5 common mistakes in tax self-assessment

If you are required to submit a Self-Assessment Tax Return it’s essential you get it in on time and with no mistakes to avoid any penalties.

Choosing the incorrect accounting method

HMRC introduced two simpler tax schemes for smaller businesses (sole traders or partnerships) designed to make it easier for small firms to manage their tax. These are ‘Cash Basis’ and ‘Simplified Expenses’. 

Cash Basis

This can be calculated either by:

Income and expenses are recorded over the tax year either on:

• a Cash Basis – when money enters and leaves the business, whether cash, card payment or cheque or;
• by accruals basis – recording income and expenses when customers are invoiced or a bill is received. 

Simplified Expenses

Self-employed businesses  can use Simplified Expenses (fixed rates ) to calculate what can be claimed for certain common types of business expenses if business and personal use is mixed.

Simplified expenses apply to:

• Mileage expenses – a mileage allowance can be claimed based on total business mileage during the year.
• Expenses generated by using a home for business – a flat rate can be claimed based on hours spent using part of the property for business.
• Private use of business premises – a flat rate can be used to cover some costs if the business premises is also a home.

Failing to keep  records

The most common records you may need (if they’re relevant to you) include:

• P60, P45 and, P11D
• Expense records
• Benefits including maternity/paternity pay, statutory sick pay, job seekers allowance
• Pension records
• Bank statements
• Property income
• Foreign income including evidence of tax already paid abroad
• Capital gains
• Employee share schemes
• Student loan payments

 If HMRC were to raise an enquiry into your tax returns but you can’t produce the relevant documentation to support your submissions then you may be issued with a penalty. Make sure to keep clear and complete records of all tax affairs.

Not declaring all income/Capital Gains

For failing to declare all relevant income and Capital Gains there are severe penalties. For deliberate errors 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 
• Property income
• Foreign income including evidence of tax already paid abroad
• Capital gains
• Employee share schemes
• Dividends

Claiming the incorrect expenses

Working out which expenses are valid and which aren’t is your responsibility. You need to know the rules, and apply them to your tax return.

If you are in any doubt, check with your accountant and avoid penalties. 

Income reported in the wrong section of the tax return

According to HMRC, a common error includes reporting income from self-employment in the employment section or as other taxable income in the main section of the return.

This error will probably affect payment of class 2 and class 4 national insurance contributions creating a knock-on effect.

Confident?

If you have several sources of income making your tax return complicated, or if you are unsure of what you are doing, we recommend you seek the assistance of an accountant to ensure your tax affairs are handled properly.

Sometimes it’s best leaving matters to someone who knows, leaving you time to spend on your business or things that you find more interesting. If you think we can help you or for more information contact us for a free initial chat. 

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