Self-assessment tax return deadline looms

High-earning parents, the self-employed and landlords – and others – have to act before the end of the month.

High-earning parents, the self-employed, landlords, and anyone else who needs to file a tax return must act fast to meet the end of January deadline or face penalties.

Self-assessment returns need to be filed to and pay HM Revenue & Customs (HMRC) and the tax paid by 31 January, and taxpayers are being encouraged not to leave it to the last minute.

High-earning parents who get child benefit may not realise they must also file a return if they have not had the tax collected via PAYE – and the ways they can lower their bill.

Child benefit is payable to the parent or guardian of children under 16 and up to 19 if they are in full time education. The eldest child receives £21.05 per week and younger children £13.95. For most people it is a tax-free and non means-tested benefit.

But where one adult in the household has taxable income in excess of £50,100 per year, child benefit is taxed at 1% for every £100 of income over £50,000. It is taxed at 100% once income exceeds £60,000.

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Employees have the option of paying the tax via PAYE, but to do so must inform HMRC by 5 October in the following tax year. Those who missed this deadline must submit a tax return and pay the tax by 31 January after the end of the tax year.

But before sending off their return to HMRC, higher-earning parents in receipt of child tax benefit should check for ways to reduce their income that may push them under the £50,100 to £60,000 threshold.  

This could include deductions from their income for pension savings made by the taxpayer, which could also restore eligibility for child benefit for those falling outside the higher threshold.

Kay Ingram, director of public policy at national financial planning group LEBC, says: “Parents who find it difficult to save for retirement while bringing up a family need to consider how pension savings could increase their eligibility for tax-free child benefit.”

Pension savings made by the self-employed and by employees into their own private pensions receive 20% tax relief at source. Those with income over £50,000 (£43,430 in Scotland) are entitled to an additional 20% (21% if resident in Scotland). This additional relief can be claimed when completing a tax return.

For members of workplace pensions it is worth checking with the scheme whether all relief available has been given via payroll, and if not then claiming the balance through a tax return.

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Parents who have already paid the tax through PAYE adjustment, or who have waived payment of child benefit, may wish to reverse their decision if their income has fallen this year.

With only three months until the end of this tax year, if income looks likely to fall below £60,000, it may be worthwhile claiming the benefit now as these payments can only be backdated for three months.

Saving the excess income over the £50,100 threshold into a pension plan before 5 April would enable the benefit to be claimed tax-free once more as well as yielding tax relief at 40% (41% Scotland).

Gift Aid

Charitable donations made under the Gift Aid scheme can also lower income for child benefit tax calculations. Gift Aid increases the value of the gift for the charity, but also gives higher rate taxpayers additional relief by reducing the income which is taxable.  

Gifts made last year can be deducted from income for the tax year 2019-20. Charitable gifts made in the current year can be claimed in the previous one too, which could be beneficial if income has fallen this year.