Important to understand this...
When you file your tax return, HMRC makes numerous assumptions about your financial situation. These assumptions can significantly impact how much tax you pay sometimes in your favour, but often not.
Many taxpayers don't realise that HMRC automatically applies certain default positions unless you tell them otherwise. This can lead to paying more tax than necessary.
The taxman isn't deliberately trying to catch you out. Their systems simply work on assumptions that may not match your actual circumstances.
Our free tax checklist helps spot common assumptions that might be costing you money. Or if you're just here to get to grips with it all, let's break it down!
What Are Tax Return Assumptions?
Think of tax assumptions as the default settings HMRC uses when processing your return. Unless you change these settings, they stick. These assumptions cover everything from how your income is categorised to which tax reliefs apply to you. They're built into the system.
For example, HMRC assumes you've declared all your income. They also make less obvious assumptions about which tax year certain income falls into. Getting to grips with these assumptions means you can check whether they're correct for your situation. You can then challenge them if they're not.
Income Assumptions That Might Cost You
HMRC assumes your employment income is your only source unless you tell them otherwise. This means you need to actively declare other income.
Got a side hustle? HMRC won't know about it unless you declare it. Even if it's under the £1,000 trading allowance, it should still appear on your return.
For investments, HMRC assumes dividends are from UK companies unless specified otherwise. This matters because foreign dividends might qualify for different tax treatment.
Rental income is assumed to come from UK properties by default. Foreign property income needs special attention as it might qualify for special reliefs.
Allowance and Deduction Assumptions
Your personal allowance is automatically applied against your highest rate of tax. Sometimes this isn't the most tax-efficient approach. Work expenses aren't included unless you specifically claim them. HMRC won't remind you about potential claims that's entirely up to you.
Marriage Allowance is never applied automatically you must claim it. This could save eligible couples up to £252 in the current tax year. For pension contributions, basic rate tax relief is usually applied automatically. Higher or additional rate taxpayers need to claim the extra relief through their tax return.
Timing and Payment Assumptions
The tax year runs from 6 April to 5 April the following year. This quirky British tradition catches out many taxpayers.
HMRC assumes your income is earned evenly throughout the year. This can cause issues if your income fluctuates or if you start or stop employment mid-year.
When it comes to Payments on Account, HMRC assumes your income next year will be similar to this year. This can lead to paying too much tax in advance if your income drops. If you file late, HMRC assumes it's deliberate unless you provide a reasonable excuse. This assumption can lead to higher penalties.
Dangerous Assumptions to Watch For
HMRC assumes all bank interest has been declared correctly by your bank. However, mistakes happen, and it's worth checking your statements against what's on your tax return.
For landlords, HMRC often assumes property repairs are improvements. Since improvements can't be deducted from rental income, this difference can significantly impact your tax bill.
Working from home? HMRC assumes minimal expenses unless you provide details. You could be missing out on legitimate tax relief. I once helped a client who'd been working from home for years. She'd never claimed the home office allowance, assuming it was automatic.
That single correction saved her over £300. Many assume HMRC checks every return in detail. They don't – most are processed automatically, with only some selected for deeper review.
How to Challenge Incorrect Assumptions
If you spot an incorrect assumption, you can amend your tax return within 12 months of the filing deadline. Keep good records the burden of proof lies with you, not HMRC. Without evidence, it's difficult to challenge their assumptions.
For complex situations, getting professional advice can help identify assumptions that don't apply to you. A tax adviser can spot opportunities you might miss.
Remember that HMRC's assumptions aren't set in stone. You have the right to have your tax calculated based on your actual circumstances.
Final Thoughts
Understanding the assumptions on your tax return puts you in control of your tax affairs. Taking time to review these assumptions before filing could save you significant money. It can also prevent headaches down the line.
Remember, HMRC works on the information you provide. If something doesn't apply to your situation, it's up to you to tell them. A little knowledge about tax assumptions goes a long way toward ensuring you pay the right amount of tax no more, no less.
Pie tax: Simplifying Tax Assumptions
Getting your head around tax assumptions shouldn't feel like climbing Everest in flip-flops. Pie tax, the UK's first personal tax app, helps identify potential savings by highlighting common assumptions that might not apply to your situation.
Our smart calculators show you in real-time how different scenarios affect your tax bill, putting you back in control.
We've built sector-specific guidance for contractors, landlords, and small business owners that understands the unique assumptions applying to different professions. Curious about how it works? Take a peek at the Pie.tax app to see how we're making tax less taxing.
