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12 Tax Mistakes Every Entrepreneur Makes

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As a busy entrepreneur, you’re wearing many different hats and your focus is probably on making more money or getting the right team in place. Sometimes seeing your accountants can feel like a trip to the dentist. However, if you’re not talking to them, then in the current climate of complicated tax rules, it means you’re probably making the following tax mistakes.

1. Claiming too much use of home expenses

There is absolutely nothing wrong with claiming these expenses. The problem is that by over claiming them, you potentially end up paying a lot more tax in capital gains tax when you come to sell your property. Why? Because the value of your home would have gone up and you lose generous tax relief on the part of your home you turn into business.


2. Retrospective tax planning


You’re busy and fire fighting in the business. You take so many decisions and then at the end of the year you try to piece some clever planning together even though all the events have already happened without much thought.

Unless you prepare and plan for taxes, it’s likely that you will pay more tax. Now here’s a thought. You do have some sort of a business plan even if one page right? How about a tax plan?

3. Not keeping proper records

Those pesky receipts, collating and keeping them all is not a fun job is it..? But for VAT registered business owners, not keeping them is a common mistake akin to literally throwing or giving away your piggy bank to HMRC. So the next time you fail to get that VAT receipt, consider whether you will also dip into your pocket, grab those coins and throw them away.

The good news is that with so many apps on the market, the task of keeping proper tax records has become less taxing. With apps like Auto Entry, Expensify and Receipt Bank you can easily snap the receipts on the go and forget about them. The technology and your accountant would take care of the rest.

 

4. Wasting over £26,000 tax allowances


They say that tax allowances are like your muscles. If you don’t use them you lose them. And did you know that if you add up the income tax allowance, capital gains tax allowance, savings allowance and dividends allowance, you get a whopping £26,000 plus allowances in the year? It’s not uncommon to see many of these go to waste.
If you’re an entrepreneur who has dabbled in crypto currencies, make sure you make the most of the capital gains tax allowance.
And do consider how to also make use the allowances of your spouse and children.

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5. Missing out on these 8 generous tax breaks

There are more tax breaks within the law that most entrepreneurs miss out on but here are the most common ones

• Research and development
• Bad debt provision (make sure you have taken steps to recover the money)
• Capital allowances on equipment used for the business including fixtures which are part of the building you have bought
• Lease premiums
• Warranty provisions
• SEIS and EIS tax reliefs
• Entrepreneurs relief
• £40,000 lettings relief (this might be scrapped by HMRC)

The reason why most of these reliefs get missed is that you actually have to make a claim to get them.

6. Not putting aside money for tax


Cashflow can be a huge problem but when it comes to VAT and PAYE, the taxman’s stance is simple; it’s not your money. For income and corporation taxes, waiting till December or January to find out that you have this huge tax bill but no funds put aside is a common mistake entrepreneurs make.

To avoid this problem, look at the business model, plan for taxes and open a separate bank account to put cash away for taxes.


7. Poor or no evidence to back up claims


The rules on what expenses can/cannot be claimed are not as straight forward as you may think. By not taking extra care or failing to appoint a good accountant or tax adviser, most entrepreneurs make this costly but avoidable mistake Here’s an example: a business owner who rented an accommodation in Scotland in order to avoid expensive hotel bills during a long business trip was denied tax relief because the evidence he submitted was not sufficient to meet the so called “wholly and exclusively for the purpose of trade” test.

Tip - When claiming or incurring expenses for business, ensure that the primary purpose is for the business and have all the supporting documents to back this up.

8. Not reviewing the business structure

Maybe, when you started, you were rightly advised to go for a sole trader, partnership or a limited company. But the rules keep changing. When was the last time you reviewed and compared different tax structures?


9. Wasting Business Property Relief


Your business has value. It’s your life’s work. A common mistake I see is lack of planning around how the business should be passed-on tax free when you’re not here. The rules, subject to some conditions, allows your life’s work to be enjoyed tax free by your loved ones. But if you do not have a Will or if in your Will you’ve passed the business to say your spouse, you’re wasting this generous tax relief.

10. Getting self-employment status wrong

This is a complex area and one which keeps changing. Whilst you may safely get your own status right as an entrepreneurial business owner, how confident are you that your freelance workers and associates are genuinely self-employed? HMRC is cracking down on the so called ‘gig economy’ and are putting the onus on entrepreneurs to get this right.

11. Buying the shares of your competitor

Instead of organic growth, you’ve decided to acquire your competitor. In your haste to get the deal done, you buy the shares of the company instead of the assets. This is a common tax mistake because whilst buying the shares is a good for the seller, you lose the tax reliefs associated with buying the assets.

12. Accepting 30% more tax when selling your company


So it’s time to put your feet up and retire. You’ve decided to sell up but you’re dealing with a well-informed tax buyer who wants to pay more for the company’s assets but he or she is not interested in the shares. You’re tempted and you agree to sell the assets. You’ve potentially lost out on a 10% tax rate and are now looking at over 30% tax. Why 30%? So the company sells the assets and it pays corporation tax at, say, 19%. You then need to extract the cash out and let’s be conservative and say you pay 20% income tax. That’s 39% potential tax.

Conclusion

Take a look at your business plan, and your tax plan, and check you are not falling foul of any of these 12 mistakes – and if you aren’t sure, or need help, then call in a reputable accountant. The fees they charge you are often mitigated by the amount of tax they can save you.

 

ABOUT THE AUTHOR


Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant who advises business owners on entrepreneurial tax reliefs. Jonathan is the founder and CEO of The Tax Guys.

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9 Ways To Make Christmas Tax Deductible and Keep The Taxman Ho Ho Ho Happy

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The season of goodwill is upon us. Many business owners would be “splashing out” on gifts, parties, awards and other kind gestures to end the year on a high. And if you’re looking for some Christmas tax reliefs or ways to leverage your money this Christmas, then here are 9 ways to reduce your tax bills whilst keeping the taxman happy.

1. £5,000 Tax Free Award?

As the end of year draws to a close and you’re in the festive mood, you might decide to award one or two staff members for their outstanding contribution to your business and for going beyond their call of duty.

Did you know you can pay your staff tax free income for suggestions that benefit your business? Yes you can and actually there are two kinds of awards:

  • encouragement awards - for good suggestions, or to reward your employees for special effort
  • financial benefit awards - for suggestions that will save or make your business money

Encouragement awards are tax free up to £25. But financial benefit awards are exempt up to £5,000. That’s right £5,000.

But before you go ahead and pay your staff tax free income this Christmas, please note that as will all tax reliefs and tax exemptions, there are conditions to meet. Some of the conditions for staff suggestion scheme includes:

  • the suggestion scheme must be open to all your employees
  • the suggestion must relate your business
  • your employee must go beyond their call of duty (ie suggestions made as part of their normal work will not count)
  • the suggestion can’t be made at a meeting for proposing new ideas

And to keep HMRC have a look at what they say on this by researching on their website. Here’s the reference EIM06600. And if you don’t qualify, then something to certainly think about in the new year.

2. Tax Free Gifts To Employees

In addition to awards, gifts you give to your employees are normally exempt from tax and NI. However this exemption only applies if the gift is deemed to be trivial. For a gift to be considered a trivial benefit, it must cost £50 or less, and not be part of the employees’
contract or a reward for performance. It must also not be a cash reward as HMRC will tax this as earnings (payroll tax). So classic gifts including a bottle of wine or box of chocolates would be exempt from tax.

3. Tax Free Business Gifts To Customers

These are only allowable as a tax deduction if the total cost to each customer per year is less than £50 and the gift bears a conspicuous advert for the business and it isn’t food, drink, tobacco (unless they’re samples of your products).

4. Tax Efficient Vouchers

If you give your employees cash vouchers, the amounts would need to be put through the payroll and subject to tax and National Insurance. Non-cash vouchers up to £50 may be exempt under the trivial benefit rules. Where the voucher exceeds £50, you will need to report these on a P11D form to HMRC.

5. Tax Free Christmas Parties

It seems to be common knowledge that an employer can spend up to £150 per head including VAT per year, in providing annual social functions to entertain its staff.

But here are some points to bear in mind. This £150 is per head and not per staff. To work
out the cost per head, divide the total cost by the number of attendees (staff and any other
guests). So when employees’ spouses and partners do attend the event you can budget for £300 per couple. The £150 is not an allowance. It’s an exemption and so if the cost per head works out at £151, then the full £151 is taxable and not just the £1 excess. So do watch out for attendees dropping out last minute as this could spoil the “tax party” for you and your staff.

Thinking of having two parties during the year? Let’s say the first party is budgeted at £145 per head. The second party will cost £100 per head. The £150 limit can be used against the first party leaving the second party as a fully taxable benefit.

To keep HMRC happy, do ensure that the annual event is a staff social event and opened to all staff. Plus do keep proper records especially on the number of attendees. For more info search for EIM21690 on HMRC’s site.

6. Tax Efficient Client Entertainment

Ok, so you’ve read somewhere or you’ve been told by your accountant that client entertainment is not tax deductible. And this is true. But please bear in mind that if you happen to entertain clients this Christmas and you meet any of the following 2 conditions, you can claim these expenses against your tax. These are the so called exceptions to the rules.

Contractual obligation: Where it’s part of your business to entertain, say if you’re providing a training course to businesses and you entertain them as part of the course – maybe providing tea, coffee, lunch and so on – even if it’s food, you’re still allowed to claim that because you’re under a contractual obligation to give them food.
Quid pro quo: Let’s say you’re a freelance journalist and you want to speak to say Andy, a man who has world of experience on a topic you’re writing about. You offer to take Andy out to lunch this Christmas in exchange for his insight into the topic which you’re researching. Because Andy is coming to the table with something of value but not benefitting from it apart from getting free lunch, you’re actually allowed to claim the expense, even though it appears as entertainment.

In order to keep HMRC happy, do have plenty of evidence to support your claim.

7. Inheritance Tax Free Gift:

Gifts between family members are normally dealt with under the inheritance tax code subject to the various reliefs and the seven-year rule. This rule, also called PET (Potentially Exempt Transfer), says that if you make a gift and then survive for seven years afterwards, the gift becomes exempt (i.e. no tax is payable) and therefore falls outside of your estate for tax purposes. Luckily, the inheritance tax code has some pretty generous reliefs and exemptions including an annual exemption of £3,000 and a small gift exemption of up to £250 a year.

8. Christmas and Tax Incentives

According to a recent studies by Gallup, about 60% of employees are not engaged. This is not good news for most employers. However most employees do look forward to Christmas. Why not capture this mood and announce some good staff retention and performance
incentives at Christmas? So you can consider things like tax efficient share option schemes if appropriate or tax efficient remuneration packages. How about Christmas shopping half day off? This may well save you some recruitment costs in the New Year.

9. Upto £1,000 Long Service Award

Let’s say you have an employee who has worked for you for a very long time. It’s time to move on and you’ve both decided that December will be a good month to say your goodbyes. Did you know you can give them a non-cash award of upto £1,000 if certain conditions apply? Search HMRC’s site for long service award for more details.

Plan Ahead to Save Tax Next Year

If you’re reading this and thinking you’ve missed out on some useful tax reliefs, the only way to ensure you make next year tax deductible is to plan ahead. Until then, Merry Christmas..!

ABOUT THE AUTHOR

Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant. He is the founder of The Tax Guys.

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Should you transfer your buy-to-let properties into a limited company?

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With mortgage interest tax relief disappearing, landlords who have a few buy-to-let properties could consider transferring them into a limited company.  But is it worth doing? Jonathan Amponsah, CEO at The Tax Guys, explains the pros and cons.

Mortgage interest relief for buy-to-let (BTL) landlords is changing, with the new rules being phased in between April 2017 and 2020.

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Landlords will no longer be able to deduct all of their finance costs from their property income.  From 2020, you will instead receive a basic rate reduction from your income tax liability for your finance costs. So, if you incur £1,000 interest, you will only be able to claim £200 (20% x £1,000) off your tax bill.

However, this change doesn‘t apply to limited companies so many BTL landlords are now tempted to transfer their property into a limited company to continue claiming tax relief on all the interest and finance costs.

It’s an attractive proposition as a limited company will enjoy the tax relief that individuals are now losing, and any net profit will be taxed at the lower company tax rates of 20%.

But… you may find yourself landed with unnecessary tax bills and costs.

Pitfalls

Here are five common pitfalls to be aware of if you are considering a transfer to a limited company:

  • Stamp Duty Land Tax. If you transfer the property from yourself to the company (effectively the company buys the property) then the company could become liable to pay stamp duty land tax. So while you reduce income tax, you may end up paying the same amount or more in stamp duty land tax.
  • Capital Gains Tax. If you transfer the property to the company, this will be treated as if you’ve sold the property to the company. If the property has gone up in value since you originally bought it, you’ll have to pay up to 28% capital gains tax on the difference, subject to any tax reliefs and allowances. If you have a few properties to transfer, seek advice about a relief you could claim to defer your capital gains tax.

These two main tax pitfalls could potentially wipe out any short-term tax savings.

  • Your Mortgage. If your company needs a mortgage to buy the property from you then watch out as in most cases the interest rate is higher for commercial or company mortgages than it is for individuals. So, you could end up paying a lot more over the full term of the mortgage.
  • Once the property is transferred, the company owns it, not the landlord. If something happens to the company, all its assets will be exposed including the property that you put in it.
  • At some point in the future if you sell the property the company will pay Corporation Tax on the profits and the balance of the money from the sale will remain in the company.  In order to get access to the funds to enjoy you’d need to take it out of the company either as salary or dividends or other means. You’d then pay additional tax on that income. When you take the above into account the idea of transferring your BTL property into a limited company starts to sound rather bleak.

Benefits

But there are some situations where you can reduce or eliminate the pitfalls above and enjoy some of the benefits of holding your properties through a limited company.

  • If you’re buying a new property then a limited company could be a good idea. But if it’s an existing property and you’re only managing one or two properties, I’d say: don’t bother. You’re better off paying just a little bit of tax now instead of triggering all these taxes and then having to pay additional double tax if you sell the property in the future.
  • If you currently run your BTL through a properly arranged partnership business, then transferring into a limited company could be a good idea because some of the tax burdens above could be reduced.
  • Legacy planning. Landlords who want to leave their BTL properties to their children could consider the pros and cons of a Family Investment Company as an alternative to a Trust.

Important decision

Clearly the message here is ‘don’t rush into it’. It’s extremely unwise to move BTL properties into a company without taking professional advice.

Whilst there’s no simple answer to the question and it all depends on your circumstances, as a general ‘rule of thumb’ I would say that if it‘s only one or two existing properties in your name, it‘s not a good idea.

If you‘ve got six to 10 properties, it might be worth your while to look at how you can enjoy the benefits of a limited company without triggering unnecessary taxes and costs.

Source: https://www.whatmortgage.co.uk/news/buy-to-let/transfer-buy-let-properties-limited-company/

ABOUT THE AUTHOR

Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant. He is the founder of The Tax Guys.

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Ten common tax return mistakes made by small business owners

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To assist self-employed and freelance workers getting ready to file self-assessment tax returns this month, Jonathan Amponsah, co-founder of tax return app Easy Tax Returns, reveals ten common tax return mistakes to help small business owners avoid an unwanted visit from HMRC.

January 31 is looming – and if you haven’t already filed your self-assessment tax return, then it’s time to get started. Late filing can result in hefty fines.

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But it’s not just being late that can lead to a nasty letter from HMRC or a request for additional money to cover interest and a fine. In my experience, there are ten classic mistakes that people make on their tax return.

These mistakes, however innocent, can lead to additional enquiries and even investigations by HMRC. At the very least they may mean that you pay too much tax or a refund is delayed.

1.     Forgetting to include all sources of income

In the rush for 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?”.

This will trigger an investigation, which can be time consuming and costly. 

2.     Not using the white space to explain unusual variations

If you know there is something unusual, explain it.

HMRC is then far less likely to start an enquiry. It is crucial that you or your accountant do this, although often it doesn’t seem to happen especially if your accountant is snowed under with lots of last minute returns to prepare.

For instance, if your net profit seems too low to support someone above the poverty line, be prepared for give a plausible explanation.

However, there’s no need to go overboard or be over generous in the information you give. Keep it straight, honest and simple.

Also, make sure you do a reasonableness check. If your final tax is a lot more or a lot less than you expected, then this is a sign that something may have been entered incorrectly. Unless you’re able to put a finger on the reason why, you need to go back and double check.

3.     Entering the same expenses in different boxes each year

In their haste to get the return filed, many taxpayers and sometimes even their accountants do misclassify the expenses on the return.

For example, a driving instructor putting their fuel cost in the cost of sales figure one year and then in motor expenses the next, will produce large variations that the computer will want further explanations for.

4.     Entering “yes” between questions one to nine on page two of the tax return but not forwarding the supplementary pages to HMRC

This is a common mistake with manual, paper filing. If you are filing online then this will be picked up by the checks the programme carries out.

Also, don’t simply say “as per accounts” or “more information to follow”. You have to send the relevant information with your return. You might think the taxman already knows it and can look it up, but that’s not the way the tax calculation programme works. You simply have to supply the info in the boxes as required.

5.     Claiming for expenses that cannot be claimed

The rules on what expenses can/cannot be claimed is not as straight forward as you may think. You should proceed with care or appoint a good accountant or tax adviser.

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.

In addition there are certain areas to be aware of. These “hot spot” areas tend to attract more attention than others. HMRC knows that enquiries into the following expenditure areas are likely to produce some interesting results:

  • Legal and professional expenses
  • Repairs and renewals
  • Entertaining
  • Stock
  • Provisions and accruals
  • Research and development
  • Drawings
  • Pensions
  • Employment expense
  • Termination payments

The taxman has been known to raise more enquiries into the above expenses than any other areas. For instance, where drawings are comparatively low, HMRC may wonder whether there have been undeclared cash sales which have been used to fund your living expenses.

Knowing the rules on the other expense categories will ensure that any questions do not lead to a full blown, and very costly investigation.

6.     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.

If the taxman can show that balancing figures or estimates have been used or that there are no invoices for some of the expenses, then he will tend to take this as carte blanche to propose hefty additions to taxable profits, often based on nothing more than a finger in the air.

7.     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 adjustments separately rather than netting it off so that it’s clear to the taxman that adjustments have been made.

8.     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.

9.     Forgetting about Foreign Income

This is huge and one of the most common tax return mistakes.

Foreign Income was such a frequent oversight that the law was changed to make this error a criminal offence. Proceed carefully and use a checklist to ensure nothing gets missed or go through HMRC’s 12 points on “who must send in a tax return” to prompt you to include any foreign income you may have.

Alternatively, instruct a professional to ensure you get it right.

10.Not seeking help to avoid tax return mistakes

HMRC campaigns tell us that “tax doesn’t have to be taxing”. However, the task of completing your taxes cannot always be considered straightforward. And if you get it wrong it can lead to an unfriendly letter from HMRC.

My advice is to seek help if you’re unsure.  If you feel confident, then yes, you can certainly do it yourself and use HMRC’s site or other online platforms.

Alternatively, take your records to an accountant, post them, or use an online app where you can handover your tax return to a professional and remove the risk of tax penalties.

And if you decide to give it a go yourself, do take extra care, use a checklist and don’t leave it to the last minute.

Source: http://businessadvice.co.uk/tax-admin/year-end/ten-common-tax-return-mistakes-made-by-small-business-owners/

ABOUT THE AUTHOR

Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant. He is the founder of The Tax Guys.

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How To File A Tax Return: Avoid These 23 Common Mistakes

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AFTER A decade of dealing with hundreds of tax returns and assisting clients with tax enquiries, I have come across 23 common mistakes that people make when filling in their personal tax return.

These mistakes, however innocent can lead to unnecessary penalties, costly tax enquiries and even investigations by Her Majesty's Revenue and Customs (HMRC). At the least, mistakes may mean you pay too much tax or your refund is delayed.

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Here are the 23 most common mistakes:

  1. Not using the white space to explain unusual variations

If you know there is something unusual, explain it. For instance, if your net profit seems too low to support someone above the poverty line, be prepared for give a plausible explanation. However there’s no need to be over generous in the information you give. Keep it straight, honest and simple.

  1. Entering the same expenses in different boxes each year

In their haste to get the return filed, many taxpayers and sometimes even their accountants do mis-classify the expenses on the return. For example, a driving instructor putting their fuel cost in the cost of sales figure one year and then in motor expenses the next, will produce large variations that the computer will want further explanations for.

  1. Failing to declare or forgetting to include all sources of income

In the rush for January 31, 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.

  1. Entering a 'yes' tick in one of the questions numbered 1-9 on page 2 of the tax return, but not forwarding the supplementary pages with the tax return

This is a common mistake with manual, paper filing. If you are filing online then this will be picked up by the checks the programme carries out.

  1. Using estimates and round sum figures on the return

If the taxman can show that balancing figures or estimates have been used or that there are no invoices for some of the expenses, then he will tend to take this as carte blanche to propose hefty additions to taxable profits, often based on nothing more than a finger in the air.

  1. Not claiming eligible pension reliefs

This can happen by entering the net figure of employee personal pension premiums instead of the gross figure on the return. This means that you are claiming insufficient relief where higher rates of tax are payable. Whilst this may not lead to an enquiry, it’s a common mistake that could cost you money.

  1. Detailing information on separate schedules or entering manuscript notes on the return

For ease, you may enter 'as per accounts' and/or 'information to follow' instead of entering actual information or figures on the form. You might think the taxman already knows and can look it up, but that’s not the way the tax calculation programme works.

  1. Entering the figure of capital expenditure in the wrong box on the self employment pages instead of the Capital Allowances section

This is a common error that means you are claiming excessive relief. Of course, the end result will be the same if the equipment qualifies for a 100% annual invest allowance but the problem is that entering it in the wrong box will produce variance year on year, which can raise a red flag with HMRC.

  1. Lack of attention to risk areas and hot spots

HMRC knows that enquiries into the following expenditure areas are likely to produce some interesting results:

  • Legal and professional expenses
    • Repairs and renewals
    • Entertaining
    • Stock
    • Provisions and accruals
    • Research and development
    • Drawings
    • Pensions
    • Employment expense
    • Termination payments.
  1. Failing to complete question 19 of the core return where a repayment is due

This is a common oversight where paper returns are used. The taxman will assume that you wish to leave the overpaid amount on your record, to be set against future liabilities. Even where online filing is used, not providing bank details means having to wait a bit longer for the refund.

  1. 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 adjustments separately rather than netting it off so that it’s clear to the taxman that adjustments have been made.

  1. Forgetting to pay the tax

Whilst this will not lead to enquiries, it will incur a late payment penalty and some unfriendly letters from HMRC. You can avoid this by simply typing in 'paying HMRC self-assessment' into Google for the online payment link.

  1. Not arranging time to pay

For those who have not put any money aside, do not bury your head in the sand. Pluck-up courage and call HMRC and ask for time to pay. HMRC can be understanding. Yes, there will be some interest added but this is much better that incurring more penalties.

  1. Claiming for expenses that cannot be claimed

The rules on what expenses can and cannot be claimed are not as straightforward as you may think. You should proceed with care or appoint a good accountant or tax adviser. 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.

  1. Forgetting to add Class 2 National Insurance Contributions (NIC) to the tax bill

This is a new requirement and can be easily forgotten.

  1. Claiming termination payments twice

This happens where an employer has already taken the £30,000 termination payments into account through the payroll and given tax relief at source, but tax payers innocently claim it again on their tax returns. This is very common and a classic mistake that has led to a number of tribunal cases where tax payers are being asked to pay, on average, £3,000 in carelessness tax penalties.

  1. Forgetting about student loans

This is another area that gets picked up very often by HMRC and leads to a letter saying 'your tax return was inaccurate…you may have to pay an inaccuracy penalty,' which happens when you’ve taken a student loan and now having to make repayments through the tax return because your earnings exceed the threshold.

  1. Forgetting about Child Benefit clawback

This is another classic mistake, and is becoming more common among higher income earners who are receiving child benefits and who earn over £50,000. Essentially the amount of child benefit is clawed back under what is called the ‘High Income Child Benefit Charge’.

  1. Forgetting about foreign income

This was such a common oversight that the law was changed to make this error a criminal offence. Please proceed carefully and use the checklist (a basic one like the self-assessment checklist can help) to take greater care of your return. Or, instruct a professional.

  1. Not claiming eligible reliefs

The particular relief that springs to mind is the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS).

  1. Ignoring tax code notices

Nearly all tax papers are entitled to an annual tax-free allowance. This is usually shown as a tax code to enable employers to deduct the right amount of tax. Sometimes the taxman will add or deduct certain items from you tax code. For example, benefits in kind, pensions or tax underpayments.

  1. Failing to do a quick reasonableness check

If your final tax is a lot more or a lot less than you expected, then this is a sign that something may have been entered incorrectly. Unless you’re able to put a finger on the reason why, you need to go back and double check.

  1. Not seeking help

HMRC campaigns tell us that "tax doesn't have to be taxing...," However, the task of completing your taxes cannot always be considered straightforward. My advice is to seek help if you’re unsure - use HMRC’s site or other online platforms. Alternatively, you could take your records to an accountant, post them, or use an app like Easy Tax Returns where you can hand over your return to a tax pro and remove the risk of penalties.

Source: http://voice-online.co.uk/article/how-file-tax-return-avoid-these-23-common-mistakes

ABOUT THE AUTHOR

Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant. He is the founder of The Tax Guys.

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