5 Self Assessment tax return gotchas to watch out for
We’re rapidly approaching that time of the year again: 31 January, which is the deadline for Self Assessment tax returns submitted online, along with tax and National Insurance payments.
If you’re dreading doing your taxes then don’t panic. Below we’ve gathered expert insights into the problems typically encountered.
In short, you’ll know exactly what to watch out for—so can avoid any issues.
Here’s what we discuss:
- Get the paperwork together ahead of time
- Make data entry much, much faster
- Ensure you have the tax payment ready
- Know when to ask for help
- Get ready for Making Tax Digital right now
1. Get the paperwork together ahead of time
To complete your Self Assessment tax return, you’ll need to gather together a comprehensive quantity of paperwork. Some of this will literally exist as paper, while some will be online documents, such as PDF invoices for online purchases or PDF bank statements.
It might transpire that you don’t need some of it. And if you’re completing the tax return online then some of the information may be automatically added into the tax return by HMRC. But it’s simply wise to gather it all together before starting to avoid the frustration of not having what you need at the moment you need it—and you aren’t racing against the online session at the HMRC website timing out, for example.
Examples of paperwork you might require to complete your tax return include:
- Expenses: Ideally, you should already be logging business expenses as they occur in accounting software or, at worst, a spreadsheet. But if not, you’ll need to grab receipts from business purchases you made across the tax year. If these are from online stores like Amazon, you may be able to simply click to view your purchases from April to March, then click to download the invoices in PDF form.
- Income: Obviously, you’ll need to know how much you earned from your self-employment. Again, if this isn’t already logged in accounting software or a spreadsheet, then you’ll need to get together the various invoices and corresponding bank statements showing they were paid (assuming you’re using the cash basis accounting system).
- Benefits: If you’ve claimed state benefits (both in the UK and overseas) then you might need to mention these. Common examples here in the UK are Child Benefit and longer-term Incapacity Benefit.
- Employment income and perks: If you’ve been a salaried employee in the tax year, then you should grab your P60 (or P45 if you left the employment). If you’ve received any benefits-in-kind (BIK), then you might need your P11D if one was issued to you. If you were made redundant, then you might have to detail that, too.
- Investments and Capital Gains: Interest from certain kinds of savings might need to be declared, so you’ll need bank statements. Self Assessment can also be used to declare Capital Gains, too, so you may need paperwork relating to that.
- Property income: Typically, this is rental income if you rent out property, so you’ll need your records of this (plus records of your property-related expenses, of course, such as repairs made to the property).
- Charity contributions/Gift Aid: If you give to charity, then you will need to mention this in order to be able to claim any tax relief. Therefore, you’ll need to be able to provide the details.
2. Make data entry much, much faster
One of the absolute worst things about doing your taxes is inputting data. This might be going through a stack of receipts as 31 January draws close or inputting them as required across the tax year (which is, by the way, a far better way of doing things!).
In fact, data entry from receipts, invoices and bank statements is probably the #1 reason why people hate doing their accounting.
So why not get rid of it? Just snap a picture of the receipt using your mobile phone, scan it using your desktop scanner, or email the invoice to a special email address if it’s a PDF—and let AutoEntry take care of it.
AutoEntry will extract all the line data you require, such as the date of the transaction, the amount, and the supplier name from receipts. It will then let you publish it through to your accounting software. You can even create rules so that publishing in future is automated if you get many of the same types of receipts.
Those who use it daily say that AutoEntry can turn days of work into just hours, and increase accuracy, too. It’s the perfect tool for keeping on top of your accounting throughout the tax year. And right now you can get three months of AutoEntry for free—although be quick, because this offer won’t be around forever!
3. Ensure you have the tax payment ready
Most of us know to set aside an amount for any balancing payment of tax come 31 January, alongside the submission of the tax return. Payments on account for the current tax year must also be paid on 31 January, of course.
As they earn, many people set aside their tax and National Insurance in a savings account so that it can earn interest for them until it’s due to be paid. No, this is not “illegal”, and nor is it frowned upon. You can do what you want with this money, provided you have it ready to pay your tax bill.
The sooner you do your taxes after the 6 April each year, the sooner you’ll know exactly how much you owe—potentially returning income to you if you’ve simply been setting aside a set percentage from each payment you receive. Remember, even if you complete the return, there’s no need to file it or pay your taxes until 31 January at the latest.
But as the 31 January deadline approaches (or 31 July for the second payment on account), it’s wise to ensure the money is accessible.
For example, some high-interest savings accounts require a few days’ notice in order to make a transfer. Some only pay interest periodically, so you may wish to time the initial account creation and subsequent withdrawal to maximise this.
Furthermore, if you have a particularly large amount of tax money to move, it’s not unknown for such large transactions to get incorrectly flagged by banks as potentially criminal—freezing the account and leading to a world of pain as you try to sort it out in time.
in short, be prepared, and work ahead of time.
Bear in mind that bank transfers to HMRC are not guaranteed to be instant, either—so if you’re paying your tax online on 31 January then you’re running the risk of accidentally incurring an interest payment. Pay a day or two before to be absolutely sure the money will arrive in time.
4. Know when to ask for help
The big breakthrough for many new sole traders is the point they hire an accountant. They benefit not just from having their accounting taken care of, but they also gain a wealth of small business experience.
A DIY approach is a classic false economy, and it’s fair to say that very few people have ever regretted the help offered by a good accountant that knows their stuff.
So, that’s perhaps the best tip here: get an accountant to help with your taxes (at the very least). The cost of using them will almost certainly be more than paid back through a full understanding of what expenses you can claim.
A real-life example from a few years ago saw one sole trader sign-up with an accountant and instantly get back £6,000 from HMRC because of a badly-handled capital expenditure van purchase.
The same applies to getting a bookkeeper’s help throughout the year. With somebody else taking care of your daily accounting, you’re free to do more of what you love. Again, the sums add up because you’re able to maximise your income, rather than wasting hours every week doing your books and earning nothing. (And, no, you won't be able to squeeze it into your weekend—Saturday and Sunday should be for relaxing.)
The advice about getting expert help when required doesn’t stop there. If you know you’re going to be late filing your Self Assessment return or paying your tax, then it’s best to confess immediately to HMRC. You won’t be the first person who’s late with their tax, and there’s a surprising amount that can be done.
You must avoid the temptation to ignore the problem and let the deadline fly past without doing anything.
5. Get ready for Making Tax Digital right now
You may already have heard about Making Tax Digital (MTD) because it revolutionised VAT a few years ago.
As of April 2024, it will apply to Self Assessment too—but only for those earning over £10,000 per annum from self-employed income and/or property rental income.
Everybody else will continue to use the existing Self Assessment system, with no changes.
Making Tax Digital for Income Tax Self Assessment, to give the scheme its full name, means you must use MTD-compatible software for the accounting and reporting that relates to income tax.
For most people, this will be accounting software and many top titles, such as Sage Accounting, are already compatible.
MTD means you’ll need to keep all your accounting records in the software and ensure there’s correct digital linking of the data. For example, if you use a point-of-sale system (POS) such as a cash register payment terminal, then it will need to be linked into your accounting in the correct way.
MTD’s rules say you must use the software to provide updates to HMRC every three months, at least, and then provide an end-of-period statement (EOPS) and final declaration by 31 January.
All of this is a legal requirement, with penalties for non-compliance.
If you’re reading this with a slack jaw, then here’s some advice: Get started now. Don’t wait until the last minute. You can sign-up for MTD for Income Tax today, with many major accounting apps already compatible. If you start early then you can work out the kinks before MTD becomes a legal requirement. And you can avoid the rush, too, at a time when HMRC’s phone lines are sure to be jammed with people needing help.
In fact, with AutoEntry coupled with good MTD-compatible accounting software, you’ve everything you need to make doing your taxes significantly easier in the coming years. So, what are you waiting for?