Commonly missed tax return tips for lowering a bill

04 January 2023

The tax system has arguably never been more complex and for many, preparing and submitting their tax return ahead of the 31 January 2023 deadline is a task they want to spend as little time on as possible. It’s therefore easy for individuals to rush through this process to avoid a £100 penalty and overlook claims and elections that can be made to lower their tax liability.There are various reliefs for losses that the self-employed, landlords and others can claim and we have summarised some of the commonly missed ones below.

Losses for the self-employed

  • Self-employed individuals should be aware of the savings that can be made if they have suffered a loss in the tax year. In particular, a self-employed trade loss could be set against other income in the same tax year and the prior tax year and current year or prior year capital gains, to the extent the losses cannot be relieved against income.
  • Similarly, if a self-employed individual has made a loss in the first four tax years of their trade, this could potentially be offset against income in the three years prior to this. Similar loss relief is also available to those who cease trading.

Losses for landlords

  • If a landlord prepares their own tax return, they should check any rental losses previously suffered have been claimed and brought forward. Sometimes, this is not done automatically on HMRC’s software and some landlords could therefore be missing out on utilising previous losses against their rental profits in the current year.
  • Furnished holiday let (FHL) landlords often overlook the ability to claim ‘capital allowances’ on certain costs they have incurred on the property. A useful summary of the position is linked here.
  • Landlords that suffer a rental loss relating to capital allowances or agricultural use have a favourable relief available to them as the loss could potentially be set against other income, not just rental profits. If available, this relief can be used to reduce income in the same or subsequent tax year.
  • A more common cost that a landlord may have incurred in the last year or two is an additional service charge cost relating to the cladding scandal. If they have, then they may be able to claim these against rental profits. It may not always be possible, but provided the cladding performed the same function before and after the works, it will often be allowable.

Averaging reliefs

  • Farmers and creative artists may be able to claim an ‘averaging relief’. This allows an average of profits to be taxed over a two-year period for creators of literary, dramatic, musical or artistic works, as well as farmers who are also potentially allowed to average profits over a five-year period.
  • A landlord may fail to qualify for the property to be treated as a FHL in a particular tax year as there are strict criteria that must be met on occupancy rates. However, an FHL landlord may be able to make an ‘averaging election’ (which averages the occupancy rate across the landlord’s FHL portfolio of properties) or a ‘period of grace election’ (which can allow for the property to be treated as an FHL, even if the normal letting criteria was not met, for up to two years in certain circumstances).

Other losses and reliefs

  • Where an individual has made a capital loss on shares in an unquoted company, it is sometimes possible to offset that loss against income. If this is available, such a loss can be claimed against income in the same tax year or the year before.
  • As more businesses struggle, they may have sought external investment with friends and family often the first port of call. If such an investment has been made by subscribing for shares in the company, rather than a loan, the investment may qualify for the Seed Enterprise Investment Scheme (SEIS) or the Enterprise Investment Scheme (EIS). This could provide valuable income tax and capital gains tax reliefs.

Some claims need to be made by the 31 January 2023 deadline so it’s important that those still to submit their returns do not miss out on potentially significant amounts of tax relief in their haste to get the task off their new year’s resolution to-do list.