligible for higher or additional rate relief will need to make a claim

If you realise that you have neglected to claim pension tax reliefs, all is not lost as you can back-claim tax relief for the last four years. You could be owed a substantial refund.

6. Get your sums right before you file 

Double check your calculations and ensure you have declared everything before you file your tax return. HMRC can charge penalties if you make an error on the return or any other paperwork you submit even if the mistakes were made in good faith. 

Confirm your tax code is correct after you file your return 

Once your tax return is filed, HMRC is likely to adjust your tax code, so check the change, as mistakes can happen. Incorrect tax codes are commonplace, and it is your responsibility, not your employer’s or HMRC’s, to keep tabs on it.  

7. Have the funds ready – your tax payment is due by 31 January too   

As well as filing the tax return by 31 January, you must also pay any tax you owe for the 2022/23 tax year by that date. You can pay your tax online with HMRC, choosing to either send the money direct from your bank account, making a single, one-off Direct Debit payment or paying by debit or credit card (note credit card payments attract a fee). If you set up a direct debit for the first time, allow five working days for this process to complete if this is your chosen payment method.   

If you are in the fortunate position that HMRC owes you money, you will receive a payment directly into your chosen account when you file your return.  

While you can also pay tax through your PAYE tax code, this only applies to those who submitted a paper return by 31 October or an online tax return by 30 December, owe less than £3,000 and already pay tax though PAYE – i.e., they are an employee or receive a company pension.    

8. If you cannot afford your tax bill, there are options  

If your tax bill is unaffordable, HMRC has options – so burying your head in the sand is not the answer. Rather than paying a large tax bill in one go, HMRC will allow you to set up a payment plan to repay what you owe over a set period.

First, state how much you can afford to pay upfront, then HMRC will want to know how much you earn and typically spend every month to ensure you can meet the repayments. The payment plan will then state how much needs to be repaid by the end of the tax year, but for those that still cannot afford the payments, there is the option to call HMRC to potentially set up a plan over a longer period on the phone. 

Note, the scheme is available for those that have filed their latest tax return, owe £30,000 or less, are within 60 days of the payment deadline and do not have any other payment plans or debts with HMRC. HMRC may want to see evidence of your income and spending. 

Remember, interest will be charged on all overdue amounts. This is set by the Bank of England base rate plus 2.5% per year. 

9. Mop up unused allowances – file an amended tax return   

As well as ensuring this year’s tax return is correct, you can also amend previous tax returns and earn yourself a rebate in the process. 

You have until 31 January to amend your 2020/21 tax return, something you can either do online if you filed your return online or by downloading a new paper return and submitting the amended pages with the word ‘amendment’ on each page along with your name and UTR. This can be useful if you want to mop up any unused allowances such as your pensions allowance (more on this below) or charitable donations.  

Those wanting to amend a return for the 2021/22 tax year or earlier can write to HMRC explaining which tax year they are correcting and why they want to make an amendment. Depending on what you report, you may receive a rebate, but you might also have to pay tax too. Note: you can claim a refund up to four years after the end of the tax year it relates to – so, you have time but don’t leave it too long.  

Once you’ve filed your 2022-23 return, you can amend it anytime from 72 hours after you’ve filed it until 31 January 2025. 

10. Reduce next year’s tax bill – get tax-efficient today

Once your return is filed, don’t just breathe a sigh of relief and forget about it for another year. Instead, use this deadline as an incentive to fire up next year’s tax return.

Tax efficient schemes such as Venture Capital Trusts and Enterprise Investment Schemes also provide income tax rebates (at 30%), though these are higher risk and aimed at wealthier investors.   

If you are considering VCTs, it’s important to note that you could lose all your money. They may be difficult to sell and should form only a small part of a portfolio. Tax reliefs depend on individual circumstances and may change. They are designed for UK resident taxpayers with an investment time horizon of greater than five years. The minimum holding period to qualify for income tax relief is five years. You should make yourself aware of all the risks before proceeding and seek professional advice.

Reinvesting VCT dividends? Make sure you claim income tax relief

Jason Hollands highlights two opportunities to claim 30% income tax credit for VCTs, to help those new to the self-assessment tax return process maximise available tax relief:

• Subscriptions to VCT new share issues entitle the investor to a 30% income tax credit (repayable if they sell the shares within five years). This is one of the key attractions of VCT investing and is well understood by those who invest in new offers from time to time
• Perhaps less understood a Dividend Re-investment Plan (DRIP) that typically involves the creation of new shares whenever dividends are reinvested, rather than buying shares traded on the market. Where this is the case, it means the reinvested amount is also eligible for a 30% income tax credit as it is treated as a subscription to a new share issues
• However, to benefit from this, the investors must declare these as VCT subscriptions on their tax return, an easy thing to overlook if you haven’t filled out any application forms 

Maximising pension contributions before the end of the tax year is an effective way to slash a future tax bill.

If your 2022/23 tax year bill was heavy, consider ways to soften the financial hit for next year such as paying more into a personal pension up to a maximum of £60,000, or 100% of your salary, as at the date of writing, to secure more income tax relief, using up your £20,000 ISA allowance, or crystalise any capital gains to make the most of this year’s exemption.  

It’s easy to get tax efficient at Bestinvest

You can invest how you want at Bestinvest with as much free expert support as you like. Consider our tax friendly solutions – you can open, add or transfer into our award-winning Stocks & Shares ISA, Junior ISA or Self-invested Personal Pension (SIPP). If you would like to talk through your plans with an expert, it’s easy to arrange an investment coaching session with one of our qualified financial planners, with no cost or ongoing commitment.    

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