With 5.7m people still yet to file their tax return before the 31 January deadline according to HMRC, Dawn Register, head of tax dispute resolution at accountancy and business advisory firm BDO, highlights some common pitfalls to avoid to ensure you get your tax return right first time.

  1. Declare all your rental income and gains from property sales

HMRC is homing in on residential landlords who may not be paying the correct tax, so it’s important that you accurately declare all rental income received.

If you rent out a residential property, you must pay tax on the profit you make after deductions for ‘allowable expenses’, and make sure you also declare any profit from letting out holiday property, either in the UK or overseas. The only exceptions are where the profit is less than £1,000 each year. If you let a room in your home (for example to a lodger) you can claim tax relief of up to £7,500 as a deduction against the costs.

When you sell a residential property there is now a requirement to complete a specific land return and pay any tax due within 60 days.  However, if you also complete a tax return, you still need to include the disposal on your tax return and include details of the payment reference for any tax you have already paid.

  1. Report your foreign income

One common pitfall is the reporting of foreign income – for example money from renting out a property abroad, interest earned in overseas accounts, or funds in an overseas trust or pension.

You might think that submitting a return in the jurisdiction where the income arises satisfies your UK obligations, but this isn’t the case.

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If you are a UK tax resident, you will normally be subject to UK tax upon your worldwide income and assets. While foreign income or gains are automatically reported to HMRC under the Common Reporting Standard, you must still include them on your tax return but you can claim relief for foreign tax paid on these sources.

  1. Don’t forget to declare earnings from your side-hustle

Where you earn over £1,000 from selling goods or services you need to complete a tax return, even when there might be no tax to pay due to tax free allowances or claiming allowable deductions.

New rules which come into force from January 2024 will require digital platforms to pass on information about their users’ income to HMRC. These rules will affect between two and five million UK businesses who provide their services via digital platforms. They will also cover individuals who sell goods or let out holiday accommodation online – or use apps to arrange work as private hire or food delivery drivers.  As a result of these changes, HMRC will have more accurate information with which to detect and tackle tax evasion, and there will be fewer places to hide for those seeking to conceal income and gains.

  1. Bank interest

Since interest rates crept up during 2022/23 you may have exceeded the £500 savings allowance (£1,000 for basic rate taxpayers). Make sure all interest is fully reported on your return. It is important to check the interest earned across all personal and joint accounts. 

  1. Don’t forget your crypto gains

With one in 10 adults now owning some kind of crypto asset, according to HMRC research, many people now need to declare their crypto gains on their tax returns. In simple terms, HMRC views the profit or loss made on the buying or selling or exchange tokens as within the charge to Capital Gains Tax. Amid concerns that many people may not be aware of their obligations, HMRC has recently launched a new disclosure facility specifically for those needing to declare historic crypto tax liabilities.

It’s also worth remembering that any crypto losses must be declared to HMRC in order to be carried forward and available to offset future gains.

Commenting ahead of the imminent tax return deadline, BDO head of tax dispute resolution, Dawn Register, said: “It’s very important to make sure that you get your tax return right, but one of the costliest mistakes you can make is not to file on time. There is an automatic £100 late filing penalty if your 2022/23 tax return is submitted after 31 January 2024 and this increases to £10 a day if you are more than three months late.

“And if you don’t pay your tax on time, you may be charged late payment interest. The rate of late payment interest is now 7.75%, the highest level for 15 years – and there’s a 5% penalty charged on tax outstanding on 1 March 2024, with further penalties if the tax is more than six months late.

“If you’re going to struggle to pay on time, it’s always worth speaking to HMRC. You can also look at setting up a Time to Pay arrangement online if you owe under £30,000.”