Self-Assessment Tax Returns: Common Mistakes and How to Avoid Them

Filing a self-assessment tax return is a necessary task for many individuals in the UK, especially sole traders, freelancers, and those with additional income streams. While the process is relatively straightforward, mistakes are common and can lead to penalties or delays. To ensure a smooth experience, it’s important to know what to watch out for and how to avoid common pitfalls. In this guide, we’ll explore some of the most frequent errors and provide practical solutions to make your self-assessment journey hassle-free.

1. Missing the Registration Deadline

One of the first mistakes many new taxpayers make is failing to register for Self Assessment on time. If you’re filing for the first time, you must register with HMRC by 5 October following the end of the tax year for which you need to file.

To avoid this mistake:

• Mark important dates in your calendar.
• Allow plenty of time for HMRC to issue your Unique Taxpayer Reference (UTR) number and activation code, as these are required to complete your self assessment tax return.

2. Incorrect or Missing Information

Providing inaccurate or incomplete information on your return is a common error that can result in delays or even penalties. This might include:

• Mistakes in income reporting.
• Forgetting to declare certain sources of income, such as rental or investment earnings.

How to avoid it:

Double-check all figures and ensure they match your records. If you’re unsure about what to include, a tax accountant can help you gather and verify the correct information. They have the expertise to ensure every detail is accurate.

3. Forgetting Allowances and Expenses

Many taxpayers fail to claim all the allowances and expenses they’re entitled to, which can lead to overpaying tax. For example:

• Sole traders and freelancers often forget to claim business-related expenses like office supplies, travel, or software subscriptions.
• Higher-rate taxpayers might overlook additional pension relief or Gift Aid donations.

Solution:

Keep thorough records of all expenses throughout the year. Review HMRC’s guidelines on allowable expenses to ensure you’re claiming everything you’re eligible for. If in doubt, consult a UK tax firm for advice on maximising your deductions legally.

4. Waiting Until the Last Minute

Procrastination is a common mistake when it comes to self-assessment. Leaving your tax return until the last minute can lead to errors, missed deadlines, and unnecessary stress.

Why it’s risky:

• You may discover missing documents too late.
• The HMRC system can experience heavy traffic near deadlines, causing delays.

To avoid this:

Start your tax return as soon as the tax year ends. By starting early, you’ll have ample time to resolve any issues or seek assistance from a professional, such as tax auditors, who can review your submission for accuracy.

5. Not Keeping Proper Records

HMRC requires you to keep accurate records of income and expenses for at least five years after the submission deadline. Poor record-keeping can lead to mistakes on your return and make it harder to respond to queries from HMRC.

How to stay organised:

• Use accounting software to track income and expenses throughout the year.
• Maintain digital copies of receipts and invoices to avoid misplacing them.

Good record-keeping not only makes filing easier but also ensures you’re prepared in case of an audit by HMRC.

6. Ignoring Payments on Account

If your tax bill is over £1,000, you may be required to make payments on account—advanced payments toward your next year’s tax bill. Many taxpayers overlook this, leading to unexpected bills and cash flow issues.

Avoid the surprise:

• Review your tax bill carefully to understand if payments on account apply.
• Plan your finances to accommodate these payments in January and July.

If you find payments on account confusing, consult a tax accountant for clarity and financial planning.

7. Using Incorrect Tax Codes

If your tax code is wrong, it can lead to underpayment or overpayment of taxes. This is especially relevant for those with multiple income sources, such as salaried employment and freelance work.

What to do:

Check your tax code against your earnings to ensure it’s accurate. If you suspect an issue, contact HMRC immediately to correct it.

8. Failing to Declare All Income Sources

HMRC requires you to declare all sources of income, not just your main salary or freelance earnings. Commonly overlooked income includes:

• Rental income.
• Dividends and interest from savings accounts.
• Earnings from foreign investments or property.

Solution:

Review all your financial activities for the year and declare every income source. If your situation is complex, working with a UK tax firm can help you manage multi-source income accurately.

9. Forgetting to Pay on Time

Filing your return is only half the battle—you also need to pay your tax bill by the 31 January deadline. Missing this payment can result in interest charges and penalties.

How to stay on track:

• Set reminders for both the filing and payment deadlines.
• Use HMRC’s online payment options for convenience.

10. Overlooking Professional Help

Many people attempt to file their self-assessment tax return on their own, but for those with more complex finances, this can lead to mistakes. Hiring a professional, such as a tax accountant, may save you time, stress, and money in the long run.

Why it’s worth considering:

• A tax accountant can identify deductions and allowances you might miss.
• They ensure accuracy, reducing the likelihood of penalties or audits by HMRC’s tax auditors.

The Bottom Line

Filing a self-assessment tax return doesn’t have to be stressful or complicated. By avoiding common mistakes like missing deadlines, poor record-keeping, and incomplete information, you can ensure a smooth and accurate submission. For those with more complex financial situations, consulting a tax professional or UK accounting firms can provide peace of mind and potentially save money.

The key is to stay organised, start early, and seek help when needed. With the right approach, you’ll not only avoid penalties but also take full advantage of the tax reliefs and allowances available to you.