On form to beat fines
SELF-ASSESSMENT TAX RETURNS
AROUND 650,000 lower income pensioners will be dragged into paying income tax this financial year due to the Government’s stealth tax freeze, and they need to know what they are in for.
In total, around nine million pensioners will pay income tax, roughly three out of four.the numbers have doubled since 2010.The tax bills will come as a shock to many, and could carry a sting in the tail, as there are fines and penalties if you miss deadlines or fail to pay.
Former Pensions Minister Ros Altmann has warned that most pensioners receiving tax bills will be totally unaware of any liability and have probably never filled in a tax return in their life. “They are at risk of being hit with fines and penalties for not paying a tiny amount of tax that they didn’t even know about.”
HMRC does not tax the state pension, but it does tax any earnings on top of that. Income from employment, a defined benefit “final salary” company pension, annuity or drawdown is taxed under Pay As You Earn (PAYE).
HMRC takes your state pension into account when doing its calculations, but deducts income tax from other sources.
It does this by adjusting your Tax Code, which tells employers and pension companies how much tax to deduct. Many pensioners will see their income
fall as a result and wonder why. One danger is that your Tax Code may be wrong, which easily happens if you have multiple sources of income or your circumstances change, said Nucleus Financial’s technical services director, Andrew Tully: “Your employer or pension company can’t alter these, so you need to get in touch with HMRC.”
You can check yours at Hmrc.gov.uk, while some websites offer free Tax Code calculators, including Moneysavingexpert. com. “You need to get it right, otherwise you risk a big tax demand,” Tully said.
Other income is paid gross, which means you have to declare it to HMRC by completing a self-assessment tax return yourself.the prospect will strike many with dread and they may stick their heads in the sand as a result. In many cases, HMRC will write suggesting you need to do a self-assessment. “But it is still your responsibility to work out if you do,” Tully said.
Pensioners who are self-employed and earn more than £1,000 or have multiple sources of income, will typically have to file a return. If you earn income from a property that you rent out, or are a partner in a business partnership, you need to complete a return.
If you have untaxed income from savings, investments and dividends outside of a tax-free Isa, or foreign income, again, you need to do a return. As does anyone with total taxable income of more than £150,000 a year, or who owes capital gains tax after selling an asset. For more information, visit Gov.uk/ check-if-you-need-tax-return.
There is another trap to watch out for, Tully added. “A number of bogus and scam websites will charge you to complete a return. Submit your return via the Gov.uk website as the process is free.”
If you need to complete a tax return and have not been sent one before, you must tell HMRC by October 5.You can do this online at Gov.uk/ register-for-self-assessment.
You have until January 31, 2025, to file your return for 2023/24, provided you do it online (which HMRC prefers).
If you want to file a paper return, call HMRC on 0300 200 3610 to request form SA100.THE deadline is three months earlier on October 31.
There is an automatic £100 fine for missing the tax deadline, with more penalties to follow unless you act.
Many pensioners still will not have to file a return even if they do pay tax.