Paying taxes is an unavoidable part of life for most of us. However, it is easy to overpay and lose money.
A tax refund is a reimbursement of overpaid taxes. It helps to keep a close eye on your dealings with HM Revenue & Customs (HMRC) because there are various reasons why tax could have been overpaid.
Here are ten pointers to help you review your tax bills and get a refund if you overpaid:
1. Examine your charitable donations
When it comes to charitable donations, the UK has one of the world’s most generous tax systems. Gift Aid is the most common way to give, as it increases contributions by a quarter (25 per cent).
If you donate £100 to a charity, the charity receives £100 plus £25 in Gift Aid. Higher-rate taxpayers can claim a tax refund of a fifth (20%) of overall donation, which is £25 in this example. So, make sure you tell the HMRC about all of your charitable contributions.
2. Invest in EIS/ SEIS/ SITR approved businesses
Investors investing in Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS), Social Investment Tax Relief (SITR) or Venture Capital Trust (VCT).
Here is a summary of what you can claim on various types of schemes.
| Scheme | Maximum annual investment you can claim relief on | % of investment on which you can claim | Tax relief on dividends income | Personal CGT relief available on initial investment | Type of CGT relief on initial investment | Gains exempt from CGT when you sell shares | Relief available for capital losses against income |
| EIS | £1 million £2 million provided at least £1 million is invested in knowledge-intensive companies | 30% | No | Yes, on 100% of investment | Deferral | Yes, if you received Income Tax relief | Yes |
| SEIS | 100,000 | 50% | No | Yes on 50% of investment, capped at £50,000 | Exempt from Tax | Yes, if you received Income Tax relief | Yes |
| SITR | £1 million | 30% | No | Yes, on 100% of investment | Deferral | Yes, if you received Income Tax relief | Yes – but not on loans |
| VCT | 200,000 | 30% | Yes | N/A | N/A | Yes | No |
3. Working from home tax relief
You can claim tax relief on £6 per week or £26 per month if you work from home. If you spend more than this, you must have evidence and bills etc. to claim.
Check our guide on : Working from home? Are you eligible to claim tax relief in 2021
4. File your return on time
5 April marks the end of the tax year. HMRC must receive your online tax return, as well as any tax due, by 31 January of the following year. If you don’t file on time, you’ll be fined £100 directly.
Check our guide on : guide to submit a Self Assessment Tax Return.
5. Examine Business Expenses
Self-employed individuals can claim all expenses and costs related to their line of work. For example, you can subtract the cost of any tools or equipment you use to do your job and travel expenses for business trips.
Such expenses are generally reclaimable whether they were incurred entirely or mainly in the course of business.
Check our : guide on Tips for Freelancers to Save tax in the UK.
6. Examine your Benefits
Many state benefits and one-time payments, such as Child Benefit, numerous tax credits, and benefits paid to unemployed or disabled people, are not taxable.
Don’t include any of these in your tax return; HMRC has a comprehensive list of non-taxable benefits.
Tax Refund Service
Work with a London-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.
7. Keep track of your Capital Gains
Capital Gains Tax (CGT) is a tax on capital gains from selling assets, like properties (but not your primary residence), stocks, and other investments.
For basic rate taxpayers, CGT is taxed at 18% of the gains; however, since everyone has an annual tax-free allowance (£12,300 in 2020/21), only a small number of people pay it.
You can carry forward tax losses from the previous six years to lower your current CGT bill.
8. Check your tax on savings rate of interest
Basic-rate (20%) tax is deducted at source from standard savings accounts. HMRC gets a fifth of your interest, put it another way, and you get the remainder.
Higher-income taxpayers pay an extra 20% tax.
If your salaries are less than the personal allowance (£12,570 in 2020/21), you shouldn’t have to pay tax on your interest.
Check our guide on : UK Tax rates, tax thresholds, tax bands, and tax allowances for the 2021-22 and 2020-21 tax years.
It is a common occurrence among retirees and low-income individuals. Complete and submit form R85 to stop paying tax on savings interest and recover any tax overpaid in past years.
9. Examine your tax-free earnings
Various tax-free options are available to savers and investors who keep their profits and income concealed from the HMRC.
The cash ISA is the most common, as it pays tax-free savings interest that isn’t required to be reported to HMRC.
10. Examine prior tax returns
If you make mistakes on your most recent tax return, there’s a good possibility you did the same thing in previous years. As a result, review your previous tax returns for any mistakes that might result in a refund.
Overpaid taxes can be reclaimed for up to six years.
Winding-up
Paying taxes is mandatory for everyone, whether it is a company or an individual.
So, to get the biggest tax refund, take the help of a tax accountant. Tax accountants will assist you in keeping on top of deadlines, preparing company accounts and corporation tax returns, as well as claiming tax rebates and refunds.
