Tax can often be considered a complicated and convoluted process for many people – particularly for those who may not have the means or capital to hire an expert. New research reveals that the average one-year tax refund has climbed to £1,518 – however, staggering figures show that £20 billion of tax benefits still remain unclaimed every year. For the 37 million people who are PAYE, CIS and self-employed workers, the reality is that little is known about the annual refunds they can claim back. However, amidst an economic recession that’s bedding in – in addition to an energy crisis so severe it’s set to plunge millions of families into fuel poverty – Brits are looking for any means necessary to assist with soaring costs.
To assist Brits with claiming back what is owed of them, Tommy Mcnally, leading tax expert and founder of Tommys Tax – which boasts thousands of five-star reviews on Google and Trust Pilot – explains the importance of understanding the tax refund process. Below, he provides four common traps to be aware of, and how not to be stung by them.
Be aware of the two main tax thresholds, and use your pension:
The current threshold for the higher rate of tax is £50,270, meaning that if you’re earning over this amount, you will be taxed at the rate of 40%, rather than 20%.
Once you hit £100,000, you could start paying an effective income tax rate of 60%, as the £12,570 personal allowance – the amount you can earn without paying tax – becomes removed once your income exceeds this amount. Because of this, you will be required to pay £40 in income tax while £20 will be removed from your personal allowance for every £100 you earn between £100,000 and £125,140, you will be required.
Using your pension to your advantage could be a simple and savvy way to reduce your taxable income while simultaneously getting an added boost of tax relief on your pension contributions. Through this, HMRC would consider your ‘adjusted income’ and you could also get the full benefit of tax relief. It is however important to remain diligent and organised throughout this entire process to ensure that your tax refund process remains efficient.
The high income child benefit tax charge:
If you have children and claim child benefit, you may have to pay a high income child benefit tax charge once you or your partner’s income exceeds £50,000. This means that for every £100 of income you earn between £50,000 and £60,000, you will be charged at a rate of 1% of the child benefit you receive. If you earn £60,000, this charge will be equivalent to the amount of child benefit you receive. Once your reach this threshold, you can decide to either cancel your child benefit, or pay the tax charge through a self-assessment tax return.
Capital gains tax bill:
If you make a profit when selling an investment or property, you could be subject to paying capital gains tax. Any thing up to £12,300 per year is tax-free – known as your capital gains tax allowance. Any profit you make above this allowance can be taxed anywhere between 10-20%, depending on your income. If you’re married, you can hold investments jointly, meaning that you will have two sets of £12,300 capital gains tax allowances.
Be aware of tax refunds for self-employed workers or business owners:
If you own a business and make a profit, you will need to pay a 19% corporation tax. However, business owners and self-employed workers can also claim tax back on a majority of their expenses such as payroll admin fees, travel expenses, professional bodies/ trade unions/ membership fees, training costs and hotel accommodation. You can claim a flat £1000 on tax using the trading allowance, or claim every single business expense if this exceeds £1000. It’s important to be diligent with keeping your receipts and bank statements, and to record every transaction into your business account to make the process more efficient.
Tommy Mcnally, leading tax expert and CEO of Tommys Tax comments on why tax refunds could act as a vital lifeline for millions of families across the UK:
“With nearly everyone impacted by the increasing cost of living across the board, there are ways in which people can inject a much needed boost into their bank accounts.
“For the majority of people, taxes can be boring, confusing and anxiety-inducing, which is why millions of tax rebates are left unclaimed. One of these ways is the many tax rebates that people are eligible for, but don’t make use of and that is where we’re here to help. Taxes can be boring, confusing and anxiety-inducing, but if done right could make a real difference to people’s lives.”
