If you’re filing a tax return for the first time this January and worried about getting it wrong, you’re not alone.
In November 2022, we surveyed 881 people who will be filing a self-assessment tax return themselves for the 2021-22 tax year. Around a third (31%) of those who’ve filed a tax return before said the thing they disliked most was worrying about making a mistake.
It’s understandable – after all, submitting an inaccurate return could land you with a fine from HMRC.
Here, Which? reveals some common mistakes from first-time filers – and how to avoid them.
1. Leaving it too late to register with HMRC
If you’ve never filed a tax return before, you’ll need to register your details with HMRC. The official deadline for 2021-22 returns was 5 October 2022 – there’s no penalty if you missed it, but if you still haven’t registered with the tax office, you might struggle to get set up before the 31 January deadline.
In order to file your tax return, you must have applied for and received your Unique Taxpayer Reference (UTR) number – it can take around 10 days for it to arrive through the post. You’ll then receive an activation code – this is also sent by post, and can take an additional 10 days to arrive. This code allows you to get into your online tax account.
HMRC will sometimes give an extended deadline of three months to send your tax return from when you register, but if it doesn’t you may get a fine – as well as separate charges if you’re late paying the tax you owe. If you have any troubles getting set up, contact HMRC as soon as possible.
2. Failing to declare all income sources
Don’t just look at the money you’ve earned from employment or self-employment.
Other taxable income sources include rental income, profit (capital gains) made from selling assets, such as a second property or valuable possessions, income from investments in company shares – paid through dividends – and even tips or commission.
You will also need to declare any self-employed income support scheme (SEISS) grants received after 6 April 2021, plus ‘donations’ you’ve earned from online platforms such as Patreon, Twitch and Kofi.
If you receive child benefit and you or your partner earn £50,000 or more, you may be taxed. This tax repayment is known as the high-income child benefit charge and is paid at a rate of 1% of the benefit for every £100 of income between £50,000 and £60,000.
3. Not taking advantage of tax-free allowances
Don’t forget to make full use of all the allowances and tax reliefs that apply to you, otherwise you could end up paying more tax than you need to.
For instance, if you’re a higher-rate or additional-rate taxpayer you could take advantage of tax relief on charitable donations, as well as tax relief on pension contributions.
If you are declaring capital gains – through selling shares or an investment property, for example – you get an annual allowance before CGT is payable. You can also offset losses from the same or a previous tax year to reduce your bill. Just register the losses on your self-assessment form.
Then there’s business expenses. You can deduct what you’ve spent from your profits, which then reduces your tax bill.
Allowable expenses can include things like travel for business trips, stationery, and costs from running business premises, including energy bills. If you work from home you can claim a proportion of your bills, depending on the space you use and time you spend working.
In most cases, you can choose between totting up and deducting actual expenses, or using the ‘trading allowance’. This deducts £1,000 from your gross self-employment income.
4. Missing the deadline
Leaving everything to the last minute is more likely to lead to errors – with mistakes that HMRC may fine you for – or missing the deadline altogether, which can also lead to charges.
Getting ahead with your preparations and taking your time when filling in the form can minimise the risk of submitting an inaccurate return.
Start by gathering all relevant documents and information together, including your P60 form (if you’re employed), receipts and invoices, bills, bank statements, tenancy agreements, student loan statements, details of any benefits you’ve received, and whatever other details are relevant to your circumstances.
If you fail to file your online tax return and pay the tax you owe by 31 January you could face some hefty fines.
Tax returns that are just a day late can incur an initial £100 penalty. After three months, this increases to £10 per day (for up to 90 days). Further penalties are triggered if your return is more than six or 12 months late.
On top of these, you could face late payment charges. You’ll be charged daily interest from the date the payment was due and there may be further penalties if you’re several months late paying your tax bill.
5. Being disorganised
You’ll need to keep your records in case HMRC asks for proof of what you’ve included on your tax return.
This includes receipts, invoices, bank statements and other important documents such as your P45 or P60 form. While there aren’t specific rules on how to keep your records, HMRC can charge penalties if it finds records aren’t accurate, complete and readable.
You need to keep records for at least five years from the 31 January following the relevant tax year (for 2021-22 returns, that means keeping records until at least 31 January 2028) – although HMRC can open investigations into fraud up to 20 years after a tax return is filed.
6. Not budgeting for future payments
If your tax bill tends to come as a nasty surprise, it can help to budget for it throughout the year, putting money away little and often.
Some taxpayers may also be asked to start paying tax in advance through the ‘payments on account’ arrangement after they have worked a full tax year and filed a tax return. These are advance payments towards your tax bill, payable by 31 January and 31 July each year.
The first payment on account can come as a surprise – you usually have to pay tax for the previous tax year by the January deadline, but this first payment on account is in addition, and is half of the estimated tax for the next tax year.
If your income fluctuates from month to month, you can take the average of what you earned in the last three months to give you a rough idea of what future tax charges to expect. If you have multiple bank accounts and credit cards, then open banking budgeting apps could be useful for getting an overview of all accounts in one place.
7. Not seeking help
For help paying the tax you owe, you may be able to apply for a Time to Pay arrangement. This allows you to break up your tax bill into smaller instalments spread over the following months. But be warned: you’ll still incur interest on any tax that’s outstanding after the payment deadline.
To set up a payment plan online yourself, you’ll need to be within 60 days of the 31 January payment deadline, owe less than £30,000, and not have any other payment plans or debts with HMRC. For other circumstances, call the Payment Support Service on 0300 200 3835.
HMRC says there is no ‘standard’ arrangement, and the time period for instalments will be decided on a case-by-case basis.
Try the Which? tax calculator
The Which? tax calculator can help you get to grips with all of your tax liabilities and allowances. It provides clear, no-nonsense explanations about different types of taxable income, and suggests allowances you might have missed.
Then, when you’re ready, it can also submit your tax return directly to HMRC.