Your self assessment tax return needs to be submitted online by 31 January deadline.
A late submission will incur an immediate penalty of £100, and this increases significantly the longer you delay.
Leaving it to the last minute means you are more likely to do it in a hurry and therefore more likely to make careless errors.
Here are 6 of the most common errors made when completing a tax return...
1. Not declaring all income/Capital Gains
There are severe penalties for failing to declare all relevant income and Capital Gains. For deliberate errors, e.g. omitting a source of income on purpose, you could potentially be prosecuted.
These are the types of income/Capital Gains you need to declare:
- Income from employment
- Benefits including maternity/paternity pay, statutory sick pay, job seekers allowance,
- Pension income
- Interest, dividends from savings, bank accounts, building societies investments or Trusts etc.
- Property income
- Foreign income including evidence of tax already paid abroad
- Capital gains
- Employee share schemes
2. Trying to claim expenses that can’t be claimed
There are complex rules governing what expenses you can deduct, and there are costly penalties for incorrect claims.
If you are in any doubt check with your accountant. It’s far better to check these things carefully – some things you may think can be claimed, can’t. But there are also a few things you may not have thought to claim.
3. Improper Record-keeping
If you are operating through a limited company, you must prepare and submit annual accounts to Companies House 9 months after your company financial year end. As a director, you must keep records of all payments received from the company, including payroll, dividend income and benefits in kind, and also keep a record of all business expenses reimbursed to you by the company.
For the self-employed you will need to maintain business records such as:
- Cash books
- Mileage records
- Bank statements
- Records of all sales and takings, purchases and expenses
- Money taken out of business for personal use (if any)
- Personal money put in to the business (if any)
4. Not making proper allowance for VAT
VAT is an area that often trips up business owners who don’t use accounting software, but manually input their finances onto a spreadsheet. Those who have invested in accounting software will find that when they enter receipts, the programme will automatically make allowances for the VAT.
However, if you don’t use this kind of software, you need to remember to apply VAT at the correct rate – if you don’t, your form will be returned and you run the risk of missing the deadline.
5. Not using the correct tax scheme
HMRC has introduced two simpler income tax schemes for small businesses – ‘Cash Basis’ and ‘Simplified Expenses’. According to HMRC, they are designed to make it easier for small firms to manage their income tax obligations and be more confident “they have got their tax right”.
‘Cash Basis’ is a new way that self-employed businesses (i.e. sole traders and partnerships) can calculate their income and expenses when completing their self-assessment tax return.
You can record your income and expenses over the tax year either on a Cash Basis (i.e. when money actually enters and leaves your business, whether cash, card payment or cheque) or by using ‘traditional accounting’ methods (i.e. accruals basis – recording income and expenses when you invoice your customers or receive a bill). The choice is yours.
Self-employed businesses (i.e. sole traders and partnerships – not limited companies or limited liability partnerships) can use fixed rates (‘Simplified Expenses’) to calculate how much they can claim for certain common types of business expenses if business and private use is mixed.
Simplified expenses applies to:
- Mileage expenses – you can now claim a standard mileage allowance based on total business mileage during the year.
- Expenses generating by using home for business – you can now claim a flat rate based on hours spent using part of your home for business.
- Adjustments for private use of business premises – a flat rate can now be used to cover some costs if you live at your business premises (eg if you run a B&B).
6. Forgetting to make payment on time
Well done! You have completed and returned your tax return on time, but have you also arranged to make payment. You’ll get charged penalties and interest, making your tax bill bigger, if you don’t make make payment on time or contact HMRC.
The deadlines for paying your tax bill are:
- 31 January for any tax you owe for the previous tax year (known as a ‘balancing payment’) and your first payment on account
- 31 July for your second payment on account
If you prefer to pay regularly throughout the year, you can use a budget payment plan.
Contact HM Revenue and Customs (HMRC) as soon as possible if you can’t pay all your tax on time.
You may be able to either:
- get more time to pay
- pay your bill in instalments
What to do if you do make a mistake on your tax return
If you do make a mistake on your tax return you’ve normally got 12 months from the submission deadline to correct it. This is called an ‘amendment’.
For example, for the 2013/14 tax year you have until 31st January 2015 to file your tax return online. If you subsequently notice that you have made a mistake on this return, you have a further 12 months, which takes you up to 31st January 2016, to correct the error with an amendment.
It’s usually advisable to hire a qualified accountant or tax advisor to help you complete your Self Assessment Tax Return because they will make sure it is correct.
They will also help you to reduce your tax bill as much as legally possible. Particularly if you have lots of sources or complicated income, an accountant or tax advisor can help make sure your tax affairs are handled properly.