Why it pays to file your tax return in early December

No one relishes filing their tax return. It’s something millions of us must do every year, but usually evokes angst rather than excitement.

For those who need to complete Self-Assessment for the 2023-24 tax year, you have until midnight on 31 January 2025 to avoid being slapped with a £100 fine – even if there’s no tax to pay. If your return is still outstanding three months after the deadline, daily fines start to kick in.

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You don’t need to leave things until the last minute, although lots of people do. On 31 January 2024, HMRC figures show that 861,085 customers filed online to meet the deadline, and 36,767 of happened in last hour.

Others, meanwhile, feel the festive period provides convenient downtime to get it out of the way. Last year, in between gorging on turkey and booze, 4,757 people completed their tax return on Christmas Day, while the numbers were 8,876 and 12,136 for Christmas Eve and Boxing Day, respectively.

Benefits of filing early

One major upshot of filing your tax return now is that it’s an unenviable chore out of the way for another year. But there are others, too.

Scrambling to find the necessary paperwork and punch it in online can be rather stressful as the clock ticks down to midnight on 31 January; something most of us would prefer to avoid.

A further benefit is that, in some cases, you might be owed a refund, which you’ll receive sooner than if you wait until January to submit your return.

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If it’s a decent amount, which it could be, the rebate could provide a tidy cash boost in the run-up to Christmas when our finances are usually more stretched than at any other time of the year. It could avert the need to raid your savings or increase credit card borrowings.

You might receive a rebate if you’ve overpaid tax throughout the year or need to claim relief on certain transactions, such as pension contributions and charity donations.

Alternatively, you might have the misfortune of owing some tax, because, for example, you were put on the wrong tax code. But completing Self-Assessment now can help in this respect, as HMRC can adjust your tax code for pay as you earn (PAYE), saving you from footing the bill by dipping into your savings.

Who needs to complete a tax return?

Completing a tax return isn’t something solely reserved for self-employed workers. High earners, savers, investors and landlords often must complete them, too. According to HMRC, more than 12.1 million people file a tax return every year.

These include:

• sole traders who earn more than £1,000 (before deducting anything you can claim tax relief on)
• business partners
• anyone with total taxable income exceeding £150,000
• those who have to pay capital gains tax (CGT)
• anyone who pays the High-Income Child Benefit Charge, which kicks in once one parent’s earnings exceed £60,000
• those with untaxed income, such as property rents, and income from savings, investments and dividends
• Higher and additional rate taxpayers who’ve made pension contributions

Pension savers: make sure you claim higher-rate relief

Completing self-assessment is particularly pressing for 40% and 45% taxpayers who paid into a pension throughout the tax year in question.

Unless your workplace pension scheme operates a “net pay” arrangement, where your pension contributions are deducted from your salary before tax is calculated, employees will need to claim higher or additional rate tax back via Self-Assessment. It’s worth checking with your HR department to find out which system your employer uses.

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For instance, when you pay into private savings, such as an interactive investor self-invested personal pension (SIPP), you get basic-rate relief upfront in the form of a government top-up but must claim back the additional 20% or 25% of the total payment if you pay higher or additional rate tax, respectively.

Here’s a working example:

You’re a sole trader who earned £65,000 in the 2023-24 tax year and paid £10,000 into your ii SIPP (and made no other pension contributions).

Basic-rate upfront tax relief immediately topped your pension payment up to £12,500.

Because pension contributions reduce what’s called your “adjusted net pay”, your earnings for the year drop to £52,500.

As this figure is above £50,271, the higher-rate tax threshold, you can claim back an extra 20% of the total contribution, which equates to £2,500. As you might imagine, if unclaimed over several years the lost sums can really rack up.

You can then either decide to keep this money or plough it into your pension for the current tax year and get extra tax relief, if it makes sense to.

While claiming pension tax is such an important and mostly simple task, hundreds of thousands of people fail to do it every year and forgo valuable free money. A study by Pension Age found that eight in 10 higher-rate taxpayers eligible to claim relief failed to do so between 2016 and 2019, alongside an estimated 53% of additional-rate taxpayers.

The good news is that you can backdate claims for higher or additional rate relief on pension contributions, but only up to four years. So, if you’ve inadvertently missed out in the past, now’s the time to act. It could provide a huge financial boost with the festive money pit fast approaching.

Self-assessment numbers set to rise as tax grab bites

The amount of people needing to file Self-Assessment this year is set to jump. That’s because since 2021, income tax thresholds have been frozen, and won’t budge until 2028-29. This means that as your earnings tick up every year, your tax bill will follow suit. A tax-raising tactic called “fiscal drag” is the culprit here, and its impact is already being felt.

Late last week it was reported that HMRC’s call centres are getting swamped by pensioners dialling in, concerned about surprise tax bills. Due to a combination of state pension rises under the triple lock and a frozen personal tax-free allowance, many retirees will pay tax for the first time, requiring them to complete Self-Assessment.

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Older generations aren’t the only group being punished by stealth tax rises. All workers, no matter how much you earn, will pay more income tax over the next few years as you receive salary bumps and bonuses.

However, in one of the few, brighter measures in Rachel Reeves’ first Budget, the chancellor pledged to increase income-tax thresholds from April 2029, calling time on fiscal drag. According to estimates from Quilter, this will prevent roughly one million pensioners being dragged into the income tax net, and subsequently being forced to file Self-Assessment, by 2030.

Needless to say, the increase in people tasked with filing a tax return this year provides further motivation to get ahead of the game. If you need to contact HMRC with any queries, the phone lines are likely to be busier than in years gone by, so acting now could save you time and a monster headache in January. And if you get a rebate, it could assuage the pain to your finances over Christmas.