Navigating the tax maze: unveiling nine overlooked ways you could face surprise bills

Tax season is in full swing, and as individuals gear up to file their 2022-23 tax returns, Martin Lewis is shedding light on little-known factors that could result in surprise tax bills. The self-assessment deadline of January 31 is just around the corner, and Lewis emphasizes the importance of avoiding penalties, with a £100 fine for those filing up to three months late.

While many individuals are not required to file tax returns due to automatic deductions via the Pay-As-You-Earn (PAYE) system, Alice Haine, a personal finance analyst at Bestinest, warns that assumptions about exemption could lead to overlooked obligations. Lewis underscores the need for individuals to double-check if they fall into categories requiring a tax return.

Here are some scenarios where individuals may face unexpected tax bills:

• Child Benefit: The High Income Child Benefit charge triggers at £50,000, necessitating a tax return for the higher earner if their income exceeds this threshold. Lewis suggests strategic financial planning, such as placing the Child Benefit in a high-interest savings account before tax repayment.
• ‘Vinted Tax’: As of January 1, digital platforms like eBay, Airbnb, and Vinted are required to share seller information with HMRC. Selling items online may lead to tax liabilities if earnings surpass £1,000. Lewis clarifies that while data won’t be shared with HMRC for earnings between £1,000 and £1,700, tax obligations remain.
• Tips: Service industry workers receiving tips directly in cash from customers are required to declare them on their tax return. Tips paid electronically through work may not require reporting.
• Renting Out Property: Rental income above £2,500 after deducting expenses or exceeding £10,000 before allowable expenses requires reporting on a tax return.
• Savings: Rising interest rates may result in tax obligations for those earning interest on savings. Individuals with savings interest exceeding the personal savings allowance must declare it on a tax return.
• Income from Overseas: UK residents earning income from overseas, including property income or foreign-based investments, must declare it on a tax return.
• Self-Employment: Individuals running their own business, freelancing, or earning over £1,000 in self-employment income are required to file a tax return.
• Pension Tax Relief: Those contributing to a pension outside of a workplace scheme, such as a Self-Invested Personal Pension (SIPP), must claim additional tax relief through a tax return.
• Charitable Donations: Tax relief on charitable donations, including Gift Aid and Payroll Giving, can be claimed by taxpayers paying income tax above the 20% basic rate.

As Lewis emphasizes the importance of careful consideration and proactive financial planning, individuals are encouraged to be aware of these less-discussed tax scenarios and ensure compliance to avoid surprises come tax season.