Marketing and business development consultants should get on top of their tax returns, writes Mike Parkes, a tax expert at GoSimpleTax.
Every year, there is a surge of activity on the HMRC website in the hours approaching midnight on 31 January – the final deadline for submitting a self-assessment tax return. I see it reflected in GoSimpleTax’s software as usage of our technology peaks in the days and hours before the deadline.
The trouble with leaving things to the last minute is that tax returns can be complex, and the less time you leave yourself, the less time you must double-check for costly errors. Mistakes on tax returns can have a significant impact on the amount of tax you have to pay, so giving yourself ample time to avoid them is well worth your while!
Here are five of the most common mistakes freelancers and consultants make on their tax returns – and ways to avoid them – so you can make sure this year’s self-assessment is as pain-free as possible.
One: Forgetting expenses
Getting your expenses right is important as it can make a huge difference to the amount of tax you need to pay. Everything from phone and broadband bills to marketing expenditure can be classed as legitimate business expenses, so make sure you properly account for your outgoings. A word of warning here, though, that you need to specify what percentage of outgoings are business related – for example, your phone bill won’t be 100% business expenditure if you also use it as a personal phone.
Another common error regarding expenses is claiming for things which aren’t permitted. This falsely decreases a tax bill but is often caught out and you may end up paying a fine. HMRC publishes a list of allowable expenses for the self-employed.
Importantly, given the current energy crisis, if you work from home, you can claim part of your energy bills back.
Two: Poor record keeping
Poor record keeping can make a big difference to the tax you owe. You need to keep accurate records throughout the year that track all your income and expenditure so that you can input these into your tax return and ensure you’re paying the right amount of tax. Forgetting about expenses can increase the amount of tax you need to pay, so it’s an exercise worth doing!
Three: Missing information
Simple errors can cause a headache down the line, so make sure your basic information – name, address, date of birth and so on – is correct.
Missing information regarding other sources of income is also problematic. Any additional income beyond your main business needs to be added. You need to declare income from everything from Bitcoin to side hustles on Etsy or Facebook.
Four: Forgetting your SEISS grants
Many self-employed people received a Covid-19 SIESS grant in the 2021-22 tax year, which they need to add to this January’s tax return.
Importantly, there is a separate box for SEISS payments so you must take care not to add these to your general income – if you do, then the likelihood is that HMRC will add them in for you and you’ll end up paying tax on them twice.
Five: Forgetting pensions and other deductibles
Tax-free investments and expenditures can vastly reduce the amount of tax you owe. If you can afford to invest in a pension then it’s well worth doing, not only to protect yourself in future but also to take advantage of the tax reliefs. ISAs, venture capital investments and various others all count as tax-free and will reduce your taxable income. Make sure you log all of these appropriately.
From April 2024, self-employed people will need to be ready for Making Tax Digital for Income Tax, which will change the way tax returns are done. It’s well worth investing time now in getting used to the new way of doing returns and keeping digital records.
Mike Parkes is Technical Director at GoSimpleTax, a self-assessment tax software. Visit www.gosimpletax.com.