If you have been putting off completing your personal tax return, now is the time to get it done. The deadline of January 31 is fast approaching.
I appreciate that completing an annual return can be stressful and that in such circumstances people often make classic mistakes when filling it in.
The problem is that errors, however innocent, can lead to enquiries and even investigations by HMRC. At the very least, they may mean you overpay tax or find a refund is delayed.
So here are 8 classic mistakes I hope you will avoid this year:
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 received during 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 income or profits?" This will trigger an investigation.
2. Forgetting about Foreign Income in particular
This is a massive mistake. It was such a common oversight that the law now makes this error a criminal offence. Please 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. This is one where you may want to instruct a professional to ensure you get it right.
3. Forgetting about student loans or child benefit clawback
This can lead to a letter saying, “Your tax return was inaccurate…you may have to pay an inaccuracy penalty…”
If you took a student loan a while ago and now have to make repayments because your earnings exceed the threshold, this must be included on your return.
Child benefit clawback is becoming more common among higher income earners (earning more than £50,000) who are receiving child benefits. Essentially, the amount of child benefit is clawed back under what is called the High Income Child Benefit Charge.
4. 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. It’s a common mistake that could cost you money.
5. 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 taxpayers innocently claim it again on their tax returns.
This is very common mistake that has led to a number of tribunal cases. The effect being that taxpayers are asked to pay, on average, £3,000 in carelessness tax penalties!
6. Ignoring Tax Code notices
Nearly all taxpayers 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, HMRC will add or deduct certain items from you tax code. For example, benefits in kind, or pensions or tax underpayments. By ignoring the tax codes, you risk not adding or reflecting these items on your return leading to an incorrect tax return.
7. Failing to 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.
8. Not arranging time to pay
If you find you have an unexpected amount of tax to pay, do not hide from the problem. Pluck up the 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 than incurring more penalties.
HMRC encourages us to believe that "tax doesn't have to be taxing..." In reality, completing your taxes is not always straightforward. Getting it wrong can lead to stress- and time-consuming correspondence and calls with HMRC.
You can certainly do it yourself and use HMRC’s site or other online platforms. Other options are to take your records to an accountant, post them, or by using an app like Easy Tax Returns, where you can hand over your tax return to a tax pro and remove the risk of tax penalties.