How is your January going? For many of us, our new (and much-hated) leisure activity during this least cheering month of the year is filling in our tax returns.
That’s because no sooner have the Christmas lights been stowed in the attic than the spectre of HMRC looms for the 12.1million people who have to complete a tax form by January 31.
Around half of us have yet to bite the bullet. Two years ago around three-quarters of a million people left it until the very last day and last year around 32,000 filed in the final hour – narrowly dodging a £100 fine. A further 1.1million returns were late.
After three months, there’s a £10 a day fine, and after six months? You don’t want to know – but it’s another £300 or five per cent of the tax due.
Few of us want to give the taxman an unnecessary extra bung. That aside, it makes sense to give the annual filing ritual due time and space, to focus properly on paying the minimum you actually owe and claiming the max.
Do you qualify for self assessment?
The word ‘self-assessment’ now strikes fear into 2.4million more people than in 2020, as one tax tweak after another have worked their magic for the taxman. Three-quarters of tax returns now come from people earning less than £20,000.
The net catches anyone whose non-PAYE earnings takes them over the £12,570 personal tax allowance, which hasn’t budged since 2021 and is now in the deep freeze till 2031.
Had the allowance risen with inflation, we could be earning £15,480 in the current tax year before having to self-assess.
Back to the chilly reality and side hustlers are in the cold, too. The nice little £1,000 trading allowance introduced in 2017 is still frozen at £1,000. The personal savings allowance has been static for ten years, at £1,000 for basic rate and £500 for higher rate taxpayers. But higher interest rates means it is worth far less than it was before 2022.
For anyone with a few shares, the dividend allowance that was £2,000 only three years ago is now £500. Busting any of these limits means you have joined the self-assessment army and must file a return.
Child benefit has been a political battleground, and there was one earnings threshold that did move upwards in the 2024-25 tax year. Earners in the £50,000 to £60,000 bracket can now hang on to all their child benefit before a taper kicks in. Once earnings top £80,000 all the benefit has to be repaid.
‘If you need to repay some or all of your child benefit payments for that year and your tax code wasn’t adjusted already to account for it, you’ll need to repay via self-assessment,’ says Charlene Young at saving and investing platform AJ Bell.
In short, the taxman will catch up with you, and if you haven’t filed a return there could be an extra penalty.
There’s also a spanner in the works for anyone with capital gains. The tax rates were hiked in the 2024 Budget, halfway through the tax year.
If you made gains after October 31, you can’t rely on HMRC’s software but should seek out its online ‘adjustment calculator’.
In the world of PAYE, the HMRC app launched ten years ago is catching on, with users rising from 5.1million to 7.2million in 2025. But for the self-assessed who earn more than £20,000, a brave new digital world is coming – and there is no hiding place.
From April, sole traders and landlords with gross income (not profit) of more than £50,000 will have to file quarterly returns using HMRC-approved software.
The new regime rolls out over two years to cover anyone with gross earnings above £20,000. If that’s you, and you didn’t know, it’s time to get up to speed.
How to make life simple for yourself
For those in the first wave, you don’t have to reinvent the wheel.
Spreadsheet records can be translated to digital using bridging software, and the Making Tax Digital website has a list of approved software products.
If your return is simple, free software might do. If not, it might cost you £15 to £35 a month, says HMRC, which stresses that quarterly returns will help ease that January stress – though a final return will still have to be made.
Beware of scams
And one final thing… don’t forget that this is a ripe season for scammers. Matt Cooke, cybersecurity strategist at Proofpoint, suggests tax-themed scams are particularly effective at this time of year.
‘Criminals are exceptionally skilled at crafting convincing lures that look legitimate and, because many of us expect to receive HMRC communications during tax season, we can be caught off guard.’
So don’t ignore communications from HMRC – that’s never a good idea – but maybe do doublecheck with the tax office directly whether you are indeed owed a tax rebate.
Otherwise, the only person getting a hefty January bung will be a crook, straight from your precious earnings.
