10 essential tax return mistakes to avoid
Make sure you file a faultless tax return by steering clear of these common errors
With the deadline for self-assessment forms looming, entrepreneurs across Britain will be scrambling to fill in their documents and the risk of silly, but costly errors is high. To help you minimise the risk of an expensive oversight, Startups got two of Britain’s top tax experts, Nichola Ross Martin and Anita Brook, to compile a list of the 10 most common mistakes people make on their self-assessment forms.
1. Missing the deadlineThis may sound obvious, but it’s a mistake many people make – particularly start-up business owners who have to juggle countless tasks and concerns, and may forget about their tax return until it’s too late. If you’ve suddenly remembered about your self-assessment while reading this article, get the form filled in asap – if you miss the deadline, you’ll get a £100 fine and be charged interest on any overdue tax you owe.
2. Keeping all receipts Whenever you’re claiming an expense, you should retain a receipt. The revenue generallytake a dim view if you just estimate your expenses, without evidence. If you aren’t sure whether you can claim an expense because you don’t have a receipt, ask a professional for assistance. You may receive a tax penalty if you make an error compiling your return and don’t ask for help when you need it.
3. Factoring everything in When you’re doing your form, think about everything you use in your day-to-day business life, and include it in your submission. People often forget about, or overlook, things like mobile phones and broadband, but if you use them for business you can claim a deduction for these costs.
4. Claiming your home as a workplace A lot of businesspeople, particularly sole traders, get it wrong when it comes to their home; they may think it’s a workplace, but the revenue may not. There are lots of grey areas whenit comes to the home, so if you’re not sure, consult a professional.
5. Is it subsistence – or entertaining? It’s perfectly legitimate to claim on food and drink consumed during business travel trips, but the cost of entertaining customers is not allowable for tax claims. If you’re not sure on this, check with an advisor.
6. Over-estimating motor expensesIt’s a classic mistake – you fill your car up at the petrol station, use half the tank going to and from work, and claim the whole lot on expenses. The revenue will take a particularly dim view of this; if you want to do it properly and avoid their wrath, keep an account of all your business journeys for a representative period of time (for example, a month) and use this to gauge the amount of business travel you undertake during the year. Remember, you can also claim a proportion of all your vehicle running costs; alternatively you may claim a mileage allowance of 40p for the first 10,000 business miles and 25p thereafter.
7. Forgetting you have stockA self-employed builder might have a whole yard full of materials built up on jobs, but forget to take this into account. This will seriously disrupt his figures and lead to major discrepancies – for someone like a jeweller, who owns a lot of valuable goods, failing to declare stock can be seriously costly.
8. Capital allowance Many people forget that, if you buy a capital item – a computer for your office, a sofa for your reception, a projector for your presentations – you can claim 100% of the cost under the terms of an annual investment allowance. However, please note you can’t claim the annual investment allowance on the cost of a car. Cars only qualify for a 25% allowances. Do not forget to add back a proportion of this if you use your car privately.
9. Work in progress If you’ve got a job that’s part-way done at the end of the year, but you haven’t actually billed for it, you have to make a decision on whether you recognise the income on it. A lot of people get seriously caught up in this, builders in particular. Even if you haven’t billed for a job, it’s likely you’ll have to bring it into your account.
10. Missing off pension contributions It’s easy to forget to put pension contributions through on your self-assessment, but they’re a vital part of the tax assessment process, and it’s in your best interests to factor them in.
Nichola Ross Martin FCA is tax director of www.rossmartin.co.uk , an online tax resource for accountants and advisors.
Anita Brook is founder of Accounts Assist, a growing firm of Chartered Accountants, and is an experienced advisor to small firms and sole traders.