Hacks and Tips
4 mins read
Nov 18, 2022
Six common tax mistakes that immigrants to the UK make

For many new immigrants to the UK, the country’s tax system is a significant culture shock. This is not surprising as the UK has one of the most complicated and stringent tax regimes in the world. 

But knowing how taxes work in the UK is important. While some tax mistakes are easier to fix, others attract stiff penalties. In 2018, over 1000 skilled immigrants were denied their Indefinite Leave to Remain (ILR) in the UK because of simple tax mistakes like filing errors. 

To prevent this from happening to you, here are 6 tax errors you need to avoid as an immigrant in the UK.

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Not filing your tax returns on time

Most employers deduct your tax from your paycheck, but you have to file your taxes if you are self-employed or have multiple streams of income. 

The good news is that late payments or fines from the HMRC do not impact your credit score. 

The bad news? Not paying your tax on time can lead to you a late filing penalty of £100 if your tax return is up to 3 months late or other penalties from the HMRC. 

That is why it is important to file your tax returns within the tax year. Unlike other countries, the UK tax year starts from the 6th of April to the 5th of the following year. For example, 2022/2023’s tax year starts on the 6th of April, 2022 and ends on the 5th of April, 2023. 

Not filing your correct tax returns 

The Home Office has used paragraphs 322(2), 322(5) and 19(i),19(j) of Appendix A of the UK Immigration Rules in the past to deny the ILR applications of migrants that filed the wrong tax returns. 

You must file a self-assessment tax return on the HMRC website if you are:

  • Self-employed and earned more than £1,000 before filing tax relief 
  • A partner in a business partnership

You also need to file a tax return on untaxed sources of income like COVID-19, tips and commissions, income from savings, investments and dividends, etc. 

You can file your tax returns on the HMRC website. It is important to keep accurate records of your source of income, especially if you are self-employed. The HMRC will calculate what you are supposed to pay on your behalf. 

Not filing taxes on foreign income

The UK classifies foreign income as money you earn from outside the UK. This is especially common for remote workers, like immigrants with the TechNation visa, who work with companies outside of the UK. 

UK residents and citizens have to pay taxes on income from:

  • Wages you earn working abroad or from companies not registered in the UK 
  • Foreign investment income like dividends and savings interest
  • Rental income on overseas property
  • Income from pensions held in other countries  

Tax relief is possible if you pay also pay taxes in a country that has a double-taxation agreement with the UK or if the income is exempt from tax in the country (like most pensions). 

You can pay tax on your foreign income by filling out the self-assessment form on the HMRC website

Not paying National Insurance

National insurance contributions are a type of tax and it is deducted from your paycheck by your employer. Unlike income tax, your national insurance payments make you eligible for UK state pension, healthcare, unemployment benefits, and other state benefits. 

It is compulsory to pay for National Insurance if you are at least 16 years old and:

  • You are an employee earning above £242 a week
  • You are self-employed and making a profit of £6,725 or more a year

The amount of National Insurance contributions you pay depends on the amount you earn. Not paying your National Insurance contributions means you can be fined by the HMRC. 

You also get gaps in your national insurance records and you won’t qualify for social benefits. Imagine paying full price for healthcare. 

Not notifying the HMRC of filing mistakes, job changes, or other changes to your personal information

The HMRC handed out 89,317 penalties in 2021/2022 for “careless errors’ made in filing tax returns. But some mistakes are made by the HMRC, like incorrect name spellings or sudden changes to your tax code. 

In addition to filing mistakes, you should inform the HMRC of changes to your salary or working hours, address changes, or changes in marital status. 

You can contact the HMRC to inform or complain about anything here.

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Not claiming tax relief for your job expenses 

You can claim tax relief if you use your own money to buy things for your job. You can claim tax relief for the following expenses:

  • Working from home if your job requires you to live far away from your office or your employer does not have an office
  • Uniforms, work clothing and tools
  • Work vehicles mileage 
  • Professional fees and subscriptions
  • Travel and overnight expenses

You can also apply for a tax refund if you have paid too much tax within the 4 years you paid the tax. You can check if you can claim here.  

Filing your UK taxes can be hard to navigate at first, but you will get the hang of it. You can reach out to an accountant for help or get help from the HMRC directly. 

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