The deadline to complete your tax return is now days away on 31 January. It’s easy to make an unintentional mistake when you are hurrying. Review these common errors to help you achieve accuracy and avoid raising unnecessary questions from HMRC, or something none of us want – an investigation.
1.Using estimates and round sum figures on the return
This will fuel the taxman’s suspicion that you do not keep proper records and will be used as a basis to ask for evidence to substantiate the amounts on the return.
- Using different boxes each year for expenses
When rushing to meet the tax return deadline, people often misclassify the expenses.
For example, a driving instructor putting fuel cost in the cost of sales figure one year and then in motor expenses the next, will produce large variations.
Similarly entering the figure of capital expenditure in the wrong box on Self Employment pages instead of the Capital Allowances section will cause variations. Such variations will be a red flag for HMRC so be accurate and consistent.
- Claiming for expenses that cannot be claimed
The rules on what expenses can or cannot be claimed is not as straight- forward as you may think. Expenses must meet the so-called “wholly and exclusively for the purpose trade” test.
In addition, there are certain areas to be aware of. These ‘hot spot’ or risk areas tend to attract more attention than others from HMRC:
- Legal and professional expenses
- Repairs and renewals
- Provisions and accruals
- Research and development
- Employment expense
- Termination payments
The taxman has been known to raise more enquiries into the above expenses than any other areas. For instance, where drawings are comparatively low, HMRC may wonder whether there have been undeclared cash sales which have been used to fund your living expenses.
Knowing the rules on the other expense categories will ensure that any questions do not lead to a time-consuming and very costly investigation.
- Not showing private use adjustments separately on the self-employment pages
HMRC will always be looking to disallow any private use of items. So where you have already restricted say motor expenses for private use, you will avoid questions if you show the adjustment separately rather than netting it off. This way you make it clear to HMRC that adjustments have been made.
- Failing to declare or forgetting to include all sources of income
In the rush for 31 January, it’s easy to forget income sources, such as interest being received in the year. However, HMRC knows if you have an interest earning account or perhaps an offshore bank account. So they will be asking; “Is this where you have filtered away undeclared profits?”
Foreign income is vital to include. Forgetting this was such a common oversight that the law was changed to make this error a criminal offence.
- Forgetting to add Class 2 NIC to the tax bill
This is a new requirement so remember to include your Class 2 NIC on your return if you are self-employed and are required to pay it or have opted to pay it.
- Forgetting about student loans or child benefit clawback
This is another area that gets picked up very often by HMRC and leads to a letter saying “your tax return was inaccurate…you may have to pay inaccuracy penalty….” If you’re now having to make Student Loan repayments through the tax return, because your earnings exceed the threshold, remember to include this.
A common mistake among higher income earners (over £50,000) who are receiving child benefits is to forget the clawback. The child benefit received is clawed back under the ‘High Income Child Benefit Charge’ and must be accounted for on the return.
- Forgetting to pay the tax
This will not lead to enquiries but will mean a late payment penalty and some unfriendly letters or calls from HMRC. You can avoid this by simply typing in “paying HMRC self-assessment” into Google for the ‘how to pay’ link on the Government Gateway website, or follow this link: https://www.gov.uk/pay-self-assessment-tax-bill/overview
If the tax bill you owe is a shock – be strong, call HMRC and ask for additional time to pay. Paying some extra interest will be better (and less stressful) than more penalties.
ABOUT THE AUTHOR
Jonathan Amponsah CTA FCCA is an award-winning chartered tax adviser and accountant who has advised many clients over the last decade on tax and 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 Easy Tax Returns (a tax return app to help tax payers avoid stress, penalties and find their peace). www.easytaxreturns.online