The end of another tax year is rapidly approaching and with it, the shutters will slam down on another pile of tax reliefs you can claim, meaning the next few weeks represents your last chance to get money back in your pocket from HMRC for as much as £6,316.60 – and maybe more.
Come rain or shine, HMRC will tax you, including on your earnings and on your savings interest and even your pension. But there are a few legal things you can do now to ensure you maximise your tax allowances before the end of the tax year.
Although some of these allow you to backdate your claims, several will only allow you to backdate for a certain amount of years, so you will still miss out on some tax years if you don’t claim before April 5, 2025 in some of these cases below. I write ‘at least £6,316’ because if you made extra pension contributions this March, you could save tens of thousands more off your tax bill, but it is limited only by how much you earn. And for National Insurance buyback, the amounts can be staggering, but it depends how many years you’re missing.
Working From Home – £64.60+
Working from home allows you to claim tax relief on vital expenses such as electricity, heating and internet costs, either the amount you paid or a flat £6 per week. You don’t get given £6, you get tax relief on £6, which means you either get 20%, 40% or 45% of £6 per week back depending on your tax bracket.
You can claim for this current tax year and you can backdate this claim for the past four, for a total of five claimed years. That makes £62.40 of tax back in your pocket if you’re a basic rate taxpayer, all the way to £140.40 for an additional rate taxpayer. The catch is you must be made to work from home, e.g. because your office is closed or not within commuting distance. You can’t volunteer to work from home and also claim this. You don’t have to claim in self-assessment, you can claim directly from gov.uk via HMRC. But the 2020-21 tax year will not be accessible for backdating after April 5 when the tax year changes, so you could miss out on one of the years, worth a total of at least £64.60, if you don’t act before April.
National Insurance buy-back – £6,000+
This is the big big one. You can buy or claim for missing National Insurance years on your record up until April 5. National Insurance records dictate the amount of money you’re paid in your pension pot when you retire. You can also claim even if you’re already retired. You need at least 10 years of records to get any pension at all, and about 35 years of records to get the full new state pension, which will be paid at a rate of £230 per week from April.
If you have gaps in your records, you can buy a missing year for £824, which will add about £300 a year to your pension payout. That doesn’t sound like a lot, but if you claimed the pension for 20 years, you’d be looking at £6,000 extra.
On April 6, though, 13 backdating years currently available to buy will be removed from the scheme, and you can never claim for them after April. If you were missing all 13 years, bought them all back, and added £6,000 per year to your pension per year, that’s a mindboggling £72,000 more you would be paid in your pension over 20 years.
Marriage Tax Allowance – £252+
Marriage Tax Allowance, as the name suggests, is only for married couples. If one half of the couple is a non-taxpayer, for example doesn’t work, looks after the children full time or doesn’t earn enough to hit £12,570 Personal Allowance, then they can transfer 10% of their unused tax allowance to their partner.
This takes 10% of the allowance and moves it to their partner. It’s only allowed if the partner receiving the money is a basic rate taxpayer earning less than £50,270.
This then gives the receiving partner £252 off their tax bill.
Until April, you can backdate a claim for each of the past four years, but after April, the year 2020-2021 will no longer be accessible because it will no longer be in the past four years, so you risk missing £252 for that year if you don’t claim by March 31.
SIPP Pension contributions
A key way to reduce your tax is to make pension contributions. This is because any money put into your pension is not taxed at the point of contribution, and reduces the overall amount you ‘earned’ that is taxed.
A SIPP, or Self Invested Personal Pension, is not subject to tax, even if you earned the money and then paid it into a SIPP afterwards. If you’re a higher earner, you can also claim more money back from the taxman via HMRC, reducing your taxable income.
For example, if you put £1,000 into your SIPP pension, you’d get £1,200 appear in your pension account. This is because you have been ‘given back’ the tax you paid on it.
If you’re a higher earner, at 40%, you can claim another £200 back in your self-assessment, so you have recovered all the money you paid.
You can only put £60,000 into pensions including your workplace pension and any SIPP in a given year, but you can claim tax relief on private pensions worth up to 100% of your annual salary, whatever that may be.
