Leniency for taxpayers as Britons spend 19 million hours on returns

Covid piles pressure on filers already struggling with ‘worrying gaps’ in understanding as deadline for filing looms

 Kate Hughes

Money Editor

@hughesthehack 

Britons will rack up 19 million hours filling in their tax returns this year, after new research highlights worrying gaps in people’s knowledge of the system.

A survey of 4,000 people by consumer group Which? found only three individuals could answer seven questions about general tax rules correctly, with one in 10 people struggling to complete their return over more than five hours.  

Under normal circumstances, failure to submit a tax return on time results in an immediate £100 fine, with penalties rapidly increasing depending on how late the return is and how much is owed.

But with more than 12 million people required to submit a tax return by the end of this month, the figures come as HMRC confirms it will accept late returns and waive fines this year as long as workers could prove the delay was due to Covid-19.   

These could include, for example, circumstances around homeschooling, or the illness of either the individual or their accountant.  

Chancellor Rishi Sunak is rumoured to be considering an extension to the deadline for all those who need to complete a tax return. However, unless this is confirmed, those who are affected will have to complete a form stating the reasons for their delayed submission rather than assuming an automatic refund.

“We want to encourage as many people as possible to file on time even if they can’t pay their tax straight away,” HMRC said in a recent statement.  

“But where a customer is unable to do so because of the impact of Covid-19, we will accept they have a reasonable excuse and cancel penalties, provided they manage to file as soon as possible after that.”

But managing to file an accurate return under pressure isn’t just about having extra time, with poor levels of understanding around the tax on children’s savings and capital gains tax  in particular causing problems, Which? has warned.  

Meanwhile, almost half of those surveyed wrongly believed it wasn’t necessary to submit a return at all if the person was paid via PAYE.  

If you’re employed and the only income you receive is from your job, you won’t have to complete a tax return. But if you also receive rental income, do extra freelance work or make a profit after selling an asset, you will need to declare it on a tax return.

Last year, 11.1 million people filed a return on time, but more than 70,000 were submitted on deadline day, and 26,562 people completed their returns in the final hour.

“This month, we’ve hit peak tax return prevarication,” warns Sarah Coles, personal finance analyst for Hargreaves Lansdown. “Hundreds of thousands of people put this nasty job off every January, but this year more than ever, it’s easy to see why so many people can’t bear to get started.

“Many self-employed people are so worried about their potential bill that they can’t face doing the calculations. Meanwhile, others are so busy juggling running a business with the stress of lockdown, that the extra faff is the last thing they need.

“The taxman has confirmed that those hit by the virus can put off doing their return without facing a fine. In some cases this will be a lifeline for people who are overwhelmed. However, if you’re able to complete the paperwork in time, you need to do so.”

10 tips for your last-minute tax return

1. Check you have access to the system first. Make sure you have your unique taxpayer reference number and can access the Government Gateway right now. You don’t want to fall at the final hurdle.

2. Cut the corners you’re allowed. If you work from home or use your own car for work, instead of calculating the actual expenses, you can use flat rates for both.

3. Claim for everything you can. This isn’t one of the corners you can cut. Collect together all your receipts and invoices, and use the list on the government website to check you haven’t missed anything https://www.gov.uk/expenses-if-youre-self-employed.

4. Estimate if you need to. If you’ve left it too late and there’s some paperwork outstanding, you can submit an estimated return, and update it when the paperwork arrives.

5. Don’t rush the pensions bit. This is a really common area for mistakes to happen. Higher rate taxpayersneed to check if they have to claim for additional higher rate relief on their pensions. They also need to make sure they enter the gross value of contributions. This isn’t just a total of all the money paid in; it’s everything they paid in, plus tax relief at 20 per cent on top.

6. Squeeze the value from your charity donations. Ticking a box to claim Gift Aid means the charity can reclaim 20 per cent tax on your donation from the taxman, but if you’re a higher rate or additional rate taxpayer, you can reclaim the rest of the tax on your donation through your tax return. Only 22 per cent of higher rate taxpayers bother to do it, but it can really add up.

7. Do your tax return even if you can’t afford the bill. 31 January will be crunch time, and is going to be especially painful if you put off your payment on account in July. If this year has laid waste to your usual careful plans, then you can do the return now and arrange to pay in instalments. But do it sooner rather than later. If you leave it more than 60 days past the deadline, you can’t set up installments.

8. Don’t forget to pay. You’d be surprised how many people are so focused on the admin that they forget this bit. It’s also important to think about your payment method. The payment can clear on the same day if you pay by debit or credit card, but will sometimes take a day to go through. If you pay by BACS or direct debit it can take three days (or five days if this is the first time you have paid HMRC by direct debit).

9. Go back and check it. Make sure you’ve completed every relevant section and input all the details. If you’re unsure of something, check the rules on the HMRC website. It’s far better to take the time now than run into problems later because you made a mistake.

10. Change previous years’ returns. If you’ve stumbled across something you should have been claiming for in previous years, you can amend returns going back four years.

What happens when I travel to the EU now?

When you drive your vehicle abroad during the transition period, your motor insurance will give you the minimum cover you’ll need by law for each country when driving in the EU, EEA, Andorra, Serbia and Switzerland (listed below). You can drive from the UK into these countries without having to show any extra evidence that you have the required insurance. 

Countries where a Green Card isn’t required during the transition period:

EU Countries: Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain & Sweden

EEA countries not in the EU: Iceland, Liechtenstein and Norway

Other countries where you don’t need a Green Card during the transition period: Andorra, Serbia and Switzerland

You'll need a Green Card from 1 January 2021 if you’re travelling in the EU, EEA, Andorra, Serbia or Switzerland to prove that your motor insurance gives you the minimum cover you’ll need by law for each country. If a deal is agreed with the EU that removes the need for Green Cards then we'll update these Q&As, so before you travel please check back for our latest guidance.

What's a Green Card?

A Green Card is issued by the driver’s insurer. It acts as evidence that the driver has the minimum legal cover needed for the country they’re visiting whilst driving outside the UK. The Green Card is a physical document which is printed on green paper – it isn’t valid in an electronic format.

Do I need a Green Card?

If you’re travelling outside the UK to the countries listed above and will come back after the transition period ends, you’ll need a Green Card.

How do I get a Green Card?

If you still need a Green Card, you can call us on 0161 702 0301. We recommend you apply four weeks before you’re due to travel to make sure it can be posted and delivered to you in time.

Will I still be able to use my insurance to drive in other EU member states after the UK's exit from the EU?

Yes. Your current motor insurance cover will still give you the legal minimum motor insurance needed for travel to EU & EEA countries, Serbia, Switzerland and Andorra. You won’t need to buy additional third-party motor insurance policy cover when travelling to these countries with a UK-registered vehicle. 

But you should check the terms of your cover, as the minimum requirements may not be the same as the full cover you have when driving in the UK. You may wish to ‘top up’ your cover for driving abroad (e.g. comprehensive cover, which would include damage to your vehicle).

Where can I get more information?

The Government’s published guidance on driving in the EU after the UK’s exit from the EU at www.gov.uk/driving-abroad

We’re monitoring developments and speaking with regulators to minimise any challenges that may come up. We’ll always aim to provide the service you expect. We’ll update our website with more information, so you should keep checking back here as more details are announced.