When it comes to filing a Self Assessment tax return, accuracy is king. Mistakes, even tiny typos, can be costly if they lead to the incorrect payment of tax.
To save yourself from the stress and HMRC’s penalties, we have put together five of the most common tax return mistakes to watch out for.
It doesn’t matter whether you have filed a Self Assessment tax return before or this year is your first time. These are common mistakes that are easy to forget and overlook.
1. Simple typos
One of the easiest mistakes that anyone can make is a typo. A simple typo might seem like a little thing, but it can create a whole world of trouble when it comes to your tax return.
Adding an extra decimal place here, the wrong digit there can be difficult to spot. The problem is that putting the wrong figures in will lead to incorrect income calculations.
If you accidentally overstate how much you made, you could have a much larger tax bill than expected.
As self-employed if you understate your profits and you could have HMRC knocking on your door for underpaying tax.
That’s why it’s so important to do regular bank reconciliations to ensure your transactions match those in your accounting software. This process helps you identify any missing or incorrect transactions that could skew your income or expense amounts at the end of the year.
2. Not declaring pension contributions
If you have paid into a pension during the tax year you’re filing for, you will need to enter those contributions on your return. There will be a section on pension contributions for you to fill out. You can learn more about tax on private pension contributions on HMRC’s website.
It’s important to get this right because if you say you’ve contributed too little, you could miss out on tax relief. If you overstate your contributions, HMRC might charge interest on any underpayment.
3. Claiming for non-allowable expenses
It’s tempting to try to claim for as much as possible to reduce your tax bill, but be careful. There will be some things that you absolutely cannot claim for such as holidays or a new TV. However, there are other grey areas to watch out for.
Where a lot of business owners trip up is by thinking certain expenses are allowable for everyone. There will be some expenses which do apply to your business, but there will be others that don’t.
A common example is claiming for fuel. Businesses who need to travel a lot may be able to claim for fuel and travel costs. A home-based business that doesn’t involve travel will likely not be able to claim for travel costs. That’s because travel isn’t a necessary part of your business. For more examples, you can consult this list of common business expenses.
If you’re ever unsure about what expenses you can claim, ask yourself if it’s necessary or for the sole purpose of doing business. If you’re still not sure, it’s best to ask an accountant for trickier scenarios such as how much of your home can you claim as an office expense.
4. Not including interest
As well as business income, you will need to state how much interest you have received from bank or savings accounts as well.
This also includes any interest earned from peer-to-peer lending, credit unions and dividend income. It does not include interest from ISA accounts as this is all tax-free.
5. Not reporting all income
HMRC requires a full picture of all your income. That means if you receive income from employment, benefits, pensions, property income, dividends or capital gains, you will need to declare all of it.
Not declaring all your income could lead to serious penalties because you will be avoiding tax on it.
What if you make a mistake?
If you realise you have made a mistake on your tax return, try not to panic. You will usually have 12 months to correct that mistake. If you file online, you can make the changes easily enough by amending your tax return and re-submitting it.
If it has been longer than 12 months since you originally filed, you will need to contact HMRC directly. You can do this in writing, by including the tax year you’re correcting, the reason you think you have paid too much or little tax, and by how much. If you have paid too much, you could claim a refund up to four years later.
The best thing you can do to avoid costly mistakes in the first place is to have an accountant work with you. For example, London accountancy firm BrooksCity specialises in working with entrepreneur and startups to make sure they pay only the correct amount of tax.