Seven big mistakes to avoid on your tax return

The Christmas and new year holidays are a surprisingly busy time for tax returns. Anyone who needs to complete a return for the 2021-22 tax year must file by Jan 31 2023 to avoid incurring late ­penalties.

More than 12m of us filed online last year and around 4m had yet to do so a week before the deadline.

HM Revenue & Customs has revealed that more than 3,000 people even filed self-assessment tax returns on Christmas Day itself. This included me, but not for my own return.

I discovered that Christmas can be a busy time for those who do the tax returns for the rest of their family. My offspring tend to arrive late on Christmas Eve, throw me some papers and then proceed to the drinks cupboard. Christmas morning is often the only time that we are together and sober.

Last year, in light of the pandemic, HMRC allowed an extra month for ­filing before penalties were applied, but don’t expect that this year. Here are some tips on things you might overlook or could get wrong.

1. Check your spouse’s child benefit claim

Nigel Lawson, then chancellor, introduced independent taxation in 1988. He said: “I propose a major reform of personal taxation to give married women the same privacy and independence in their tax affairs as everyone else. For the first time ever, married women will have the right to complete independence and privacy so far as tax is concerned.”

Regrettably that is no longer the case, because if your income is over £50,000 a year you need to find out if your spouse is claiming child benefit, and they are obliged to answer.

Around 190,000 taxpayers have already been caught out by their failure to do so and declare this on their personal self-assessment return.

2. Be careful when declaring your state pension

If you are receiving a state ­pension, remember that it is not the amount you actually receive in the tax year that has to be entered, but your pension entitlement. This is 52 times the weekly amount, reduced in the year you start drawing it.

3. If you file late, HMRC has more time to make an inquiry

Since 2008, in most circumstances, HMRC is only entitled to open an inquiry into your return within 12 months of it being filed, so early filing can give you earlier protection.

However, if you file after the Jan 31 deadline, HMRC has an extended ­deadline to the next quarter day (for example April 30 or July 31) after the first anniversary of the day on which the return was made.

4. Beware filing too early

Alarmingly there are some ­circumstances where it pays to delay filing the return until the deadline.

In a previous article I explained how one very generous donor incurred an unexpected £215,000 tax bill. This followed an astonishing attack by HMRC, essentially because he had the temerity to submit his tax return early and had his gift aid carry back claim disallowed.

5. Don’t forget to claim extra pension relief

If you are making contributions to a personal pension scheme this will be at an amount reduced by basic rate income tax with the fund able to recover the difference from HMRC.

However, higher and additional rate taxpayers are then entitled to an ­additional 20pc or 25pc respectively from the gross amount, so don’t forget to claim this on your return.

But it gets complicated when the total of personal and employer ­contributions exceed the annual ­allowance threshold. This is usually £40,000 but can be reduced to a ­minimum of £4,000 where incomes are above £200,000. There are also complex “carry forward” rules which can reduce the charge.

My recommendation is to use the HMRC’s online “pension annual ­allowance calculator” which takes you through the calculations for the amount to enter on your return. I suggest that you also explain how you arrived at the figure in the white space at box 19 on the return.

6. Other income

Don’t forget to report income received from trusts or estates – you may even be due a repayment.

7. Check, then check again

Finally, check your calculation. Does it make sense? Are you able to reconcile any underpayment with additional income received and not factored into your PAYE coding?

If you have self-employment or rental income, that may have taken you into the “payments on account” regime

The first year this happens can come as a shock because on Jan 31 you suddenly have to pay both any tax outstanding for the previous year and the first half on the payment on account for the current year, with more to come on July 31.

This applies where the tax due for last year is more than £1,000 and 80pc of the total tax bill. Incidentally, the HMRC calculation ignores any on account payments you have already made for the year so remember to adjust the tax due as a result of this. You can apply on the return to reduce the on account payments if you expect your taxable income to fall.

Mike Warburton was a director at a large accountancy firm and is now retired. Email him: taxhacks@telegraph.co.uk