How can you save money through your Self-Assessment tax return?

The Self-Assessment tax return deadline is Tuesday 31^st January for people who are self-employed. If you haven’t already completed your online tax return, don’t delay.

As well as a ‘weight off your shoulders’, you will mitigate the risks of rushing the completion of the form, which could mean the difference between lowering your tax bill and paying more than you need to.

There are a few areas where you could save money such as claiming for higher rates of pension tax relief, claiming allowable expenses, claiming against previous tax years, and contributing to charities to reduce your tax.

Let’s look at your options.

Pensions

You can save on your tax bill by contributing towards your pension and claiming tax relief. If you make contributions this year, it could go towards saving you money on tax next year.

If you are a UK resident and taxpayer contributing into a personal pension, you will receive 20% tax relief on the amount you contribute into your pension pot. This rule applies if you don’t contribute more than you earn and you are under 75¹.

If you pay tax at the higher rate of 40%, you could be eligible for an additional 20% in tax relief, making the total amount of tax relief – 40%².

If you are an additional rate taxpayer (45%) you could be eligible for higher tax relief.

How can you claim tax relief on your pension contributions?

You can claim higher rate tax relief through your Self-Assessment form or by contacting HMRC.

If you are claiming tax relief through the online form, you will need to declare your contributions, including the 20% basic tax rate relief³.

Your tax relief will be issued in one of the following ways:

• A tax rebate at the end of the year
• A change in your tax code
• Reduction of tax payable

You can claim for higher tax relief dating back four years⁴.

Expenses

Can you claim expenses on your tax return?

Running your own business will incur certain costs. You can deduct these costs from your profits before tax, when filling in your Self-Assessment tax return. Keeping records of invoices, receipts and expenses throughout the year will help when the time comes to complete your tax return.

HMRC provides a comprehensive list of expenses you can claim back on, here https://www.gov.uk/expenses-if-youre-self-employed

The list includes items and services you might not have considered, for example:

• Website costs
• Training courses related to your business
• Electricity and heating of your premises
• Council Tax

How far back can you claim expenses against tax?

You can claim for “overpayment relief” dating back four years⁵. You will need to contact HMRC here: https://www.gov.uk/government/organisations/hm-revenue-customs/contact/self-assessment and inform them you have overpaid in the previous year(s).

Charity

You could reduce your tax bill by giving to charity. There are various ways to do this if you are a UK taxpayer, but if you are self-employed, the two most common ways are:

• Gift Aid

If you pay tax at a higher rate, you can claim back through your Self-Assessment tax return or by informing HMRC. If you donate to a charity through Gift Aid, you can claim on the difference between the tax rate you pay and the basic tax rate on your donation.

For example:

If you donate £100 to charity, they claim Gift Aid from the UK government to increase your donation to £125. If you pay 40% tax, you can claim back £25 (£125 x 20%)⁶.

• Assets

Donating land, shares and property can mean you are eligible for tax relief.

Please note: Tax laws and regulations can be complex and subject to change. Getting advice from a qualified accountant is advisable if you feel you need guidance or help with your taxes. Tax rates and tax bands can differ in Scotland.

What matters to you, matters to us

1-2. https://www.litrg.org.uk/tax-guides/tax-basics/do-i-have-join-pension-scheme/do-you-know-how-tax-relief-your-pension

3-4. https://www.unbiased.co.uk/discover/pensions-retirement/managing-a-pension/how-to-claim-higher-rate-tax-relief-on-pension-contributions#:~:text=How%20do%20I%20claim%20higher,need%20to%20do%20so%20online.

5.https://www.gov.uk/tax-relief-for-employees

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