It is easy to make an unintentional mistake on a tax return. Being aware of these common errors will help you to be accurate and avoid raising unnecessary questions or risking an investigation by HMRC.
Entering the same expenditure in different boxes each year
In their haste to get the return filed, many taxpayers misclassify the expenses. 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.
Similarly entering the figure of capital expenditure in the wrong box on the self employment pages instead of the capital allowances section will cause variations. Such variations will be a red flag for HMRC so be correct and consistent.
Lack of attention to risk areas and hot spots
HMRC has been known to raise more enquiries into the following expenses than any other areas – often getting very interesting results:
• Legal and professional expenses
• Repairs and renewals
• Provisions and accruals
• Research and development
• Employment expense
• Termination payments
Knowing the rules on the other expense categories will ensure that any questions do not lead to a full blown, and very costly, investigation.
The rules on which expenses can/cannot be claimed is not as straightforward as you may think. For instance, you might assume that an actor who rented accommodation in Scotland during a film shoot for his business could claim the cost of the accommodation against his income, right?
Wrong. HMRC denied the expenses and won the court case. It was decided that the expenses did not meet the so called “wholly and exclusively for the purpose trade” test. This is a grey area and one where you may need to seek professional advice to avoid making mistakes.
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 adjustment separately rather than netting it off. This way you make it clear to HMRC that adjustments have been made.
Failing to declare or forgetting to include all sources of income
In the rush for 31 January, it’s easy to forget income sources, such as interest being received in the year. However, 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?”
Foreign income is vital to include. Forgetting this was such a common oversight that the law was changed to make this error a criminal offence.
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.
Forgetting to pay the tax
While this will not lead to enquiries, it will incur a late payment penalty and some unfriendly letters or calls from HMRC. You can avoid this by simply typing in “paying HMRC self-assessment” into Google for the ‘how to pay’ link on the Government Gateway website, or follow this link: https://www.gov.uk/pay-self-assessment-tax-bill/overview
Finally, if the tax bill takes you by surprise be brave, call HMRC and ask for more time to pay. Yes, there will be some interest added but this is much better than incurring more penalties.