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7 reasons COVID means you should file your tax return early

5th July 2021

This year, things have been different. COVID threw us all into flux, especially when it came to how we worked. 

Some of us lost out on our regular work, but started a side hustle that took off: from mask-making to selling banana bread to investing in Bitcoin to takeaway couriering. Others were furloughed either full-time or part-time, and those of us who weren’t ended up having to turn that tiny space in the hallway into a home office. Some of us ended up working more than usual – and continued going into the office on empty trains, head to toe in PPE. 

And what’s more, it’s likely that COVID has impacted your tax liabilities this year too. Even if you’re employed, you may have to file a tax return to get things square with HMRC. Whether it’s being newly eligible for tax allowances you didn’t know existed or being due a big bill in January, preparation is key – and you’ll only know what’s in store once you’ve filed a tax return.

Here’s why we at TaxScouts think it’s worth filing early this year:

1. You don’t pay until January

OK, not strictly COVID-related but it’s important to know anyway. For anyone not sure, here’s an overview of how the tax year works.

How does the tax year work?

  • You start a mask-making side hustle in June 2020
  • This is part of the 2020/21 tax year
  • You make more than £1,000 from your business, so you have to declare the income to HMRC
  • Register as self-employed by 5th October 2021
  • File your tax return by 31st January 2022
  • Pay your bill on 31st January 2022

Contrary to popular belief, you don’t actually pay your tax bill when you file your tax return. In fact, no matter when you file, you’ll always pay your tax bill on 31st January, the deadline date. What happens when you file is that you’ll generate the figure that you owe, which means that the sooner you file, the more time you’ll have to save to pay your bill. And if necessary, you can set up a payment plan with HMRC if you don’t think you can pay it in a single lump sum.

If you’re employed and you owe tax on extra income, you’re allowed to pay this via your tax code. This would mean that it will be deducted at source (i.e. from your salary) with the rest of the tax you pay. To do this, you need to file a tax return by 30th December. 

2. You might owe more than you think on your side hustle

If your COVID side hustle is new and you’ve never done a tax return before, your debut tax bill might surprise you.

When you do your first tax return, you’re charged 1.5x what you owe 😱. This is because you’re charged for the first tax year you worked and half of the next tax year (the one you’re currently in) up-front. So if you spent lockdown baking banana bread, crocheting scarves, hand-making cards and more, you should file as early as you can to work out how much you owe!

3. The self-employed could be overcharged

For many of the self-employed, COVID was rough. Anyone who hadn’t been freelance for longer than a year wasn’t eligible to claim any of the government support (SEISS) grants, and those who were able to claim may not know that you owe tax on it like you would any other income!

Whichever side of the coin you sit, what is for sure is that it’s likely your bill won’t accurately reflect your current situation. Your payment on account bill is due 31st July 2021, and it’s based on your earnings in the 2019/20 tax year. If you earned more than expected during COVID, you’ll be undercharged and hit with a bigger balancing bill in January. If you earned less than expected, you’ll be overcharged for what you worked. 

File your return early to rectify any inaccuracies on your records, and get charged for what you worked on your payment on account bill. 

4. The SEISS grant

As we said, the SEISS grant was a sore point for some of the self-employed. Whilst it was a cash injection that many so needed after experiencing a loss of income, a lot didn’t know that it was taxable. If this is you, your bill might be higher than you expect in January. Get prepared now so you can start saving ahead of January! 

And for anyone hoping to claim the 5th and final SEISS grant, here’s an opportunity to kill two birds with one stone. To claim the grant, you need to show an accurate turnover for the 2020/21 tax year. A good way to get this information is by filing your tax return – and so you might as well just get the whole thing done and dusted, right?

5. HMRC is experiencing delays

There have already been reports of 8-10 weeks from people waiting for a tax rebate this year, and these queues will only get longer as demand on HMRC increases. Both COVID and Brexit have impacted this – and if you’re due any last minute surprises, January might actually be too late to file if you need to reconcile anything with HMRC. Don’t leave it to chance and get ahead in the line. 

If you are worried that you might be late, use our Tax Penalties calculator below to see HMRC’s charges👇

Which tax year is this for?

6. Claim money for working from home

Like everything in life, it’s not all doom and gloom. If you had to start working from home last year, you could actually claim money back! And it’s actually not too tricky to do. You can claim in one of the following two ways:

  1. £6 per week from 6th April 2020
    • (£4 for the previous tax year)
  2. The exact cost you’ve incurred from working from home – but you’ll need to back this up with receipts and bills

You’ll get a tax relief based on the rate of Income Tax that you pay👇

IncomeTax rate
Up to £12,5700%Personal allowance
£12,571 to £50,27020%Basic rate
£50,271 to £150,00040%Higher rate
over £150,00045%Additional rate

Claim back for working from home here!

7. Claim back for PPE, uniform and other expenses

For anyone that incurred higher expenses as a result of COVID, you can claim this back on your tax return and reduce the amount of tax that you’ll owe in January. This is especially useful for those working in the hospitality, healthcare and beauty industries. You can offset any PPE or specialist uniform that you had to buy and reduce your overall taxable income. Here are some examples of expenses:

  • Cleaning expenses for your rental property
  • PPE
  • Increased insurance bonds
  • Travel you wouldn’t ordinarily have to do
  • Uniform for your side gig (e.g. Deliveroo courier uniform)
  • And more…

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