Here’s where tax returns faze freelancers, even if HMRC is delaying fines

It’s hard to imagine any freelancer objecting to HMRC finally agreeing yesterday to waive late payment penalties until February 28th 2021, but the self-employed are still obliged to pay their self-assessment bill by January 31st 2021 -- and unfortunately, there’s just some tax return mistakes which sole traders repeatedly make, writes Amanda Swales of GoSimpleTax.

1. I’ve got this. All of this! On my own…

Being a freelancer has its undeniable benefits – being your own boss, working the hours you choose, going it alone on the most difficult, but ultimately fulfilling projects. However, when you have no technical or tax support for your finances and completing your self-assessment return is left entirely to yourself (when you’re meant to be running your business with a pandemic on), it can become just a tad daunting! In our experience, the incidence rate of mistakes also creeps up for those who do their tax totally unaided. So first and foremost freelancers, don’t be afraid to ask for help!

2. National Insurance and UTR Numbers; is that an O or a 0?

While you may know your National Insurance (NI) number by heart and have a copy of your UTR (Unique Taxpayer Reference) number to hand, typos can happen. These are a common mistake made when submitting your tax return. Especially if you’re a sole trader who leaves things to the 11th hour! Be sure to double-check your character entries are correct before you hit ‘Submit.’

3. Expenses – a forgotten four

A whole shoebox-load of expenses can be claimed if you’re freelancing as a sole trader and generally, the self-employed are aware of the common expenses such as travel, accommodation, marketing and utilities.

However, have you considered expenses arising from the following four? These less obvious items of expenditure can get overlooked, and could make a big difference to your ‘take-home’ pay (the amount of money you take home - or pocket – after tax and other costs).

4. Pension Contributions; too little or too much? Check for neither

Another financial planning aspect that many of us have had time to reflect on thanks to the covid lockdowns is our nest eggs. When facing HMRC’s self-assessment tax return, it is very important to provide the correct pension contributions. Too little and you will miss out on tax relief. However too much, and HMRC may charge interest on any underpayment.

5. Missing deadlines

In 2020, just under one million people missed the January 31st filing deadline. Submitting your self-assessment return late comes with penalties, although this year – because of covid-19’s impact on just about everything – HMRC says it won’t charge payment penalties for self-employed tax returns that are up to a month late.

But our recommendation? Don’t get complacent! The HMRC penalties, which this year will not apply until a month after the January 31st deadline, can be hefty. Taking a look at just how much you could be charged in HMRC fines may help you make sure you won’t incur them and will instead provide all the necessary data to ensure you avoid them.

6. Spring into action if you submitted but erred

You double-checked all the information and figures on your self-assessment tax return and submitted it to HMRC – only to then realise an error had been made!

Well, don’t delay. Acting quickly is always in your best interest and you can read the government’s advice on corrections to your tax return here.

While you usually have until January 31st in the following year to make changes and amend any mistakes, our recommendation is to update any mistakes in your tax return quickly.

Final thoughts (includes you joining the revolution -- if you haven’t already!)

Should you have the unfortunate experience of making a mistake in your tax return, you can re-submit digitally through accounting software. We’re particularly proud of ours, and with Making Tax Digital still firmly on the horizon, it seems the government is very much into software too! In fact, HMRC said in July that all sole traders with over £10,000 in yearly turnover will have to file their tax returns digitally by April 2023.

The government is right to claim that being online-only for all your tax and accounting records is more effective; more efficient and less prone to taxpayer error. We recommend you look for software that reduces the admin side of things, while giving you useful insights which you don’t immediately have in the spreadsheet world – like seeing your tax liability pop-up in real-time. This snapshot is something that will no doubt prove invaluable to freelancers, the self-employed and sole traders having to settle up with HMRC in the coming days and weeks, even if the taxman has agreed to shelve penalties from biting until late next month.