10 Self Assessment tax return mistakes and how to avoid them

First things first. Self Assessment is the system that HMRC uses to deduct income tax from workers who are self-employed or generate income that isn’t taxed through PAYE. If you earn income that isn’t taxed automatically by your employer (essentially are you earning an additional income from elsewhere), you’ll need to declare that income to HMRC and pay the appropriate amount of tax using a Self Assessment tax return.

It requires individuals to calculate their own tax liability, hence the term “self-assessment.” The process involves providing information about various sources of income, allowable deductions, and tax reliefs.

Whether you’re completing your first Self-Assessment tax return or you twentieth, it’s important that you file your tax return on time, as you will incur a penalty for missing the deadline. Your return should be free of mistakes and the information submitted should be accurate, as you could be penalised for not taking sufficient care in completing your return.

We’ve put together some of the most costly mistakes people make with their tax return, and what you can do to avoid those mistakes.

No Government Gateway user ID

One of the most common mistakes is forgetting to register for a Government Gateway account or losing your Government Gateway user ID. Both issues may prevent you from filing your Self Assessment tax return and receiving a penalty if you miss the 31 January deadline.

You will need a Government Gateway user ID before attempting to set up a Self Assessment account. If you do not have an account, you can register on the HMRC website. You will need your National Insurance number or a UK address, and a recent payslip, or P60, or a valid UK passport to register. You’ll then receive your 12-digit activation code by post from HMRC, but be warned this can take up to 10 days.

If you’ve lost your Government Gateway user ID you can recover your user ID and password at the GOV.UK website.

No Unique Taxpayer Reference (UTR)

Another common mistake is forgetting to apply for or losing your Unique Taxpayer Reference (UTR) number. If you’re completing your Self-Assessment for the first-time, you’ll need to set up a Self-Assessment account with HMRC to obtain a UTR. A UTR is a 10-digit code that uniquely identifies you as a taxpayer. It normally takes about 10 days to get your number through in the post once you’ve completed your application.

Make sure you have an active UTR well before the 31 January deadline, or it could cause you to miss the filing deadline and incur a penalty. If you have lost your UTR number, you may be able to find it on previous tax returns and correspondence from HMRC. In the event of not being able to find your UTR number, you should contact HMRC directly and once your identity is verified, it’ll be sent out in the post. Be mindful of allowing time to get your Government Gateway and UTR set up.

Forgetting about tax-free allowances

Don’t forget to take advantage of your tax-free allowances. If you’re unsure, speak with your accountant.

When you hear HMRC talk about tax-free allowances, they’re normally just talking about your Personal Allowance. This is an allowance of £12,570 that gets applied to your tax account automatically. You do not need to apply for this allowance.

However, there are other automatic tax-free allowances you should be aware of. For example, you can get up to £1,000 per year in tax-free allowances for any income you generate from trading and property, known as the Trading Allowance and Property Allowance. If you have both types of income you will be eligible to £1,000 for each.

There are quite a few tax-free allowances, so before filing your tax return, do your homework or seek expert guidance so you’re not missing out on any schemes that could benefit you. Other examples of tax-free allowances you include:

The Blind Person’s Allowance – if you or your spouse is registered blind you can claim £2,870 per year
The Marriage Allowance lets you transfer unused Personal Allowance to your partner
The Rent a Room Scheme allows you to earn up to £7,500 tax-free if you let out a furnished room in your home

Not planning for payments on account

Make sure you plan for payments on account, but what are payments on account?

A payment on account is an advanced payment HMRC asks you to make towards your next tax bill. This includes any Class 4 National Insurance contributions if you’re self-employed.

After filing your Self Assessment, you’ll have to make two payments on account every year. Each payment represents half of your previous year’s tax bill — and payments on account are normally due by midnight on 31 January and 31 July each year.

You won’t need to make payments on account if:

your last Self Assessment bill was under £1,000, or
you’ve already paid over 80% of all tax you owe

To avoid getting the fright of your life when you see the next tax bill, you should do your best to start tucking away funds for your payments on account so that you’ve got it to hand when it’s time to pay your bill.

Not declaring the correct salary and benefits from PAYE jobs

If you have a job in which your tax is deducted through PAYE, you need to make sure HMRC knows about it and the income earned through PAYE is correct on your return. Otherwise, you could end up paying more tax than you need to.

You should always check the amount you’ve earned and what’s been taxed from your PAYE employment to make sure the information on your return is correct. The best place to check your PAYE information is on your P60 or P11D. This will show how much you earned and how much tax was paid in the last tax year, which you can then enter manually if need be.

Claiming disallowed expenses

There are many allowable expenses you can legitimately claim to reduce your tax bill. Allowable expenses are essential business costs that are required to keep your business up and running. They are tax-deductible, which means HMRC allows you to offset those expenses against your annual tax bill.

Allowable expenses you can claim include:

office costs – office, property, equipment
travel costs – car, van, fuel, parking, train fares
clothing expenses – protective clothing, uniforms
staff costs – salaries, bonuses, pensions
things you buy to sell on – goods for resale, or raw materials
financial costs – accountancy costs, insurance, bank charges
costs of your business premises – rent, rates, utility bills, business rates
advertising or marketing – advertising, entertainment, subscriptions, website costs
training courses – related to your business and industry

You should also keep records and receipts (digital is fine) of all expenses claimed, as HMRC may want to see them one day.

A legitimate expense must have been incurred ‘wholly and exclusively’ for the purposes of running the business and be allowable for tax purposes. This means the costs should have been incurred while actually performing a business activity. If in doubt as to what you can and cannot claim, check with your accountant or HMRC as claiming illegitimate expenses may have serious consequences.

Not claiming tax relief on private pension contributions

Do you make private pension contributions? If so, you can get tax relief of up to 100% of your annual earnings.

You get this tax relief automatically if:

your employer takes workplace pension contributions out of your salary, or
you contribute towards a private pension and pay Income Tax at 20%, as your pension provider should claim the basic tax rate relief and add it to your pension pot

It is worth checking the basic rate relief has been claimed as there are a handful of pension providers who do not do this.

However, if you pay the higher rate (40%) or additional rate (45%) of Income Tax, you will need to claim the extra 20% and 25% through your Self Assessment tax return. This money will not be paid into your pension pot, but will instead be paid in one of the following ways:

as a reduction in your current tax bill
as a tax rebate
as a change in your tax code (i.e. you will pay less tax next year)

HMRC will not remind you that you can claim this higher rate tax relief on your pension contributions, or that you have to claim it via your Self Assessment tax return, or that it needs to be done every year. Without sounding like a broken record, if you’re unsure contact HMRC or seek expert advice.

Missing the filing and payment deadline

The HMRC Self Assessment online submission deadline is the same every year, 31 January. If you fail to send your return in time (and you’ve not been granted an extension), penalties can range from a fine of £100 up to 100% of your tax bill so don’t file late or you could end up paying twice as much tax!

31 January isn’t just the deadline for filing your return. It’s also the deadline for making your payment on any tax owed — as well as your first payment on account (see previous point), and HMRC will charge you interest on late payments.

So file early, and make sure you’ve got plenty of time to set money aside to pay your bill by the deadline.

Not being aware of the High Income Child Benefit Tax Charge

More than 7.2 million UK families receive Child Benefit every year, but what a lot of taxpayers don’t know is they may have to pay a tax charge known as the High Income Child Benefit Tax Charge if they or their partner earn over £50,000 per year. That means if you or your partner earn above this amount and are in receipt of Child Benefit, you will be liable to pay this charge, resulting in the loss of all or some of your Child Benefit.

The income used by HMRC to calculate the charge is known as the ‘adjusted net income.’ If your income is between £50,000 and £60,000, you’ll be charged 1% on every £100 worth of excess income. If your annual income is over £60,000, you’ll be charged the full amount of the Child Benefit you received.

It is your responsibility to deal with this charge through the Self Assessment tax return, so it is worth getting this right.

However, you do have options with regard to this charge. For example:

you can reduce your ‘adjusted net income’ by making a pension contribution either as part of an occupational pension scheme or a personal pension, and so reduce the tax charge payable or
if you earn in excess of £60,000 you may wish to elect not to receive Child Benefit and avoid paying the charge and the hassle of dealing with it in your tax return

Not claiming charitable donations

Not everyone realises you can also lower your taxes by claiming on charitable donations.

Every donation you make to a registered charity or a Community Amateur Sports Club (CASC) is 100% tax-free. These donations are normally made through Gift Aid.

It’s worth mentioning that if you’re a high earner and you pay tax above the basic rate, you’ll be able to claim the difference between the rate you pay and basic rate tax on your donation.

Honourable mentions

We had to pick 10 to make the list, but below are a few more common mistakes that could prove costly.

Using the wrong tax code – you can check this on the GOV.UK website
Incorrect National Insurance and UTR numbers – double check these
Incomplete information – writing ‘TBC’ or ‘info to follow’ is not acceptable. All information required must be submitted
Ticking the wrong boxes – this can be avoided by using the HRMC guide included with the tax return
Not reporting interest earned on savings – forgetting to report the interest you make from savings and investments
Failing to declare all income – forgetting to declare a source of income or under-declaring income could lead to an investigation by HMRC, a fine, and prosecution.
Not declaring capital gains – remember to declare income from capital gains, such as the sale of property, a business or shares, etc

What to do if you make a mistake with your tax return

If you discover you have made a mistake with your tax return, you have 12 months from the submission deadline date to amend it.

You can make amendments and refile your return by following HMRC’s guide on tax return corrections. Your tax bill will be updated based on what you submit.

If HMRC finds problems with your return, this could result in paying more tax and receiving a penalty notice. However, if you have taken reasonable care with your return and made a genuine mistake, no penalty should apply, and you have the right to appeal a penalty notice.

TL;DR

We’ve compiled the most common mistakes as well as a few honourable mentions. Completing your Self Assessment return accurately and on time is incredibly important if you want to keep your tax bill and stress bills as low as possible.

If you have multiple sources of income, or just find the whole thing a little bit too complicated, then speak to an accountant who will make sure your tax return is done correctly.

If you want to speak a member of the team about anything Self-Assessment related, get in touch.