With the 31 January deadline looming for online self-assessment tax returns, we asked thousands of people to complete our Great British Tax Quiz to test their knowledge on the UK tax system – and the results are worrying.
Almost 50% of the 4,572 respondents didn’t know their correct personal allowance, the amount you can earn before you pay income tax, while more than a third were in the dark about how much they can pay into a tax-free Isa this year.
It’s important to know how the tax system works – particularly if you have to submit a self-assessment tax return.
Which? dispels some common tax myths – but first, give our Great British Tax Quiz a go to see how you fare.
Take the Great British Tax Quiz
To find out whether you’re a taxability liability or a basic-rate boffin, you can try out our Great British Tax Quiz below.
Know your tax-free allowances
If you submit a self-assessment tax return, you should make the most of all of your allowances, which can help to reduce your bill.
When asked whether someone could earn up to £7,500 tax-free by renting out a spare room to a lodger, just 31% of people said they could – and 50% said they didn’t know.
The statement is true, and refers to the rent-a-room scheme. It’s available to anyone who wants to rent out a spare room in their home, but you must live in the property to be eligible.
If you earn more than £7,500 a year, you’ll have to declare this to HMRC through a tax return.
- Find out more: tax-free income and allowances
How Isas actually work
When asked if you’re allowed to pay £25,000 into an Isa each year, 68% of people said they thought the statement was true, or didn’t know.
Only a third correctly said the statement was false. The annual Isa allowance is £20,000, which can be split between several types of Isas.
You can deposit up to £4,000 into a lifetime Isa, up to £2,400 into a Help to Buy Isa (with an additional £1,000 in the first month of opening the account), and up to £20,000 in either cash, stocks & shares or innovative finance Isas.
You can mix and match how to split the £20,000, or you can deposit the whole sum into one Isa.
You can only deposit money into one type of Isa in each tax year – ie. one cash Isa, one stocks & shares Isa, etc.
- Find out more: Isa rules and allowances
The real penalties for late tax returns
If you fail to hit the 31 January deadline, you may incur a late penalty.
More than half of survey respondents thought they’d be fined £50 for submitting a late tax return. In fact, fines are steeper than this – starting at £100 and increasing from there.
- Find out more: late tax returns and penalties for mistakes
Get help to submit your tax return
If you haven’t yet submitted your tax return for the 2017/18 tax year, time is running out.
The Which? tax calculator is an online self-assessment tool that can calculate your tax return, and submit it directly to HMRC – helping to take the hassle out of the process.
You have until midnight on 31 January to send your return to HMRC, otherwise you could face a late penalty.