How to reduce your tax bill as self assessment deadline approaches

The deadline to file a self assessment tax return to HMRC is approaching and five million people still need to send their forms and pay their bill.

More than 12 million people file a tax return each year to report any untaxed income to HMRC.

The "countdown is on", said HMRC, for the 5.4 million customers who still need to send a self assessment form and pay a tax bill by 31 January.

The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Around 40,000 people used the festive period to file their return, according to HMRC, ditching "last-minute shopping and wrapping", said This is Money. Some 4,409 people did so on Christmas Day. Another 38,260 filed on New Year's Eve and 24,828 on New Year's Day.

Many people may not realise they need to file a tax return, but "even if you think you have nothing to pay", it is probably a good idea to investigate the matter or you may potentially "face penalties" for a failure to act, the news website added.

Who needs to file a self assessment tax return?

Most people have taxes "deducted automatically" via PAYE from their pay, pensions or savings, said MoneySavingExpert, so won't need to file a tax return.

Individuals such as the self-employed or businesses where tax isn't automatically deducted from earnings will typically need to complete a self assessment form.

This could apply if you run your own business or earn untaxed income as a landlord, or if you sell items on eBay. A self assessment could also be necessary if you rent out a room in your house online.

As a "general rule of thumb", added the financial website, you probably don't need to complete a tax return if you earn below £1,000 from selling goods or services online.

You can use HMRC's online tool to check what you need to do.

People who need to submit a return include employed workers earning more than £150,000 a year.

More pensioners may also need to complete a tax return, said The Times, as the rising state pension means those with "even a small amount of additional income will find themselves paying some tax" as their earnings will be above the frozen £12,570 personal tax allowance.

How to reduce your self assessment tax bill

The most "straightforward way" to reduce your bill, said Moneyfarm, is to ensure you are claiming all the reliefs you are entitled to.

Tax relief can be claimed on expenses related to "travel, professional practice fees, uniform maintenance, purchase of work equipment like personal protective equipment (PPE)", and even if you work partly from home.

Those facing a "hefty tax bill" can take steps to cut it, said Investors' Chronicle, by including pension contributions and charitable donations.

If you are putting money into a pension, and you're a higher or additional-rate taxpayer, you can claim the difference between the top tax rate of 40% or 45% and the basic 20% rate that is provided on pension contributions automatically.

Gift Aid on charitable donations provides 20% relief that goes directly to the charity.

Using the marriage allowance, where a lower-earning spouse below the income tax threshold transfers some of their allowance to a higher-earning partner, can also reduce your "combined tax bill", added the financial publication.

Whether you run a business or are self-employed, "effective tax planning can significantly reduce your tax obligations", said advisory firm Frazer James, such as using eligible expenses to "manage your taxable income and avoid falling into higher tax brackets".