Here are 10 Classic Mistakes People Make When Completing Their Tax Returns That Can Lead To Penalties or Costly Tax Enquiries.
Completing your personal tax return can be frustrating and stressful. If you are completing it close to the deadline of 31 January it is particularly easy to find yourself make mistakes under pressure.
If mistakes are made, however innocently, it can lead to enquiries and even investigations by HMRC. At the very least this may mean that you pay too much tax or have refunds delayed. Don’t fall into this trap.
Here are 10 mistakes to avoid this year.
1. Lack of attention to risk areas and hot spots
HMRC knows that enquiries into the following expenditure areas are likely to produce some interesting results:
- 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.
2. Not using the white space to explain unusual variations
If you know there is something unusual, explain it.
HMRC is then far less likely to start an enquiry. It is crucial that you do this.
For instance, if your net profit seems too low to support someone above the poverty line, be prepared for give a plausible explanation. However, there’s no need to go overboard or be over generous in the information you give. Keep it straight, honest and simple.
3. Detailing information on separate schedules or entering manuscript notes on the return i.e. “per accounts” and/or “information to follow” instead of entering actual information or figures on the form.
You might think the inspector already knows and can look it up, but that’s not the way the tax calculation programme works. You simply must supply the info in the boxes as required.
4. Claiming for expenses that cannot be claimed
The rules on what expenses can/cannot be claimed are not as straight forward as you may think. For instance, a trainer who rented accommodation during a video shoot for her business could claim the cost of the accommodation against her income right? Wrong. The expenses do not meet the “wholly and exclusively for the purpose trade” test.
5. 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 adjustments separately rather than netting it off. Make it clear to HMRC that adjustments have been made.
6. Forgetting about foreign Income.
This is a huge mistake. It was so common that the law was changed to make this error a criminal offence. Please proceed carefully. Use a checklist to ensure nothing gets missed.
7. Forgetting about student loans or child benefit clawback
This is another area that often gets picked up leading to a letter from HMRC saying “your tax return was inaccurate…you may have to pay inaccuracy penalty….” If you took out a student loan a while ago you will have to make repayments through the tax return when your earnings exceed the threshold.
Child benefit clawback is another classic mistake made by people earning over £50,000. Essentially the amount of child benefit is clawed back under the ‘High Income Child Benefit Charge’. Because child benefit is normally dealt with under the benefits system, it’s easy to forget to include it on the tax return even though the return does provide a box for this.
8. Entering the figure of capital expenditure in the wrong box on Self Employment pages instead of the Capital Allowances section
This is a common error that means you are claiming excessive relief. It happens because the tax payer doesn’t understand the tax rules on revenue and capital expenditures.
9. Not arranging time to pay your tax
If by any chance you haven’t put enough money aside, don’t hide from the problem. Pluck up courage and call HMRC to ask for additional time to pay. HMRC can be understanding. There will be interest added but it’s a much better option than incurring more penalties.
10. Failing to do a quick reasonableness check
If your final tax is a lot more or a lot less than you expected that probably means that something has been entered incorrectly. Unless you’re able to put a finger on the reason why immediately, you need double check everything.
"Tax doesn't have to be taxing..." according to HMRC. However, the task of completing your taxes can be far from straightforward.
To avoid mistakes and time-consuming follow ups with HMTC my advice is to seek help if you’re unsure.
You can take your records to an accountant, post them, or use a tap and go app where you handover your tax return to a tax pro and remove the risk of tax penalties.
If you prefer to do it yourself, take plenty of care and use a checklist. Whatever you do avoid the last minute rush.
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
For more information see:
Web: www.easytaxreturns.online and www.thetaxguys.co.uk