Over 40,000 file tax return over Christmas break

A staggering 4,409 people turned their backs on the turkey dinner and spent Christmas Day 2024 filing their tax returns. Although this is a drop on Christmas Day itself compared with the previous year, over the three days between Christmas Eve and Boxing Day more than 40,000 people put the festivities on hold to file their tax return – an increase of 55% on the same period in 2023.

There’s only one month left until the 31 January deadline for the 2023/24 tax year and a record number of people are due to file returns this tax year thanks to the perfect storm of frozen tax allowances and rising incomes.

We’ve come up with five crucial tips to avoid a nasty penalty charge if you’re yet to file.

1. Double check if you need to file

Even if you think you’ll have nothing to pay, you still might need to file a return for the 2023/24 tax year or you could face penalties starting at a one-off £100 with more to pay if you’re over three months late.

According to Freedom of Information Act figures released by Tax Policy Associates, half of all penalties for those more than a year late filing their 2021/22 returns were sent to people who didn’t earn enough to pay any tax for the year.

You must file a return if you had an income of more than £150,000 in the last tax year, or if any of the below applied:

• You were self-employed, earning more than £1,000
• You had to pay capital gains tax (CGT) on something you sold or transferred for a profit
• You had to pay the High Income Child Benefit Charge
• You were a partner in a business partnership

But even if the above don’t apply to you, you might still have to file if you’ve received more than £10,000 from savings and investments in the tax year.

2. Get your statements sorted

Your savings and investment providers would’ve each sent you an annual summary/statement after 5 April detailing what you earned with them for the tax year, as well as details of the gains or losses on any investments you sold in that time.

You should check for savings and investment income (interest and dividends) as well as gains you’ve made on selling investments outside ISAs or pensions/SIPPs.

Interest:

You’ll pay tax on interest earned on your cash savings that exceeds the Personal Savings Allowance, which currently stands at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers get no exemption and pay tax on all cash interest they receive outside of a tax shelter.

When interest rates were close to zero, most cash savers didn’t have to worry about a January tax bill. But when rates rose to 5%, £10,000 in a standard savings account became enough to trigger a potential tax liability for higher rate taxpayers.

The taxman will check what you’ve declared on your tax return against the information your bank or building society send them, and any tax already collected by a tax code adjustment that year.

Investment income:

The tax-free allowance for dividend income dropped again in 2023/24, to just £1,000 for the tax year. In previous years it was as high as £5,000 a year, but cuts to the allowance mean 3.6 million people are now caught in the dividend tax net.

As a reminder, you’ll pay tax on dividends above the allowance at 8.75%, 33.75% and/or 39.35% depending on your other income.

Gains on investments sold:

The tax-free capital gains allowance was £6,000 for 2023/24, less than half of what it was the year before. Although changes to CGT were announced in the Budget this year, gains made when you sold or transferred investments in the 2023/24 tax year will still be taxed* at the previous, lower rates of 10% and/or 20%, depending on your other income that year.

*CGT rate for residential property gains was 18% or 28%.

3. Higher or additional-rate taxpayer? You could claim hundreds in pension tax relief

Anyone paying into a SIPP between 6 April 2023 and 5 April 2024 would’ve received basic rate relief of 20% automatically. This adds an automatic top up to pension contributions – a £2,000 personal contribution would automatically be boosted by £500 to £2,500 in their pension – but higher rate taxpayers need to claim the extra £500 tax relief they are owed from the Revenue. An additional-rate taxpayer, meanwhile, could claim 25% tax relief from HMRC on top of the 20% relief they receive automatically.

As the size of pension contributions increase, so does the incentive of claiming back any higher rate relief due, as the table below shows.

Source: AJ Bell

Even if you only make a relatively modest pension contribution, you could get a cheque worth a few hundred pounds. This can run into the thousands if you make larger pension contributions or you’re able to backdate your claim for previous years.

Many people don’t realise they need to claim for pension tax relief, especially because it is only necessary with some types of pension scheme, but not others. If you are paying into a ‘net pay’ pension scheme, your contributions will be taken from your pre-tax salary, meaning income tax relief is usually paid automatically. As a result, you shouldn’t need to make a claim as you should already have received the tax relief you are due. If you aren’t sure and you pay tax at 40% or 45%, it's worth checking if you’re getting the extra tax relief.

4. Take care over the child benefit tax trap

Thresholds for clawing back child benefits are higher now, but for 2023/24 taxpayers with children need to be aware of the old rates. Child benefit for 2023/24 was withdrawn gradually once you or your partner earn over £50,000. The benefit was completely extinguished once you hit £60,000.

If you need to repay some or all your child benefit payments for that year and your tax code wasn’t adjusted already to account for it, you’ll need to repay via self-assessment. Eventually, the taxman will catch up with those who fail to do so, and they may incur an extra penalty as a result.

5. Don’t forget to pay the tax itself

Whenever you filed (or plan to), make sure you’ve paid what you owe by midnight on 31 January too.

If you don’t, you’ll start to accrue daily interest from 1 February. The annual interest rate charged by HMRC is 7.25%.

If you’re having difficulty paying, you might be able to agree a payment plan online with HMRC as long as you owe £30,000 or less. You can also apply to reduce your payments on account for the next year if you think your earnings will be significantly lower than before.