Common Tax Pitfalls
Tax is a complicated thing. You have to take care of all the financial numbers for filing accurate taxes. Filing tax wrong can either increase your tax burden, or you may get tax penalties. Here I will walk you through some common tax mistakes. It will help you understand possible pitfalls while handling your tax.
You are entitled to receive a certain amount free of tax each year, known as a personal allowance. In the UK, the Personal Allowance rate for 2021 to 2022 is £12,750 whereas, the income limit to be eligible for Personal Allowance is £100,000. The personal Allowance decreases by £1 for every £2 of income above the personal allowance limit. Remember not to miss your allowance when filing tax returns.
Blind Person Allowance
A Blind Person Allowance refers to the amount that a blind person can earn before having to pay tax. This allowance is more than what a normal person gets. Once you have registered a blind person with your local tax office, you will get an extra allowance of £2930. However, you also need to notify HMRC through a phone call (0300 200 3301) as it is not added automatically to the HMRC system.
Saving tax when you are a couple
Couples can work as a team and save a lot of tax. You are liable to pay a lower tax rate on assets gifted by your spouse. You can also apply to HMRC for reducing your partner tax if you earn less than the taxable amount. You are also eligible for Married Couple Allowance if born before 6 April 1935. You are eligible for Marriage Allowances if you were born after 6 April 1935. However, whether you get an allowance or not depends on how much money you make. You can also transfer unused allowance to your partner to reduce their tax burden.
Tax can be a burden on your finances if you are overpaying your taxes. You can claim tax back if you failed to claim tax reliefs or more tax has been deducted from income within four years after the end of the tax year you overpaid for. Claiming overpaid taxes can be a huge relief to your finances.
Checking your Tax codes
The tax code usually starts with numbers and ends in letters. The number of your tax code shows how much tax-free income you get in the given tax year. The letters show how your situation affects your allowance. A complete list of letters and what they mean is available on GOV.UK. HMRC works out the allowance by deducted benefits you get from your job from the personal allowance. The benefits you have not paid tax on are deducted from your allowance. This information is provided to you in the form of a code. You can use this code to check if you have been given the right allowance. You can also visit GOV. The UK for more information.
You also need to inform HMRC if you are to retire soon. The tax office should know you except receiving a pension so that they can sort out your code.
Remember you get a separate code for each source of income. You will get a separate code for pension and job incomes. Be careful to check all codes you receive to make sure the wrong amount is not being deducted.
Compiling with the deadlines
If you get a tax return from HMRC, you need to file it by 31 October or by 31 January if you are filing online. While tax must be paid by 31 January every tax year. If you fail to comply with the deadline, you will get a 100 penalty which will increase if you are still due to pay the tax in further 3 months.
Hiring an Accountant
If you are considering hiring accountancy services to deal with your tax. LYEL Accountants are here for you. Our expertise is structured around various financial services. LYEL Accountants has always provided its customers with value-added solutions to their problems. You can have the assistance of our expertise in:
- Financial planning
- Corporation tax
- Capital gain tax
- Income tax
- National Insurance
- Business Rates
- Audits and tax investigations.