If you’re a small business owner, there’s a high probability you will need to complete a self-assessment tax return each year. Fail to do so on time and without errors and you could face some severe financial penalties – not to mention increased scrutiny from HMRC. There are two deadlines to remember: 31 October following the end of the tax year for paper returns and 31 January in the next calendar year for returns submitted online.
So what are the most common mistakes and how can you avoid them?
1 Not completing a return when you need to
Some people fail to complete a self-assessment return each year because they don’t believe they need to. This is a big mistake if you’re self-employed, freelance as well as having a job, make profits through eBay or Airbnb, rent out property, make capital gains, have investment income exceeding £10,000 or simply earn more than £100,000 from any source.
2 Not declaring all your income and gains
HMRC takes a particularly dim view of undeclared income, which can be seen as tax evasion rather than mere carelessness. Don’t forget to include every source of income you have: employment, self-employment, benefits, pensions, interest, dividends, property, capital gains and share schemes as well as income earned from overseas. However, you don’t need to list tax-exempt investments, Save as you Earn schemes, gambling prizes or interest awarded by a UK court.
3 Claiming inappropriate expenses
The rules governing tax-deductible expenses are complex and constantly changing. If in doubt, check with an accountant or HMRC itself before making a dubious claim as they could view your actions as fraudulent.
4 Keeping poor records
You will need to maintain meticulous financial records to prepare your tax return. In simple terms, make sure you have relevant forms (P60, P45 and/or P11D), records of expenses, details of benefits, pension records, bank statements, receipts from property, details of foreign income (including any tax paid abroad) and information on employee share schemes and student loans to hand. If you’re self-employed, you will also need to assemble cash books, invoices, mileage records, receipts, bank statements, information on sales and purchases, and records of personal money put into or taken out of the business.
5 Not including supplementary pages
There is no point in submitting an incomplete tax return, so make sure you complete all the supplementary pages relating to your different sources of income and various tax and loss reliefs.
5 Including vague information
HMRC will not accept tax returns with sections completed with statements like “please see accounts” or “information to follow”. Every section must be completed in full, even if you submit supporting documentation along with the return.
6 Ticking the wrong boxes
This is a pretty basic error, but it’s surprising how many people make it. The guide supplied with the tax return will explain how to complete it and avoid any such errors.
7 Failing to sign and date the return
An even more basic mistake – but one that is again pretty common. If you are submitting a paper return, don’t forget to sign and date it before you send it in.
8 Not including your NI number and UTR
Any correspondence you receive from HMRC should quote your Unique Taxpayer Reference (UTR), and you should have your National Insurance number on file. Make sure you quote both these numbers on your tax return.
9 Calculating your tax wrongly
Make sure you double-check the calculation of your tax bill, as HMRC will apply interest (and possibly penalties) to any late or under-payments. If you deliberately miscalculate your tax, of course, you could open yourself up to prosecution.
10 Missing the deadline
The deadlines given above are not flexible or negotiable. Miss them and you will be penalised, with fines increasing the longer you delay.
Cashsolv are experts in business finance, and can help you out if you run into trouble with paying a tax bill. To discover how we can give your business a boost, please visit our business finance page.