If you haven’t yet completed your 2015/16 tax return it is time to get focused on the January 31 deadline. When you are busy running your business and have the deadline looming there is a danger of making unintended mistakes. These mistakes can have significant consequences including penalties for late submission and the risk of investigations by HMRC.
Here are 10 common mistakes to be aware of and avoid when completing your return:
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.
2) Not using the white space to explain unusual variations If there is something unusual it is best to explain it using the white space on the form. HMRC is then far less likely to start an enquiry if you do this.
3) Entering the same expenses in different boxes each year The HMRC computer is programmed to look for unusual variances. 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. This will raise a red flag and questions are likely to be asked.
4) Lack of attention to hot spots/risk areas There are expenditure areas that HMRC tends to raise queries about more often than others, for example, entertaining, stock, or legal and professional expenses. Where drawings are comparatively low, HMRC may wonder whether there have been undeclared cash sales which have been used to fund your living expenses.
5) Claiming for expenses that cannot be claimed The rules on which expenses can/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.
6) Detailing information on separate schedules or writing “as per accounts” and/or “information to follow” You might think HMRC already knows and the inspector can look it up, but that’s not the way the tax calculation programme works. You simply must provide the information in the boxes as required on the tax return form.
7) Not showing private use adjustments separately on the self-employment pages HMRC will always look to disallow any private use of items. For example, where you have already restricted motor expenses for private use, you will avoid questions if you show the adjustments separately rather than netting it off. The key is to make any adjustments that have been made clear to HMRC.
8) Failing to declare or forgetting to include all sources of income Remember 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?" This will trigger an investigation.
9) 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.
10) Not arranging time to pay If you need time to pay – be brave and call HMRC. They can be understanding. There will be some interest added but this is a much better option than incurring more penalties.
You will have heard the slogan "tax doesn't have to be taxing..." However, the job of getting your tax return completed and filed is not always straightforward. Getting it wrong it can result in an unfriendly letter from HMRC. The best advice is to seek help if you’re unsure.
You can certainly complete your return yourself and use HMRC’s site or other online platforms. Or you take your records to an accountant, post them, or tap an app and go by using an app like Easy Tax Returns where you can handover your tax return to a tax pro and remove the risk of tax penalties and time-consuming correspondence with HMRC. Whatever you do don’t leave it until the last minute.