Self-assessment mistakes to avoid in the tax return

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Making mistakes about your income and expenses on your tax return can cause financial problems as well as additional stress.

In recent years, thousands of people have taken the plunge and gone on their own by choosing to be their own boss.

And while the pandemic has certainly made life as a freelance writer more difficult, there are some significant benefits to working for yourself.

Unfortunately, an inevitable part of self-employment is having to complete your own tax return.

Now I’m not foolproof – I made my own mistakes when filing my tax return, even with my track record.

The reality is, it’s all too easy to get it wrong, and this innocent mistake could end up costing you dearly, whether in the form of a fine or simply missing out on a tax break that’s available to you.

OnlineMoneyAdviser financial brokers have picked out some of the classic mistakes self-employed people most often make when submitting their own tax return. Let’s take a look and highlight how you can avoid repeating this mistake yourself.

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Claim your expenses

It doesn’t matter what business you are in, if you are self-employed you will have to incur a certain level of expense to run that business.

For some, it will not be a huge sum. Personally, for example, I really only spend on things like newspaper subscriptions or running a website, but for others, the expense involved will be significant, especially if they’re on the go a lot.

Getting it right is crucial, however.

You only pay tax on your profits, the difference between the money you bring in and the expenses you incur, so if you ignore some of those expenses you will inevitably end up with a bigger tax bill than you need to.

So it is a very good idea to have a system in place to track these expenses, as well as to keep receipts so that you can prove that you have spent this money in the IRS if you need to.

Get help with your tax return: sign up for Simply Tax today

Claim bad expenses

Equally important here is to ensure that you are only claiming the right expenses, for the money that is spent on actively running the business rather than for the costs that may, at least in part, have an impact. about your privacy.

Take the utility bills. I work from home, using my own broadband. But I couldn’t claim my entire broadband bill as a work expense, as it is also used by me and my family during the evenings.

It’s the same with the energy bill – some of the energy we use each month goes to my business, but it’s only a fraction of the overall household usage.

Now you can review your usage and bill to accurately calculate how much is spent on your business activities and then claim for it. But personally, life is too short, so I claim the simplified amount.

This allows you to claim a flat rate per month, based on the number of hours of business use you spend working from home. For 25-50 hours you can claim £ 10, for 51-100 hours you can claim £ 18 and for more than 101 hours you can claim £ 26.

Ultimately, if the whole thing you are spending money on is used for your trading actions, then you can get the full amount back. But if not, you will have to adjust the amount you claim to reflect its overall usage.

How much have I won?

You must include all of your income on your return, beyond the money you received from your business. So, for example, if you have a small side business, like a buy-sell or eBay store, then you will need to include that income in your self-assessment.

You might not have to pay tax of course – we can all make £ 1,000 a year from some side activities before tax is due – but it’s good practice to include everything, and that can avoid uncomfortable conversations with HMRC later on.

Get help with your tax return: sign up for Simply Tax today

Keep track

I can say from experience that sorting out a tax return is much easier when you have detailed records to rely on.

Keeping track of exactly when you got paid, for what work, and the various expenses you incurred along the way makes it much easier to complete this return without making any mistakes.

Leaving it all to the last minute and having to go through chain emails and bank statements in order to fill in the blanks, can only add to what is already a stressful process and should be avoided.

I know this is an area I’m not good at, so I try to set aside a few hours at the end of each month to go through my records and update my accounts. If I don’t, it’s too easy to fall behind.

Pay the tax bill

Here’s a mistake that a lot of self-employed people make, I know, is not putting money aside all year round to pay that tax bill. It’s easy to do – you’ve just been paid for a job, you’ve got bills to pay, and you want to treat yourself.

The problem is, a few months later, the tax authorities will expect you to remit what you owe, and chances are it will be a large amount.

Before becoming self-employed, I asked a few freelance friends for their best advice and the most helpful by far was to transfer part of your salary for each job directly to a dedicated savings account. He keeps the money separate, ready to pay tax on time.

There will inevitably be times when you are tempted to dive into it, but the discipline really pays off. And if like me you are the prudent type and put too much aside, then you have your own form of tax refund that you can take advantage of once the bill is paid.


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