With three months to go until the 31 January 2022 self-assessment tax return deadline, it’s a good time to start getting organised to make your submission to HMRC.
Organisation is key this year, especially if you have income from several sources to declare.
This counts for those who received any grants through the self-employed income support scheme, or diversified their income through social media and apps such as Patreon, eBay and Airbnb.
Here, Which? explains five sources of income you might not know you have to declare, and what expenses and allowances you might be able to offset against it.
1. Grants received through the SEISS scheme
In response to the coronavirus pandemic, the government launched the self-employed income support scheme (SEISS) back in March 2020. This was made up of five grants, covering lost income between March 2020 and September 2021.
But these grants were paid before tax, meaning self-employed workers who received them will have to declare any grants they received before 6 April 2021 on their self-assessment tax returns for 2020-21 – this should be any of the first three grants. Grants received after 6 April will need to be declared in 2021-22 tax returns – this should be grants four and five.
There is a specific section on HMRC’s online tax return about SEISS payments, but it’s relatively far on in the process.
After you’ve included details about your turnover income, you’ll be asked about coronavirus support grants such as the coronavirus job retention scheme – this is just for furlough payments you may have received if you’re an employer; it’s not where SEISS grants go.
Instead, it’s after the next step when you’ve included details of business expenses, capital allowances, etc, in a section called ‘Other tax adjustments for your business trading name’. Here, there’s an optional question called ‘Self-employment income support scheme grant’ – and it’s here where you should record the total amount you received from the first three grants.
Employed workers who received grants through the furlough scheme will have already paid tax on this income, as it was paid via their employers and therefore income tax and National Insurance will have already been deducted via PAYE.
- Find out more: how to fill in a self-assessment tax return
2. Donations through sites like Patreon, Twitch and Ko-fi
The increasing number of online platforms has meant it’s easier for self-employed creators to make money from their work – and it’s important to include this income on your tax return.
The likes of Patreon, Twitch and Kofi are geared up for content producers – whether that’s making videos, podcasts, newsletters or art. The word ‘donation’ is commonly used on these sites as a way to encourage fans to support their favourite projects.
However, as the person receiving that money, it should be counted as a form of income for tax purposes. This is because you’re not providing a charitable service, rather the money is paid after someone has consumed your work or to be able to enjoy more of it in the future.
HMRC has powers that mean it can request to see financial information from these platforms – even those based outside of the UK. So if you’re not accurate in declaring what you’ve earned, you could soon be found out.
If you only earn a small amount from these kinds of platforms, it may be possible to use the £1,000 trading allowance to reduce the tax you owe.
- Find out more: tax-free income and allowances
3. Money earned from your home
Your home can present a range of opportunities for making some extra cash – but you may have to declare it.
If you rent a furnished room in your home, you can make the most of the rent-a-room scheme allowance. This states that you can earn up to £7,500 tax-free in each tax year. If you earn less than this, then you should just keep a record of the money you’ve received.
However, if you earn more than this, you’ll have to include what you’ve received on a tax return.
The money you’ve earned from renting out a room or your whole home on Airbnb is also taxable. This is another platform HMRC has the power to request financial information from, so it’s important to make sure your figures are accurate. There’s a £1,000 property allowance, that can be used for money you make from your home – including other activities such as renting out your driveway. But if you earn more than £1,000 in a tax year, this will be taxable.
- Find out more: tax-free income and allowances
4. Cash from selling your stuff on marketplaces
With the rise of online marketplaces such as eBay, Facebook Marketplace, Depop and Vinted, increasing numbers of people are selling their unwanted stuff online.
It’s a great way to make some extra money, but you should keep an eye on how much you’re making from these kinds of sales.
The £1,000 trading allowance could be used for this kind of income, but anything that exceeds that amount may be added to your income and be charged tax.
5. Money earned cash-in-hand
While it’s becoming less common, many jobs are still paid cash-in-hand. As you’ll receive the cash before paying any tax on it, this kind of income is taxable and should be declared on a tax return.
If you fill out a self-assessment tax return, this also counts for cash tips that are paid directly to you; if you don’t usually fill out a tax return, HMRC will estimate your tips based on information from you or your employer and the extra tax will be collected via your PAYE tax code.
If you’ve earned money from casual jobs, like occasional babysitting or gardening jobs, the £1,000 trading allowance could be used – but not if you earn a large proportion of your income in this way.
What’s more, as there’s no record of the money entering your bank account, you should make sure you keep accurate records of what you’ve received, as HMRC is entitled to ask for proof of income.
This includes things like invoices, receipts or perhaps a spreadsheet of what you’ve received, from who, and when.
- Find out more: how to file a self-employed tax return
Penalties if you fail to declare income to HMRC
Failing to declare all sources of income means you may not pay as much tax as you should. HMRC has the power to issue a fine if it believes this was done on purpose.
Under its penalty framework for people making mistakes on their tax returns, you could expect the following:
- If you have taken reasonable care to fill in your return correctly, you’ll have no penalty to pay.
- If HMRC thinks you have been careless, the penalty could be between 0%-30% of the extra tax owing.
- If HMRC thinks you have deliberately underestimated your tax, the penalty is between 20% and 70%.
- Finally, if HMRC thinks you have deliberately underestimated your tax and attempted to conceal this fact, the penalty will be between 30% and 100%.
If you think you’ve made a mistake on your tax return, it’s possible to make a correction up to a year after the filing deadline. To do this, you can head to HMRC’s online portal, or via your software provider.
- Find out more: late tax returns and penalties for mistakes
Submit your return with the Which? tax calculator
The Which? tax calculator is an easy-to-use, jargon-free tool that can help you tot up your tax bill online. It supports a range of income types and offers tips on any expenses and allowances you might have missed.
When you’re ready, you can also use the tool to submit your return directly to HMRC.
source https://www.which.co.uk/news/2021/10/five-types-of-income-you-mustnt-miss-on-your-tax-return/