As the deadline for filing a tax return online is looming, it pays to be prepared rather than frantically filling out the 2020-2021 tax return in the final hours of 31st of January.
While completing the form might not be on top of everyone’s Christmas to-do-list, leaving it to the last minute can be stressful as you rush to do it. Subsequently, it can potentially give rise to errors that could cost you both time and money.
As a self-employed person or a small business owner, it is mandatory to file a Self-Assessment Tax Return. This system is set up by HMRC to gather information to calculate the amount of income tax you need to pay from the previous year. It’s vital that the details you report to HMRC are accurate. If not, you could end up paying more for your mistakes.
But what essentials do you need to know when filing a self-assessment tax return? Here’s some crucial advice to help you avoid making mistakes on your tax return.
1. Where to start?
Filling in your self-assessment form is much easier when your records are properly organised. Whether you use accounting software or have alternative way to track your income and expenses, it’ll help to have them prepared before you start completing your return. Make sure you have everything ready from your documents like business bank statements, receipts, invoices and any other additional income.
Once everything is in order, and assuming you have already registered as self-employed, ensure you have your 10-digit Unique Taxpayer Reference (UTR), along with your National Insurance number. You need them both to sign in before you file your return. It’s important to remember that if you haven’t registered for the online service, you must allow up to a week to receive your activation code from HMRC.
2. Get your details right
The self-assessment form is designed so you only need to complete the sections that are relevant to you. Once you have checked your personal details are correct, you then move onto the parts which fit your circumstances. HMRC’s system reacts to your answers accordingly whereby specific sections which don’t apply to you are removed.
Depending on your employment situation, you might be asked to report details from: a P45 if you left a job in the tax year; P60 from an employer which states your tax and income already paid; a P11D form which declares details of benefits and expenses; and information from payslips. You could also be asked for any other income. For example, monies from property ownership, interest from savings, dividends from investments, pensions or any other income you have received.
3. Claim your allowable expenses
In a Post-Covid world, you may be one of the many thousands who are working from home on a regular basis. This means you could claim for costs such as a percentage of your electric and broadband bills, or any equipment you might have had to buy. Check what allowable expenses you can claim for as a sole trading business. This might comprise of anything from mileage costs to postage stamps. You can deduct these from your income so HMRC taxes you only for your profits.
You can find this section on the Employment page, Box 20: Other Expenses and Capital Allowances.
4. Don’t ignore problems
The pandemic and subsequent economic downturn has undoubtedly affected our finances. So if you’re someone who can’t pay their tax bill, then you must let HMRC know immediately. However, this shouldn’t be a reason to not to complete your tax return. It’s crucial you don’t ignore it and you inform HMRC, preferably ahead of the deadline date. They’re likely to request information based upon your income, expenditure and any assets, investments or savings you may have.
If HMRC agree that you cannot pay the amount in full, they can provide you with a monthly payment plan via or give you extra time to spread the costs of your tax bill. You should note that interest is added to any outstanding balance, and that fines for late payments are less than the fine if you are late filing your tax return.
5. What else should I know?
HMRC will issue penalties for missing the tax return deadline. Therefore, it’s vital that you submit your self-assessment by the 31st January. Although they sometimes make allowances for late submissions, it would require exceptional reasons. For instance, a bereavement. As we head into the final month of the self-assessment deadline, you’ll need to get your skates on to complete it in time.
Finally, you need to ensure that all the information you provide is entirely accurate. If your bookkeeping skills have any issues or you knowingly enter incorrect figures for your income or savings, then you could face a hefty fine. Check all your answers in detail before you press submit.