Tax relief at risk for returns submitted in February 

11 January 2022

HMRC is to be commended for learning the lessons of last year and making an early announcement about the effective extension of the tax return deadline to the end of February. This eases unnecessary pressure on taxpayers, advisors and their own staff and was the right action to take. There are however some potential pitfalls for unwary taxpayers.

Whilst the extension may be welcomed by many, some taxpayers should still aim to submit their tax returns and any amendments to their 2019/20 tax returns by the end of January, or they could miss out on valuable tax reliefs.

Some tax reliefs have deadlines set out in law that require them to be claimed by 31 January. Although HMRC is relaxing its stance on penalties for tax returns submitted late, this does not change the law and the associated deadlines for these claims for tax relief.

So how could taxpayers be affected? Some of the key tax reliefs and other issues are highlighted below:

Gift aid

Donations qualifying for gift aid allow individuals to claim relief from income tax on their tax returns and HMRC statistics indicate that around 11% of taxpayers (1.27 million taxpayers) declare donations to charities on their tax return.

Ordinarily, an individual preparing their 2020/21 tax return would claim tax relief for the donations made in that particular year. It is also possible to claim further relief for charitable donations made since then (that is, donations made after 6 April 2021) on the 2020/21 tax return, but such a claim must be made on or before the date the return is submitted, or by 31 January 2022 at the very latest.

This could be particularly important for those who have made large charitable donations in a year and need to spread the relief over two years to fully benefit from the relief (for example, if their income in 2021/22 is substantially lower than in 2020/21).

Capital gains tax (CGT)

31 January 2022 could be an important date for business owners who have restructured their company in the 2019/20 tax year. In certain circumstances, company owners can elect to trigger a capital gain and pay tax on their shares, even if they haven’t sold them. Such an election might be made if the shareholder had concerns that the rate of CGT might increase in the next Budget, expected to take place on 23 March 2022.

Loss relief

There are also various reliefs for losses incurred by taxpayers in the 2019/20 tax year that require them to be claimed by 31 January 2022 at the latest. Most individuals will have submitted their 2019/20 tax returns already but, if losses still need to be claimed, this needs to be done by the end of January.

Perhaps the most important of these are losses arising from a self-employed trade that can then be offset against other income in the same year or the year before.

Enquiry periods

If an individual submits their 2021/22 tax return after 31 January 2022, the normal 12-month window that HMRC has to open an enquiry into their affairs will be extended. If the return is submitted in February 2022, HMRC can open an enquiry for an extended period until 30 April 2023.