Questions about UK tax returns

There are many tax-free allowances that you may be able to utilise to reduce your tax bill. A few of the different allowances available are as follows:

• Personal Allowance
  A tax-free amount of £12,570 to set against your income (subject to tapering if you earn over £100,000 per year).

• Capital Gains Tax (CGT) annual exemption
  A tax-free amount of £3,000 for the 2024/25 tax year (£6,000 for 2023/24) which is set against any capital gains you make in the year.

• Blind Person’s Allowance
  An additional tax-free amount of £3,070 for the 2024/25 tax year (£2,870 for 2023/24) if you are registered as blind (or severely sight impaired) by your local council.

• Marriage Allowance
  You can transfer 10% of your personal allowance to your spouse if they earn under £12,570 and you are a basic rate taxpayer.

• Trading Allowance
  A £1,000 allowance available to self-employed individuals as an alternative to claiming actual expenses. See ‘What is the trading allowance?

• Property Allowance
  A £1,000 allowance available to landlords earning rental income as an alternative to claiming actual expenses. See ‘What is the property allowance?

It is important that you apply your tax allowances effectively each year as, in general, you will be unable to carry any unused allowances forward.

It is worth noting that if your earnings fall below the tax allowance available for that type of income, you may not have to declare it to HMRC.

In order to prepare your tax return, you will need us to provide us with the relevant tax information. You can do this in two different ways:

• Key-in the information directly into EY TaxChat, or
• Provide the documents in EY TaxChat by taking a photo, or uploading the documents from your mobile phone, tablet or laptop.

If you have submitted a tax return previously this is a good starting point to know which information we require. We have provided a guide below, however rest assured the information we request from you will be tailored depending on your personal situation:

• Employment - P60/P45 and P11D (if applicable). In certain circumstances, we may also ask for payslips
• Self-employment - Details of your self-employment income and expenses. These can be recorded on a spreadsheet and sent to us, or you can forward receipts/invoices
• Property income - Details of your rental income and expenses. These can be recorded on a spreadsheet and sent to us, or you can provide the monthly statements
• Interest - Bank interest certificates (or statements) showing the amount of any interest received
• Dividends - Dividend vouchers detailing the amount of any dividends received. If you hold assets in an investment portfolio, we may require a copy of the annual tax pack
• Capital gains/losses - For any capital gains/losses, we will require details of the purchase and sale of the asset. If you hold assets in an investment portfolio, we may require a copy of the annual tax pack
• Pension contributions - If you are part of a workplace pension, we require details of both employee and employer contributions made during the year (these are usually detailed on your March payslip). In addition, if you contribute to a personal pension scheme, we require details of any contributions made. Your pension provider will be able to provide you with this information
• Charitable donations - If you make Gift Aid donations to a registered charity, we will require details of these to claim tax relief on your tax return
• Tax efficient investments - For any EIS/SEIS investments made during the year we require copies of the EIS/SEIS certificates

Where you keep your own records, we are happy to accept a simple spreadsheet of your income and expenses in most instances.

At the start of a new tax year, or if you have started a new job, HMRC will issue you with a PAYE Notice of Coding detailing your tax code. Your tax code is used by employers (or pension providers) to deduct tax through the Pay As You Earn (PAYE) system. 

Understanding your tax code is important to ensure that you don't end up paying the wrong amount of tax during the year. You should always check that the tax code stated reflects your present situation.

One of the most common errors to watch out for is if you are on a BR, D0 or D1 code. This means that you are not getting the tax-free personal allowance. If any of these codes apply and you do not have a second job, it could be that the code is incorrect, and you may need to contact HMRC to rectify this.

HMRC can issue penalties for a number of reasons. Some examples are as follows:

• Failure to notify HMRC where you have a requirement to complete a tax return
• Failure to submit your tax return on time
• Failure to pay your tax to HMRC by the deadline
• Failure to accurately declare your taxable income and gains

The penalties applied by HMRC are progressive and can increase depending on the length of time it takes you to complete the above actions. In addition, HMRC can levy interest where any tax payments are made late.

In exceptional circumstances, you can appeal to HMRC to remove any such penalties, however you would need to provide a suitable explanation.

If your employer provides you with any ‘benefits in kind’ during the year, outside of your salary, it is likely that these will be recorded on a form P11D (unless your employer has another arrangement in place).

Benefits in kind are non-cash rewards that your employer provides to you and are generally treated as employment income. A few typical examples are as follows:

• Private medical insurance
• Company car
• Gym membership

Your employer must provide you (and HMRC) with a copy of your P11D. HMRC will normally adjust your tax code to collect the tax due on these benefits.

If you receive a form P11D, you will need it to report any benefits received on your tax return (your employer may provide it in digital form).

The maximum gross amount you can save into your pension scheme and on which you can receive tax relief is the greater of £3,600 or 100% of your ‘relevant UK earnings’. HMRC broadly define relevant UK earnings as:

• Employment income and benefits
• Self-employment or partnership income
• Income from a furnished holiday let (but not rental income)
• Patent income and royalties

Pension income, dividends and rental income (unless a furnished holiday let) are not relevant UK earnings. The above is a high level indication only. For full information see PTM044100.

The annual allowance also limits the pension savings that you can receive tax relief on in each tax year (see ‘What is the pension annual allowance?’ section).

Any contributions made above the annual allowance (or tapered annual allowance) will be subject to an annual allowance charge at your marginal tax rate. This can either be paid by you through your tax return, or paid by the pension scheme on your behalf under the ‘Scheme Pays’ arrangement (see ‘What is Scheme Pays?’ section). 

If you have flexibly withdrawn taxable income from a defined contribution pension scheme but still wish to contribute to a defined contribution pension scheme, the Money Purchase Annual Allowance restricts the annual allowance to £10,000​ per annum. The facility to bring forward any unused allowances from previous years is not available in these circumstances.

It is important that you correctly report the annual allowance charge on your tax return, if applicable. Contact EY to discuss how we may be able to assist you.

Scheme Pays allows the annual allowance charge to be paid using pension scheme funds rather than being funded directly by you.

Certain conditions need to be met for the annual allowance charge to be paid under Scheme Pays on a mandatory basis. For example, the pension growth must exceed the standard annual allowance of £60,000 in the year (meaning some individuals with a tapered annual allowance will not qualify) and the annual allowance charge must exceed £2,000. You may be able to use Scheme Pays on a voluntary basis if you do not meet the mandatory conditions, depending on your pension scheme’s rules.

EY teams can assist if you are considering using Scheme Pays, by providing indicative calculations highlighting the potential cost of paying the annual allowance tax charge personally or using the Scheme Pays facility which will reduce the future value of your pension.

Generally, all costs incurred on your rental property should be deducted from your rental income when you calculate your taxable rental profit. However, special rules apply for finance costs and capital expenditure (see below).

Some typical allowable property expenses are:

• Repairs and maintenance
• Advertising
• Ground rent and utility bills
• Commission or letting agent fees

If an expense is incurred wholly and exclusively in relation to your rental business, it should be allowable. If you claim the property allowance (see ‘What is the property allowance?’ section), you cannot also deduct property expenses. 

Finance costs (including mortgage interest) are no longer allowed as a deduction against your rental income, instead you can claim a basic rate tax deduction for the finance costs on your tax return.

If you incur expenses that are capital in nature (enhancement expenditure), for example building an extension on your property, these cannot be deducted from your rental income and instead can be offset against any capital gain if you sell the property.

Expenses vary from business to business; some are allowable for tax purposes and can reduce your tax liability, some are not.

In general, if an expense is incurred wholly and exclusively in relation to your business, it should be allowable. Allowable expenses include the cost of stock, staff wages, rent, utilities, advertising and stationery. Disallowable expenses include your own wages or drawings, tax and national insurance and costs of entertaining. If you claim the trading allowance (see ‘What is the trading allowance?’), you cannot also claim allowable business expenses. 

Simplified expenses (or flat rate expenses) can be used instead of actual business expenses. The most common examples are for business mileage or use of your home as an office. You can usually claim an amount of 45p or 25p per mile depending on the number of business miles travelled in the year. If you use a room in your home as an office, you can claim a set amount (between £10 and £26 per month) based on the number of hours you work at home per month.

There are several different ‘classes’ of National Insurance (NI):

Class 1 NI contributions are payable if you are employed. Your employer will automatically calculate and deduct Class 1 NI contributions through payroll.

Class 2 NI contributions are due if your self-employment profits are £6,725 or more in a year. Class 2 contributions are based on a set weekly rate (£3.45 per week). If your trading profits are less than this amount, you can voluntarily pay Class 2 NI as these contributions qualify for certain benefits, for example, the state pension.

Class 3 NI contributions are voluntary. You can elect to pay voluntary Class 3 NI if you want to fill any gaps in your NI record.

Class 4 NI contributions are due if your self-employment profits are £12,570 or more in a year. Class 4 NI is payable at a rate of 6% for the 2024/25 tax year (9% for 2023/24)​ on your profits between £12,570 and £50,270 and 2% on profits over £50,270.

If you are self-employed, you potentially pay two kinds of NI, Class 2 and Class 4. Most people pay Class 2 and Class 4 contributions through their tax return.

You stop paying Class 2 NI when you reach State Pension age and stop paying Class 4 NI from 6 April after you reach State Pension age.

If you are both employed and self-employed, there is an interaction between each NI class as there is a maximum amount of NI an individual can pay. These calculations can prove complicated, therefore if you are in this position, you should seek professional advice.  

The capital gains tax (CGT) annual exemption is the amount of gains you can make before you have to pay CGT. For 2024/25 the annual exemption is £3,000 (£6,000 for 2023/24), therefore, you will only have to pay CGT on any gains you make in excess of this amount. 

If you do not use the CGT annual exemption in a particular tax year, you cannot carry this forward to the following tax year; any unused allowance will be lost.

However, if you jointly hold an asset with another individual the gain will be split between both parties and you can each use your individual CGT allowance against your share of the gain.

Your domicile status can impact how you are taxed in the UK. If you are non-UK domiciled, often referred to as ‘non-dom’, you may be able to take advantage of the remittance basis of taxation (see ‘What is the remittance basis of tax?’ section).

Domicile is not the same as nationality or residence, it means the country you regard as your permanent home. In the UK there are three types of domicile:

• Domicile of origin - acquired at birth, usually where your father considers his permanent home to be (or your mother’s home if your parents were not married when you were born)
• Domicile of dependence – until you reach the age of 16, you will automatically follow the domicile of the person of whom you are legally dependent. If they change domicile then so do you
• Domicile of choice - after the age of 16 you can choose your own domicile but that necessitates positive action that effectively demonstrates that you are cutting all ties with your domicile of origin or dependence

If you have a domicile of origin outside the UK, then this is likely to still apply unless you intend to remain in the UK indefinitely.

You will also be ‘deemed UK domiciled’ for tax purposes if:

• You have been UK resident in at least 15 of the previous 20 UK tax years, or
• You were born in the UK and were UK domiciled at birth, acquired a domicile of choice outside the UK, and then become UK resident again.

If you are unsure of your domicile status you should seek professional advice.

Income or gains are remitted to the UK if brought into or ‘enjoyed’ in the UK in any way, either by the individual who earned them or someone connected to them. For example:

• If money is paid into or transferred into a UK bank account
• If cash is withdrawn in the UK from an offshore account
• If an item in the UK is paid for with a non-UK credit card and the credit card bill is settled with non-UK funds

The rules concerning remittances to the UK are complicated and you should seek professional advice if you are unsure whether they apply to you.