CLAIM TAX REBATE
Every little helps when you are a sole trader, right?
Even if it’s only a few quid, finding out that you’re in line for a tax rebate because you’ve paid too much tax is one of the more pleasant things you can experience when it comes to tax. But, as a sole trader, how can you find out whether you’re due a tax rebate and crucially – how do you claim tax rebate?
WHAT IS A TAX REBATE?
Rebate is just another word for refund, so, a tax rebate is simply a refund or repayment you get when you’ve paid too much tax. Although the Self Assessment system normally ensures that taxpayers pay the right amount of tax, people sometimes make mistakes when filling out their annual Self Assessment tax return, which can mean they pay too much tax (or not enough).
If you earn income from self-employment and employment (ie you also work for someone else), you may get a tax rebate via your employer’s PAYE payroll if, for example, you were on the wrong tax code or you finished a job and started a new one in the same month and earned taxable income from both.
Need to know! You have four years from the end of the tax year in which the overpayment happened to claim a tax refund.
AM I DUE A TAX REBATE?
- When you’re an employee or you receive the state pension, HMRC will send you either a tax calculation letter (a P800) or a Simple Assessment letter to tell you if you’ve paid too much tax. The letters are normally sent between June and the end of November.
- Things are different if you pay tax via Self Assessment, because HMRC does not send a tax calculation letter or a Simple Assessment letter to self-employed sole traders. Instead, normally, your Income Tax bill will be automatically adjusted if you’ve paid too much or not enough tax.
MORE INFORMATION
Overview - claim tax rebate
If you overpay tax on your income and you complete a self assessment tax return, HMRC will deal with your repayment once they have processed your tax return.
You can state in the tax return how you would like the repayment to be paid to you. You can have it:
- paid directly into your bank account, or
- paid to you by cheque.
Please note that sometimes HMRC will not follow your instructions and will make repayments back to the last credit or debit card used to make payment on the self assessment account. HMRC do provide warnings that this will happen, for example on both the tax return form and notes, however many taxpayers will no doubt be caught out.
Where there is another self assessment tax liability becoming due within the next few weeks, for example, a first payment on account for the following tax year, any amount available for repayment will be reduced by the sum required to cover the liability (or liabilities) ‘becoming due’.
Alternatively, if you owe HMRC another amount, for example, a tax credits overpayment, you might ask them to manually offset the repayment against that amount. This means they will take the amount you are due to be repaid off the other amount you owe. They will then repay any remaining repayment or you will have to pay the rest if you still owe HMRC something. You will have to contact HMRC to discuss your requirements.
Timing
You can complete your tax return any time after the end of the tax year and before the submission deadline. The sooner you submit your tax return, the sooner you should receive your repayment (or offset). If you submit your tax return online rather than on paper, it might be dealt with sooner and you will get your repayment faster.
Once HMRC have processed a self assessment tax return, most repayments will be issued automatically where there is a request for repayment on the return. You may need to prompt HMRC to issue refunds in certain cases, for example, where you do not state how you would like to receive the repayment on the return, the amount involved is small or where any signals are present which inhibit (stop) automatic issue – this can happen for a variety of reasons and HMRC have to look at them before they can be released.
If you file your tax return online, you can prompt a repayment by logging into your HMRC online services account and clicking ‘Request a repayment’. Otherwise, you can contact HMRC to request repayment.
Security checks to consider - claim tax rebate.
HMRC sometimes want to check some things before sending your repayment, as part of their aims to prevent people claiming tax back fraudulently. This is not the same as HMRC opening an enquiry into the figures on your tax return.
If you have been waiting several weeks to hear back from HMRC about your refund, we suggest you contact them to find out what is happening. Note that in these situations, even though the amount might look as if it is available for repayment in your online account, clicking ‘Request a repayment’ will probably not help speed things up.
Historically, security checks seem to happen most often in connection with Construction Industry Scheme refunds – probably due to the fact that refunds can be significant and because there can sometimes be problems involving unscrupulous agents. In some cases, HMRC may write to you before issuing the refund to check some things. If you are unsure how to respond to HMRC’s letter, please consider obtaining some advice. We tell you how you can find a tax adviser, including through the tax charities, on our page Help with tax from friends, family, professionals or other organisations.
More recently, HMRC have started sending out letters to verify repayment claims more widely, in response to an increase in repayment fraud. These letters are sent from ‘Indiv and Small Business Compliance Direct Tax Repayment Credibility’.
Where HMRC’s risk assessment identifies that a repayment claim is likely to be fraudulent, they will not make the repayment unless they receive a response to the letter. If no response is received the person is removed from the self assessment system and the repayment is not made. The letter asks for information and copy documents to enable HMRC to verify the taxpayer’s identity. You can read about what to do if you get one of these letters on the page Tax refunds.
Excess payments on account
If you are in self assessment, you may have to make payments on account of your next year's tax bill.
If you do not reduce them (or reduce them sufficiently) when completing your tax return, and this results in paying too much by way of payments on account, you can still claim to reduce them and request a refund of the amounts overpaid (which, in practice, you would do by filling out the correct form. This might apply, for example, because you have stopped working in the year that you have paid them for.
Once HMRC have processed your form SA303, a credit may appear in your self assessment account. Providing there are no other liabilities becoming due that HMRC can use the credit against, if you file your tax return online, you can trigger the release of the credit by logging into your HMRC online services account and clicking ‘Request a repayment’ or otherwise, by contacting HMRC to request repayment.
Making a mistake
Sometimes you may make a mistake on your tax return and pay too much tax as a result.
In this situation, you need to amend or correct your tax return first within the appropriate deadline. Once HMRC have processed the amended tax return, they will send you any repayment due or offset it against other amounts that you owe.
However, any refund will not be automatic; you will have to prompt HMRC to issue it. You can do this by logging into your HMRC account and clicking ‘Request a repayment’ to request repayment.