Common Tax Pitfalls and How to Avoid Them

Filing your self-assessment tax return can feel overwhelming, especially with ever-changing laws and multiple, complex filing requirements. Even small mistakes can lead to delays, penalties, or missed tax efficiencies. Whether you prepare your self-assessment tax return yourself or use a professional agent, having an awareness of the most common pitfalls can save you both money and stress.

In this blog, we look at the most common pitfalls when it comes to preparing your self-assessment tax return, and how you can avoid them:

Income & Expenses

If you meet the reporting thresholds, HMRC require you to report all taxable income, regardless of whether it’s from a full-time or part-time employment, freelance projects, cash payments, or investment returns such as interest and dividends. Failing to report all income can trigger an HMRC enquiry.

How to avoid this?

• We suggest keeping a detailed log of all income sources and cross-referencing records with bank statements and invoices. If unsure, look at HMRC’s website or consult an accountant.
• Open a separate bank account for all business transactions from the commencement of trade to ensure clarity and an easy-to-follow audit trail. This way, personal and business finances aren’t mixed.

Record Keeping

Poor or inadequate financial records, such as missing receipts, invoices, or statements, can lead to complications. Without proper documentation, it’s difficult to prove tax-allowable deductions or respond to an HMRC enquiry. Additionally, poor recordkeeping can make preparing for future tax returns more challenging.

How to avoid this?

• Automatically categorise and store invoices and receipts using accounting software to streamline the process.
• Regularly speak to your accountant, especially before large capital purchases so that you are aware of the record-keeping requirements and how the purchase is to be treated for tax purposes.
• You can use software to assist with the calculations required and store invoices and receipts electronically.
• Have a qualified professional complete your return.

Planning

Failing to plan for tax liabilities and set aside funds throughout the year is a common mistake because many taxpayers underestimate how much they’ll owe. This issue often affects self-employed individuals who aren’t taxed at source from their income the way employees are, and quite often have to make Payments on Account towards the following years tax liability.

How to avoid this?

• Estimate your upcoming tax payments and open a separate savings account specifically for tax money, aiming to set aside a percentage of earnings as you go.
• Start the tax preparation process well in advance of the deadline to allow time for gathering documents, making enquiries, and seeking professional advice if needed.

Overall, vigilance and good organisation throughout the tax year are your best defences against common tax mistakes. If in doubt, seeking professional advice from an accountant can ensure accuracy, help you avoid penalties and relieve some of the administrative burden; allowing you to concentrate on more exciting things!

At Hunter Gee Holroyd, we have professionals who are willing to help. Contact us today!