January 31 is the deadline for filing and paying your online Self Assessment tax return. If you’re self-employed or you have other untaxed income (from renting property, for example) then this month may see you scrambling together paperwork, searching for government ID references and getting your head around tricky questions about your finances. Here are our top eleven tips for sorting your tax return as painlessly as possible.
1. Have your codes to hand
If you’ve used the Self Assessment online service before, you’ll have a Government Gateway user ID number, which was probably sent to you by post when you first signed up. You need to dig this out and use it to sign in to your HMRC online account, along with your password. An extra security step has now been added, so when you try to sign in, a login code will be sent to your mobile phone.
If you’re filing online for the first time, you need to have your unique taxpayer reference (UTR), which can be found on letters from HMRC. You’ll then need to create a Government Gateway account, and your activation code will be sent in the post.
2. Look online before phoning HMRC
HMRC has a helpline, but call waiting times are often very long, and as January is peak time for queries, you may be waiting for quite a while. Before you call, take a look at the useful helpsheets and guidance notes on the government’s website to see if your question is answered there.
If you’re still stuck, the number for HMRC’s Self Assessment helpline is 0300 200 3310.
3. Understand allowable expenses
You can subtract some business expenses from your income to work out your taxable profit. These are called ‘allowable expenses.’ It’s important to have a good understanding of which expenses are allowable, so that you pay the right amount of tax.
Expenses you can subtract from your income include travel costs, office costs, and the cost of stock. There are more details on the government’s page on self-employed expenses. If you work from home, you can deduct a certain portion of your household utility bills. There’s a simplified flat rate you can use to save you working out exact proportions of personal use versus business use.
4. Make sure things match up
When you’re calculating the money your business has made and the expenses you’ve incurred, cross-reference your numbers. For example, check your bank statement to make sure that the payments you’ve actually received match the invoices you’ve issued, and check that payments going out of your account match the receipts you’ve saved.
This will be much easier if you have a separate business bank account. If you’re using your personal account for your business, a good 2017 finance resolution could be to open a business bank account, so that your tax returns are more straightforward in the future.
5. Remember your pension tax relief
If you’ve paid money into your pension during the tax year, your pension provider will have automatically claimed tax relief at the basic rate of 20%. However, your Self Assessment tax form is the place to claim additional tax relief on your pension contributions: another 20% if you’re a higher rate taxpayer, and an extra 25% if you’re an additional rate taxpayer.
You can currently get tax relief on pension contributions up to 100% of your salary, up to a maximum of £40,000.
6. Watch out for ‘payment on account’
If this is the first year that you’ve owed £1,000 or more Self Assessment tax, your tax calculation may have a nasty sting in the tail, as you’re likely to be put onto the “payments on account” system.
This is a way of spreading out your tax bill so that it’s paid in two instalments, but if you didn’t pay your tax like this last year, then you could have to pay 100% of your tax bill for 2015-16, and then 50% of your projected tax bill for 2016-17. Your projected tax bill will be based on your earnings in the previous tax year (although you can tell HMRC if you expect to earn less).
Your Self Assessment payment could be higher than expected if you have to make payments on account https://t.co/Qzr84ZFXbK— HMRC Business Help (@HMRCbusiness) January 9, 2017
Nasty surprises like these are why it’s smart to complete your tax return as early as possible, and why you should put money aside each month towards your tax bill.
7. Go back to correct mistakes
If you file your tax return and then realise you’ve made a mistake, it should be quite simple to make the corrections online. Your tax bill will be updated based on your changes, and you may have to pay more tax or be able to claim a tax refund if you’ve overpaid.
8. File on time - keep the late penalties in mind
If you’re worried about being able to pay your tax bill, don’t delay filing your tax return as a result, as the penalties for late submission are steeper than the penalties for late payment.
If your Self Assessment return is late, you’ll usually have to pay an immediate fine of £100, and then penalties will keep piling up if you still don’t file your return. Bear in mind that you’ll always get a penalty for filing your tax return late, even if you don’t owe any tax.
If you pay late, you’ll be charged interest on your outstanding tax bill. If you don’t think you can pay your bill, contact HMRC and they may be able to extend the deadline or let you pay in instalments.
9. Remember to pay!
Talking of which, once you’ve filed your tax return, you need to actually pay your tax bill. Remember that the deadline for paying your tax is the same as the deadline for filing your tax return: 31 January.
Once you’ve submitted your tax return online, your tax calculation will be made and you can then log back into your account to pay your bill. Remember that payments can take a day or two to clear, depending on the payment method you use, so transfer the money before the deadline to make sure it gets there in time.
A quick, straightforward way of paying is online bank transfer, but make sure you use your UTR as the payment reference so that the payment is credited to your account.
10. Consider hiring an accountant
It may be worth calling in the professionals. Although paying a couple of hundred pounds can feel painful, an accountant’s fee is often balanced out by the amount they save you in tax, plus you’ll be spared the time and effort of completing your tax return, and mistakes are less likely.
There’s a wide range of accountancy services available, from cheap online accountants to traditional high street firms. Do your research carefully and check the qualifications and professional body membership of the accountants you’re considering.
Since the deadline is now fast-approaching, you may struggle to find an accountant who will help you with this year’s tax return, so start looking for an accountant for next year instead.
11. Get organised for next time
If completing your tax return this year’s been stressful, start putting measures in place now to make future tax returns more manageable. Start by investigating the many apps now available to help self-employed workers manage their finances, including expense trackers and budgeting apps.
Tax can be complex and mistakes can be costly, so always seek professional advice if you need it.
Have you tackled your tax return yet? Tell us your tips in the comments section at the bottom of the page.