With UK self-assessment tax return forms due with HMRC by January 31st, Jonathan Amponsah of The Tax Guys gives his advice on mistakes you can avoid when filling one in
Filling out a personal tax return can be stressful. It’s surprising given it’s a once a year event with a looming deadline and the threat of penalties!
After a decade of dealing with hundreds of tax returns and queries I’ve found mistakes people frequently make when filling in their personal return under the pre-31st January deadline pressure.
These mistakes, however innocent, can lead to enquiries and even investigations by HMRC. At the very least they may mean that you pay too much or refunds are delayed.
Here are nine common mistakes to avoid:
1. Lack of attention to hot spots/risk areas
There are some expenditure areas that HMRC query more frequently than others e.g. entertaining or legal and professional expenses. If drawings are comparatively low HMRC may wonder whether living expenses are being funded by undeclared cash sales.
2. Entering the same expenses in different boxes each year
In their haste to get the return filed, many taxpayers misclassify the expenses.
For example, a courier putting fuel expenditure in the cost of sales figure one year and then in motor expenses the next, will produce large variations that the HMRC computer will want explained.
3. Forgetting about Student Loans
This is another area that often gets picked up by HMRC and leads to a letter saying “your tax return was inaccurate…you may have to pay an inaccuracy penalty….”
You may have taken out a student loan a while ago and you’re now required to make repayments through the tax return, because your earnings exceed the threshold.
It’s easy to miss this on the return as the loan was taken a few years previously and may no longer be at top of mind.
4. Entering the capital expenditure in the wrong box on Self Employment pages instead of the Capital Allowances section
This is a common error that means you are claiming excessive relief. It happens because the tax payer doesn’t understand the tax rules on revenue and capital expenditures. And it can raise a red flag with HMRC.
5. Not showing private use adjustments separately on the self employment pages
HMRC will always look to disallow private use of items. So where you have already restricted say motor expenses for private use, you will avoid questions if you show the adjustments separately rather than netting off.
That way it’s clear to the taxman that adjustments have been made.
6. Forgetting to add Class 2 NIC to the tax bill
This is a new requirement so remember to include your Class 2 NIC (National Insurance Contributions) on your return if you are self-employed and are required to pay it or have opted to pay it.
7. Ignoring Tax Code notices
Nearly all tax papers are entitled to an annual tax free allowance. This is usually shown as a tax code to enable employers to deduct the right amount of tax.
Sometimes the taxman will add or deduct certain items from yourtax code. For example, benefits in kind, or pensions or tax underpayments. By ignoring the tax codes, you risk not adding or reflecting these items on your return leading to an incorrect tax return.
8. Forgetting about Foreign Income.
This is huge. So many people forgot to include foreign income that the law was changed to make this error a criminal offence. Please proceed carefully and include everything.
9. Not arranging time to pay
And for those who have not put any money aside, do not bury your head in the sand. Be brave, call HMRC and ask for time to pay. HMRC can be understanding. Yes, there will be some interest added but this is much better than incurring more penalties.
My advice is: get help if you’re unsure about any area of your tax return. It is certainly possible to complete it yourself using HMRC’s website or other platforms.
Or you take your records to an accountant, post them, or use an app like Easy Tax Returns where you can hand over your tax return to a tax pro and remove the risk of tax penalties.
If completing it yourself, take care, use a checklist and please, please don’t leave it to the last minute.
Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant who has advised many clients over the last decade on tax. He has successfully defended clients against HMRC at the tax tribunal. Jonathan is the founder and CEO of The Tax Guys. He is also the co-founder of tax return app Easy Tax Returns.