Sarah Bradford sets out ten tips to help you complete your self-assessment tax return correctly.
Another self-assessment tax return deadline is looming – the 2018/19 self-assessment tax return must be filed online by 31 January 2020 if a late filing penalty is to be avoided.
However, filing on time may not be enough to stay penalty-free. HMRC can also charge penalties if the return contains mistakes and you did not take reasonable care in completing the return.
The following tips will help you avoid common errors and stay penalty-free.
1. Know the deadlines
The main deadline for filing the 2018/19 self-assessment tax return is midnight on 31 January 2020. However, there are other deadlines you need to be aware of. An earlier deadline applies to paper returns, which should have been filed by 31 October 2019. Filing a paper return after this date will generally give rise to a penalty; however, the return can still be filed penalty-free if it is filed online by 31 January 2020.
If you have an underpayment of £3,000 or less, and you also pay tax under PAYE, you can have the tax collected throughout 2020/21 via an adjustment to your tax code, as long as you file your tax return by midnight on 30 December 2019 and have sufficient PAYE income from which to collect the underpayment.
Where the notice to file is delivered after 31 October 2019, a later deadline applies, being three months from the date of the notice. Where the notice is given after 31 July 2019, paper returns can be filed up to three months after the date of the notice.
2. Check your personal details
When filing the return check your personal details (name, address, National Insurance number, unique tax reference) are correct and up to date. If they are not, correct them.
3. Have necessary paperwork to hand
Before starting your personal tax return, make sure you have all the necessary paperwork to hand. This may include (for example) forms P60 and P11D if you are employed, dividend vouchers, bank statements, rental receipts, business records, details of pension contributions and charitable donations, etc.
It is important to keep good records throughout the year so that you are in a position to complete your tax return correctly.
4. Declare all income
Make sure that you include all income that needs to be notified to HMRC on the return and that nothing is forgotten.
There are items that do not need to be shown on the return – rent-a-room income under the £7,500 limit, property income under £1,000, and trading income under £1,000 can be ignored (unless you have made a loss for which you wish to claim relief).
5. Don’t forget to claim relief for allowable expenses
No-one wants to pay more tax than they have to. Making sure that you claim relief for all eligible expenses is one way of reducing your tax bill legitimately.
For trading and property income purposes, the rule is that relief is available for expenses that are incurred ‘wholly and exclusively’ for the purposes of the business. The rule for employment expenses is stricter; expenses must be incurred ‘wholly, exclusively, and necessarily’ for the purposes of the employment for a deduction to be allowed.
6. Exclude private items from expense claims
As noted above, relief is only given for expenses that are incurred wholly and necessarily for the purposes of the business. Care must be taken not to claim a deduction for personal expenditure.
Where an item of expenditure has both a business and personal element, a deduction is permitted for the business costs if it is possible to identify the business element separately. This may be the case where (say) a phone is used for both personal and business calls and it is possible to identify the business call from a phone log, or where a car is used for both business and privately and a record is kept of business and private mileage.
However, no deduction is allowed for mixed-use expenses where it is not possible to separate out the business proportion; the expenditure fails the wholly and exclusively test. An example would be work clothes, which even if only worn for work still count as dual purposes expenditure, as the clothes also provide warmth and decency. As regards clothing, an exception is made for items that feature the business name or logo, for which a deduction is permitted.
It is important that good records are kept, ensuring that any private expenditure is identified and excluded from those expenses for which a deduction is claimed.
7. Claim all available reliefs
Check whether you could benefit from any reliefs and allowances, and if so, remember to claim them.
For example, if you have made charitable donations, you will need to complete the charitable donations section of the self-assessment tax return to ensure that you receive any higher or additional rate relief on your contributions. Likewise, if you have made contributions to a personal pension scheme, you will need to complete the pension contributions section to ensure that you have secured the available tax relief.
If you have trading losses and want to claim relief for those losses, these too can be claimed via your self-assessment return. Similarly, if you have capital losses brought forward that you want to offset against chargeable gains, the claim should be made in the capital gains tax section of the tax return.
It is also prudent to check that that you have claimed all the personal reliefs to which you are entitled.
8. Calculate the payments on account
Under the self-assessment system, an individual is required to make payments on account if their tax and Class 4 National Insurance contributions (NICs) bill for the previous tax year is at least £1,000 unless more than 80% of their liability is deducted at source (e.g. under PAYE) Most traders whose combined annual tax and Class 4 NICs liability is at least £1,000 will need to make payments on account.
Payments on account are made on 31 January in the tax year and on 31 July after the end of the tax year. If the final liability is more than the payments made on account, the balance must be paid by 31 January after the end of the tax year. If the final liability for the year is less than the payments on account, the excess is refunded (although in reality this will normally be given effect by setting any refund due against the payments on account for the next tax year).
Each payment on account is 50% of the tax and Class 4 NICs liability for the previous tax year. Although Class 2 NICs are paid with tax and Class 4 NICs, the Class 2 NICs liability is not taken into account in working out the payments on account.
Payments on account for 2019/20, due on 31 January 2020 and 31 July 2020 are, therefore, 50% of the tax and Class 4 NICs liability for 2019/20.
Remember to review the payments on account and if you expect profits to be less in the current year, you can opt to reduce the payments on account. But be warned, if you reduce them below the level they should be, interest is payable on the shortfall.
9. Take account of payments already made
The HMRC tax calculation shows what is due but not what has already been paid. The calculation for 2018/19 will show the 2018/19 liability (i.e. tax, Class 2 NICs, and Class 4 NICs) and first payment on account for 2019/20 as being due by 31 January 2020.
However, it will not show what has already been paid. Where payments on account were made for 2018/19, remember to deduct these from the total liability to arrive at the amount that needs to be paid by 31 January 2020.
10. Mistakes can be corrected
Mistakes happen. If you do make a mistake when completing your tax return, don’t panic! Mistakes can be corrected by filing an amended return. If a mistake does come to light, particularly if it means that you have paid less tax than you should have done, it is important to deal with it and tell HMRC, rather than ignore it and hope it will go away.
Errors are not penalised if reasonable care was taken when completing the return.
