With the deadline for self-assessment tax returns now upon us, here we look at some of the most common mistakes taxpayers make on their tax returns, and how to avoid them.
All self-employed workers and company directors are required to fill out a tax return, and it’s important to get your tax return right to avoid incurring penalties.
Here, TaxScouts, take us through some common tax return mistakes and how to avoid them so you can get your tax return right first time.
- To submit a self-assessment tax return you need to be registered with HMRC. You can register for self-assessment here.
- Registering with HMRC tells them you are earning untaxed income that you will need to declare through a self-assessment tax return. You’ll receive a Unique Taxpayer Reference (UTR) number from HMRC. You’ll need this to complete your tax return and it can take a month or more to arrive
- The deadline for submitting your 2020/21 tax return online is 31st January 2022. Get it filed as early as possible to give yourself time to pay any tax that you owe before 31st January
- Remember that the tax year for 2020/21 ran between April 6th 2020 to April 5th 2021. So be sure to have all your income and expenses records up to date for this period
- On your self-assessment you will need to declare details of all the income you have earned during the 2020/21 tax year, including income that has already been taxed under PAYE. You may need a P60 or P11D to get details of the tax you have already paid. Declaring income incorrectly is the most common mistake people make on their tax returns
- Remember that income may not just be money earned through your work. It could be earned interest, dividend payments or money earned from selling assets like property, shares, cryptocurrency or even personal possessions. This is called Capital Gains Tax (CGT)
- As part of your tax return you will also be assessed for National Insurance contributions. National Insurance payments are separate from income tax. You should familiarise yourself with the NI thresholds and make sure you have set aside money to cover National Insurance payments
- Expenses are costs that can be deducted from your tax liability. It is important you submit expenses to offset the amount of tax you pay. It is possible to claim expenses against a variety of income sources, but make sure your expenses are directly related to that income
- Taking advantage of tax free allowances can reduce your tax bill. Everyone eligible in the UK had a personal tax-free allowance of £12,500 for the 2020/21 tax year. But there are many more tax-free allowances that you may be eligible for, including the Marriage Allowance, the Trading Allowance and various property and investment allowances. You may have to apply separately for some of these. Familiarise yourself with all the tax free allowances that may apply to you, as these could reduce your tax bill this year