5 Self-Assessment Tax Return Mistakes to Avoid

Self-assessment tax returns must be completed by anyone who has earned more than £1,000 through self-employment, before any deductions are made, as well as anyone working in a partnership or as a company director. You will also be required to submit a self-assessment return if you have received income which is not taxed at source such as rental income, gains from selling a property which is not your main home or income from savings and investments.

The process of completing a tax return of any sort can be daunting, with the line between avoidance, which is legal, and evasion, which is illegal so fine that it is little wonder that a great deal of anxiety results from the prospect of completing something incorrectly. The fact is that for most situations, gathering the information required for the return is quite straightforward, it is just that so many different situations are covered by one tax return it can appear confusing. Have a read of our common mistakes and how to avoid them, to make the process easier for you in future.

1. Failing to Register for Self-Assessment

When you set up your business or start to receive income from property, you need to inform HMRC so that they can issue you with a Unique Tax Reference (UTR). This identifies you as someone who needs to complete a self-assessment return and without it, you will be unable to.

2. Not Completing your Return Online

Whilst HMRC is phasing out the use of paper returns, using the online system is highly recommended if you are not already doing so. You will need to register for something called a Government Gateway ID, which allows you to access the system and submit your return. ID numbers and passwords can take several days to be issued by post, so don't leave this until the last minute as you will miss the filing deadline.

The online system asks a few questions at the start to ascertain which sections of the return you need to complete, and then removes the irrelevant pages. Online submitters also have until 31st January following the end of the tax year to submit, which is later than the 31st October deadline for paper submissions. There are penalties for late submission and interest is charged when tax is paid late, so make sure you are aware of the deadlines and that you meet them.

3. Using Incorrect Figures and Not Checking Calculations

Everyone knows how hard you work when you're a sole trader. It's just you, you're the boss, employee, you do all the admin and pay all the bills. You're bound to be tired, but it is imperative that you use the correct figures and quadruple check your calculations. The information included in your return must be 100% correct. If HMRC thinks that you have included incorrect figures on purpose to evade tax, you could be prosecuted.

4. Failing to Include all income

Even if you are not sure what to include, it is always wise to include all income you have received over the year. Some may have already been taxed at source, such as pension and employment income, but you will have received documentation advising how much tax you have paid. You can enter figures from your P60 or P45 into the tax return along with reference numbers which HMRC can then cross-reference and match up with their own records.

It is important to include even these types of income where tax has already been paid, as if you do not, HMRC may wonder if you are hiding something and may decide to launch an investigation into your financial affairs.

5. Claiming Ineligible Expenses and not Claiming Allowances

Certain expenses incurred can be claimed against your income to reduce your tax liability, but not all expenses can be claimed. You might also be eligible for tax-free allowances. Everyone is entitled to the personal allowance and you do not need to claim for this, however, there are other allowances such as rent a room relief and the marriage allowance which you do need to claim for.

You can research your eligibility yourself, but this runs the risk of getting it wrong. Best case you underclaim for expenses and worst case you claim for expenses that aren’t eligible, which can land you with a fine if you are ever audited by HMRC.

We recommend seeking advice on completing your self assessment from an accounting professional like Plummer Parsons, as to which allowances you might be eligible for. Drop us a call today to find out more.