The Top 10 Self-Assessment Tax Return Mistakes and How to Avoid Them

Ryan Patrick

• 11 min read
The Top 10 Self-Assessment Tax Return Mistakes and How to Avoid Them

The self-assessment tax return is the system HMRC uses to deduct income tax from self-employed individuals or any other income that isn't taxed through PAYE.

If your employer doesn't tax your income, you must DECLARE it to HMRC and pay the appropriate tax via an assessment tax return.

The tax season can be daunting, yet it's crucial to file your tax return promptly to avoid incurring penalties if you miss deadlines. Although you may face tax return complexities, making mistakes can lead to financial penalties and inconvenience.

So, how do you PREVENT these mistakes? Smooth navigation of this intricate process requires attention to detail and a comprehensive understanding of UK tax laws.

The information you submit to the registrar must be complete and accurate to ensure it reflects your company's information right to the public. In this article, we'll discuss the top 10 self-assessment mistakes and how to avoid them.

1. Failure to Register for a Government Gateway User ID

Losing your Government Gateway ID or failing to register for one can help you file your own. Both mistakes can be destructive, and if you can't meet the January 31 deadline, your company may be imposed a financial penalty.

But what is a Government User ID? A Government User ID is a method HMRC uses to identify or verify user identity when using their online services. These services include filing the Self Assessment. Before you file a Self-Assessment account, you need a Government Gateway user ID. Thus, you need to register for a Government Gateway user ID by following the steps below.

  • Log in or register on the GOV.UK website using your National Insurance number or a UK address
  • Add a recent payslip or P60
  • A valid UK passport to register

HMRC will take ten days to process and send your 12-digit activation code via post. Those who have lost their Government Gateway user ID can recover the user ID and password on the government website ( GOV.UK). Assuming you can't remember the email address you used to register for your Government Gateway account, you must create a fresh one and wait for a new activation code from HMRC.

2. Missing a Unique Taxpayer Reference (UTR)

Another popular mistake is entering the wrong Unique Taxpayer Reference (UTR) or National Insurance (NI) number. In some instances, the UTR may not be provided when filing a self-assessment tax return, yet with this ten-digit number, HMRC can identify you.

What is a UTR? A UTR is a 10-digit code issued by HMRC after registering for Self Assessment. As for a limited company, the registrar issues them with a Corporation Tax UTR.

Misplacing or forgetting your UTR can be corrected easily by logging into your Tax Account, the HMRC app, previous tax returns documents, or any other HMRC documents you received in the past (if applicable). Alternatively, self-employed individuals can contact the Self-Assessment helpline or request it if you're a limited company owner. HMRC will send the UTR via post in 10 or more days, and if the self-assessment deadline is around the corner, start the recovery process early to avoid a late submission charge.

Your NI number is what HMRC uses to correctly place your National Insurance contributions (NICs) under your name and ensure taxes are correctly recorded. Your NI number is in various places: your tax account and your employment documents, such as a payslip (P60). However, if you need access to these documents or the HMRC app, contact them.

3. Overlooking Tax-free Allowances

One of the worst errors you can make when filing tax returns is forgetting to leverage your tax-free allowances. According to HMRC, the standard personal allowance is £12,570, and it applies directly to your account.

There's also an annual Trading and Property Allowance that can go up to £1,000, which is a tax-free allowance from trading and property allowance. If you make both incomes, you're eligible for an allowance of £1,000 for each. However, some tax-free allowances don't apply automatically, meaning you must do some research to find out what you're eligible for. Here are some tax-free allowances you have to apply for:

  • The Blind Person's Allowance – a blind spouse who is registered can claim £3,070 every year.
  • The Marriage Allowance - You can transfer your unused Personal Allowance to your partner.
  • The Rent a Room Scheme - You earn up to £7,500 tax-free for letting a furnished room in your residence.

HMRC offers many tax-free allowances. Thus, it's good to do your homework before filing your tax returns to ensure you get all the benefits. Make sure you do your homework so that you're getting all the plans that could lower your tax bill.

4. Over or Under Claiming Business Expenses

Claiming an incorrect expense amount is a common tax return mistake. Depending on your job, you can claim some running costs back in your annual tax return only if they are "wholly and exclusively for trade" purposes.

However, some people claim expenses they are not entitled to or try to claim personal expenses rather than business expenditures. How does this happen? This mistake happens for several reasons, such as genuine oversight, a lack of understanding of what to do, or an attempt to lower tax liability.

Whatever your reason, providing false information in your tax return can be reason enough for a considerable penalty. Some people underclaim expenses they're entitled to, but the omission of a tax can increase your tax bill unnecessarily.

5. Not Declaring All Income Sources

Reporting your earnings to HMRC ensures you pay the right amount of income tax. They include:

  1. Your salary and any other benefits or bonuses
  2. Revenue from a holiday or rental property
  3. Interest generated from savings
  4. Investment income like dividends
  5. Overseas pensions and income
  6. Government benefits like maternity pay

However, omitting some income sources in your tax return is a standard error, and it is illegal if done intentionally to evade taxes. The omission of some income can be a genuine error, and if not, it can have serious implications for a business.

If you work a job where tax is paid through PAYE, ensure that HMRC is aware of it. The income you earn through PAYE must be properly indicated on your return, or you could end up paying higher taxes unnecessarily.

Now that Tax payment is digital, your tax information is automatically generated on your tax return even before you start filling it out. However, the data can be inaccurate. How? You may wonder if the data is submitted automatically. The data can be incorrect if your employer reports your PAYE earnings incorrectly or doesn't report them at all.

Always crosscheck what your employer submitted as your income against your actual earnings to ensure the information on your return is correct. After all, the wrong submission of your PAYE can end up costing you. Check your PAYE information on your P60 or P11D to find out how much you earned and the tax you paid in the previous year. Then, you can enter it manually.

6. Not Planning for Payment on Account

Not planning for payments on account is another error you can make when filing your Self-assessment return.

What is a payment on account? It is a payment HMRC asks you to make towards your upcoming bill. It includes any Class 4 National Insurance contributions for self-employed people.

After filing your Self Assessment, you make two payments on your account annually, and each payment represents half of your last year's tax bill. Typically, payments on account are due by January 31, midnight and July 31 every year. With that in mind, you should also remember to make payments on account if:

  • Your previous Self Assessment bill was below £1,000
  • The tax you paid exceeds 80% of the tax you owe

Plan accordingly to ensure you don't get frightened when your next tax bill comes by tucking away funds for your payments on account. These funds will come in handy when it's time to settle your bill, and if your business expands, your account payment will also increase. Thus, you must be prepared.

7. Failure to Claim Tax Relief on Private Pension Contributions

Anyone making private pension contributions can get a 100% tax relief of their annual earnings. It's widespread for taxpayers who overpay hundreds of millions of taxes annually due to unclaimed pension tax relief. This tax relief is applicable automatically if:

  • Your workplace pension contributions are deducted from your salary, or
  • You make contributions towards a private pension and pay Income Tax at 20%. Your pension provider should then claim the essential tax rate relief and add it to your pension contributions.

Most private pension providers don't claim essential rate relief, and you should always check. But, if your tax rate is higher than (40%) or an additional rate of (45%) Income Tax, you must claim the extra 20% and 25% through your Self Assessment tax return. HMRC will remind you to claim the higher rate of tax relief on pension contributions or self-assessment tax returns. The money needs to be paid into your pension pot. Instead, it's paid in one of these ways:

  • A reduction in your current tax bill
  • A tax rebate
  • A change in your tax code means you pay less tax in the following year

8. Missing Filing and Payment Deadlines

According to HMRC directives, the online submission deadline for Self-Assessment is January 31 every year. However, HMRC made a rare exception in 2021 due to disruption caused by the COVID-19 pandemic. The deadline for online filing was extended to February 28. These extensions aren't common, and you shouldn't rely on them as they don't happen regularly. Hence, you should complete your Self-Assessment return and submit it on time on or before January 31.

If you fail to send your return on time without being granted an extension, penalties can apply, ranging from £100 up to 100% of your tax bill. Thus, a late payment can lead to a double payment of your taxes.

January 31 isn't just a deadline for filing returns but also for paying any tax owed, your first payment on account. The need to honour deadlines should be emphasised more since HMRC will charge interest on late payments.

9. Unawareness of High-Income Child Benefit Tax Charge

Over 7.2 million families in the UK receive Child Benefits annually to help them live decent lives. However, most taxpayers don't understand that they must pay a tax charge on the High Income Child Benefit if one partner earns over £60,000 annually, yet they receive the benefit payment.

In this scenario, a 1% charge is added to every £200 of child benefit. Thus, for someone earning an income above £80,000 per year, the tax charge will be the same as the Child Benefit payment.

Dealing with this charge is your responsibility through the Self Assessment tax return. Hence, getting it right is essential to ensure there are no surprises when it comes to paying your tax bill. Do yourself a favour by preparing early to avoid inconveniences. But, there's a way around this charge like:

  • Lowering your 'adjusted net income' by making a pension contribution as part of an occupational pension scheme or a personal pension leading to a reduction of the payable tax charge or
  • If your income is over £80,000, you can decide to forgo the Child Benefit. As a result, you don't pay the tax charge and the hassle of filing it in your tax return.

10. Failure to Claim Charitable Donations

Claiming charitable donations can lower your taxes significantly. For every donation you make to charity or a Community Amateur Sports Club (CASC) is tax-free. The contributions are made through Gift Aid, the most common way of donating to charities or CASCs. For every £1 you donate to charities or CASCs, they can claim an extra 25% from the UK Government.

High-earning taxpayers whose tax is above the introductory rate can claim the difference between the rate they pay and the basic rate tax on their donations.

For instance, a higher earner who donates £100 can claim Gift Aid on their donation to top up the contribution to £125 without an extra cost. You can choose to claim £100 on your Self Assessment return and lower your tax bill, or you can claim the entire £125 if you're willing to pay 40% tax on the extra £25.

Other Mistakes You Can Make in Your Self-Assessment Tax Return

The above list of errors you can make when filing your self-assessment tax return is only the tip of the iceberg. Here's a list of other mistakes that can cause you inconveniences and delay problems:

  • Poor arithmetic will lead to wrong calculations on your return.
  • Use of incorrect tax code means you'll provide the wrong information. Visit the GOV.UK website to ensure you have the correct tax codes.
  • Incomplete information, such as indicating 'to be confirmed' or 'info to follow', is prohibited by HMRC. When filing, all necessary information must be submitted.
  • Ticking the wrong boxes can also cause you issues because you end up providing the wrong information. Avoid this mistake by reading the HMRC guide in the tax return form.
  • Failure to report interest accrued on savings will cause delays or penalties.
  • Not disclosing capital gains from the sale of a property, shares, or business.
  • Forgetting to sign and write the date of your return.

How to Avoid Self-Assessment Tax Return Mistakes

Once you submit your SA100 and notice you made a mistake, you have 12 months to amend it before the next submission deadline date.

Follow the guide provided by HMRC on your tax return to make the proper corrections. Your SA100 form will be updated based on the information you submit. Depending on what you're correcting, you may be required to pay more tax or receive a refund.

If HMRC notices issues with your return, it could result in you paying more tax and receiving a penalty notice. However, if you're careful with your return yet make a genuine mistake, no penalty should apply, and you can appeal a penalty notice.

Alternatively, HMRC can open an inquiry to investigate your tax affairs if your returns are marred with different inconsistencies between your different returns. Some of these inconsistencies include consistent late filing of returns or if your costs are significantly higher than what is considered the industry norm. Here are more ways to avoid mistakes on the SA100 form:

  1. Keep your UTR and NI numbers somewhere you can easily access and look for them before the tax filing period approaches.
  2. Familiarise yourself with all allowable expenses and keep a clear record of business expenses to ensure you claim the right amount.
  3. Keep clear records of all your earnings. Missing some documents will lead to wrong filings when completing your tax return.
  4. Use a reliable tracking system to help you track your earnings and use this data to declare your tax return correctly.
  5. Make a checklist of all documents you need to file your tax return, including the Notice of Coding. Tick sections off as you complete the SA100 form to ensure you miss nothing.
  6. Research the benefits granted to you by the HMRC as a business owner.
  7. Be aware of your tax allowances and declare them to lower your tax bill.

Frequently Asked Questions

Which is the most common mistake business owners make on taxes?

The most common tax mistake made by business owners is the provision of erroneous information on the SA100 form. While inaccurate reporting on tax returns can be deemed an act of fraud, most tax errors are honest mistakes.

What is a non-coded income on a self-assessment tax return?

Non-coded income on a self-assessment tax return is the income you earn outside your employment or pension.

Is there a PAYE coding limit?

There is a PAYE coding limit stating that total coding deductions made through the PAYE can't be over 50% of the team member's relevant pay. If a team member has any queries about their tax code, they can contact HMRC.

In Summary

Completing your Self-assessment tax return meticulously and promptly is crucial to keeping your tax bill as low as possible. Thus, it would help if you did your research beforehand to ensure you know all the facts needed.

Your first tax return filing can be complicated and stressful, meaning it's easy to make a mistake. However, you can avoid these mistakes by preparing early to avoid late submissions, late payments, and the provision of incorrect information.

Making mistakes during filing SA100 can lead to a delay in the process, resulting in penalties. Hence, if you're overwhelmed, you can get professional help to file your tax return accurately, especially if you have multiple income sources. Do you have any questions on Self-Assessment Tax Returns, Mistakes and How to Avoid them? Kindly contact one of our Incorpuk experts for help today.