Martin Lewis provides pension advice for the self-employed
Self assessment tax returns must be completed by those who are self-employed or a partner in a business partnership in order to pay any income tax due. Various deadlines for processing these returns occur throughout the year but the final tax due needs to be paid by midnight January 31 2021.
On this, Dan Stopp, a self-employment tax expert at Bokio, noted the Government’s various financial packages and schemes could end up making this year’s self assessment processing significantly different.
Additionally, the changes could delay the whole process, with a Which? survey released this morning showing as many as 19 million collective hours will be spent by British people on their tax returns before the deadline rolls around.
On an individual basis, recent data also shows that the average time taken to complete a tax return is two and a half hours, with many people showing “worryingly” large gaps in their basic tax knowledge.
In light of this, Dan shared his top tips to make the self assessment process as smooth as possible.
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Don’t wait until deadline day
Leaving plans to the last minute is rarely a good idea and this is especially true for tax obligations.
Dan laid out just how bad this could be in practice: “Underestimating the time it takes to file your tax return is one of the main reasons for missing the January 31st deadline. Last year alone, 958,296 taxpayers missed the deadline.
“Spreading the process over a number of days can help reduce stress, and give you time to address any issues or queries before it’s too late.
“For example, if you are newly self-employed and you haven’t already registered with HMRC, it can take up to 10 days to receive your UTR number, which you will need in order to file your tax return. So make sure to leave yourself plenty of time.”
Be aware of the penalties for late submissions
HMRC can impose fines for late or improper filing and while the amounts levied may seem low at first glance, Dan explained they can end up being very costly in the long run: “Perhaps more importantly, by starting the process early, you’ll be more likely to avoid the hefty fines and interest payments that can be levied on those who miss the deadline.
“You will face a £100 fine for being just one day late, and then an additional £10 for each day late after that.
“HMRC can also impose fines if it thinks you’ve made careless or purposely misleading mistakes, so it’s worth giving yourself sufficient reviewing time to avoid being in a rush when filing your tax return.
“It’s important to know, however, that if you do miss the deadline for a reason that was out of your hands, you can appeal. For example, If you’ve been affected by the coronavirus pandemic and this has delayed your ability to file or pay your tax return, HMRC says it will consider this as what it calls ‘a reasonable excuse’.”
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Take into account the changes introduced by the Government in 2020
Rishi Sunak and the wider Government introduced several support measures in 2020 such as mortgage holidays, furlough payments and the Self-Employment Income Support Scheme for the self-employed.
While these schemes likely kept many people afloat during the pandemic, they’re also likely to create a run-on affect for the self-employed who have utilised said scheme, as Dan continued: “Considering the significant changes introduced by the Government as a result of Covid-19, another benefit of starting early is that you will be able to understand how the various support schemes may affect your tax bill, and therefore plan accordingly.
“One of the most significant changes included the deferring of the second payment on account deadline for the tax year 2019/20, from the 31st of July 2020 to January 31st 2021. To add to that, the grants received through the Self-Employment Income Support Schemes are taxable.
“So it is worth remembering that these different factors may result in your January tax bill being considerably larger than usual.”
Make use of the Government’s Coronavirus legislation
On the flipside of the unexpected admin associated with coronavirus support, other forms of government action have been taken to ease taxpayers burdens.
Some self-employed workers may be able to take advantage of the Government’s “Time to Pay” scheme if they’ve been impacted by the pandemic.
This scheme will allow people to pay their bills across the 2021 calendar year in monthly instalments, which includes self assessment payments that were originally due in July 2020 but were referred to January 2021.
Dan explained the eligibility for this scheme: “In order to be eligible, your outstanding Self-Assessment tax bill must be between £32 and £30,000, all your tax returns should be up-to-date, and you must not have other tax debts or other HMRC payment plans set up.
“Setting up a Time to Pay arrangement will help protect the taxpayer from late payment penalties, although interest charges are usually applied, so it’s important to carefully consider whether you really need to opt for a 12-month Time to Pay extension, as it could be financially draining in the long run.”
Don’t forget about claiming for expenses
Dan urged the self-employed not to forget about expenses which can often be forgotten in normal times but can make a world of difference at the moment.
Keeping expenses in mind can be beneficial from both a financial and administrative perspective, as Dan explained: “Now more than ever, making sure you’re saving money by being as tax efficient as possible is vital, and it can be easy to forget or simply be unaware of the expenses you can claim for.
“For example, whilst it’s well known that travel and stationary count as expenses, few people may be aware that staff uniform and clothing can also be claimed. To see a full list of expendable items make sure to check the official HMRC website.
“It’s also worth noting that if your annual turnover is below £85,000 you don’t have to itemise your expenses, you can just enter the total amount. “Knowing this can save you a lot of time when it comes to filing your tax return.”
Use a digital platform
Dan’s final tip concerned embracing the modern world.
HMRC, along with other Government departments, are going through the motion of trying to digitise many of their processes.
This will likely face resistance and difficulties in the short-term but in the long-term, it should make the whole process smoother.
By getting ahead of these changes, Dan explained self-employed workers could save themselves a lot of stress: “Utilising reliable and free-to-use accounting software is a great way to cut down the hours spent doing tax returns. Platforms like Bokio offer integrated features that allow income, receipts and expenses to be easily uploaded, organised and broken down, meanwhile bank feeds allow transactions from last year to be imported quickly, saving time. Bookkeeping software can also create automated profit & loss reports, making it even easier to transfer the important figures you need before sending them to HMRC.
“In fact, HMRC is seeking to digitise most of the taxpaying process, with its Making Tax Digital (MTD) initiative, which will eventually require virtually all businesses and individuals in the UK to do their government taxes via software.
“So why not stay ahead of the curve and start using a digital platform, because before you know it, you’ll be using some form of software to file your tax returns.”
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