By Emily Coltman FCA, Chief Accountant, FreeAgent
The New Year is upon us, which means time is running out if you’re one of the millions of small business owners who has to file a tax return for the tax year to 5 April 2014.
HMRC requires all Self Assessment tax returns to be submitted by midnight on January 31st and anyone who fails to meet the deadline will automatically be fined £100 - even if they are only a day late and even if they don’t owe any tax.
So with just a few weeks left until the Self Assessment deadline, how can you avoid making the kind of mistakes that could lead to you filing late and receiving a fine? Here are my top tips for avoiding five of the most common Self Assessment tax return errors.
1. Getting your reference numbers wrong - or not including them
If you’re filing a Self Assessment tax return, you need to quote your unique tax reference (UTR), which is a 10 numerical digit-long number (e.g. 12345 67890) that you can find on paperwork that you receive from HMRC such as a “Notice to Complete a Tax Return”. If you don’t quote your UTR number on your tax return, you may not be able to successfully file it online.
Don’t know your UTR? You can phone HM Revenue & Customs’ Self Assessment Helpline and ask them to post it to you - but remember that they won’t give it to you over the phone. So if you need to apply for your UTR, do so as soon as possible or you may risk not receiving it before the deadline passes.
Just don’t confuse your UTR with your National Insurance number. Sometimes HMRC put this number (which is always in the format AA 12 34 56 B) in the “Tax Reference” field on your Notice to Complete a Tax Return. Don’t make the same mistake - and always put in your UTR when asked for your tax reference number.
2. Missing out important information
When you’re filling out your tax return, remember you must include the following:
● Any income that you had invoiced, or for which you’d done the work, before 5th April 2014, but which your customers did not pay you for until after that date (unless you’re using the cash basis to prepare your accounts).
● All of your business costs, including anything you paid for yourself rather than from the business’s bank account. This also includes any business costs that you incurred before the business started to trade, as long as you spent the money no more than 7 years before the start of your business and the cost could have been included if you had incurred it after the start of your business - e.g, costs like a subscription for membership to an industry body before you made your first sale.
● Unless you’re using the cash basis to prepare your accounts, you need to include any large pieces of equipment (or capital assets) that you bought for your business. These don’t go in as day-to-day running costs but you may be able to claim capital allowances on them.
● Any other source of income - for example if you have a job in addition to being self-employed, if you earn interest on a savings account or if you rent a property out. You must have all of the relevant paperwork for this income (such as your forms P60 and P11D from your employer and your bank interest certificates) and remember that these will all have to relate to the tax year 2013/14.
Remember you can ring HM Revenue & Customs’ Self Assessment Helpline for advice if you’re still unsure whether or not you need to include a specific document in your tax return.
3. Using incorrect figures for your business accounts
When calculating your sole trader or partnership accounts, make sure you add up your income and expenses correctly. That means unless you're using the cash basis to prepare your accounts, you must remember to count income depending on when you actually did the work - not when the customer paid you.
It’s also important to get all of your expenses right - and make sure you’re not trying to claim tax relief on anything you’re not allowed to! In particular, make sure you follow the correct rules around business clothing, entertaining, food & drink, business use of home and travel expenses - because there are many common mistakes that small businesses make with regard to these.
Either check HMRC’s website or look for an alternative source of small business accounting information to find out which expenses you can and can’t claim tax relief on before you tackle your tax return.
4. Not double checking the forms
Rushing to do your tax return in the days (or hours) before the deadline? Make sure you double check everything thoroughly once you’ve finished!
It’s incredibly easy to miss out entire sections of the forms when you’re doing it in haste - and if you do end up submitting an incomplete tax return HMRC may not accept it and you may automatically be fined £100 once the January 31st deadline has passed.
Even just forgetting to click the confirmation box at the end of the form is almost certainly enough for HMRC to reject it - so pay close attention and review your work carefully.
5. Don’t forget to pay
Once you’ve submitted your tax return, don’t get lulled into a false sense of security. There’s still one important step left, which is to actually PAY your tax!
HMRC will charge you interest if you do this late and will also impose penalties on late payment, so it’s important to pay your tax as soon as you can if you want to avoid getting hit with a hefty - and growing - fine!