There are pitfalls to avoid when filing your tax return

Annabel Denham
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THE online tax return deadline – the paper return deadline has long since past – is at the end of this month (31 January). The process is a dreaded one, but it is important to get it right. Recently the number of people who are self-employed has been on the rise – but they’re not the only workers who need to complete a return. HMRC lists company directors, those with an annual income of £100,000 or more, those with income from savings, investments or property, and individuals with income from overseas, trusts, settlements or estates, among those who will need to go through the lengthy form-filling process.

But before you log on to the HMRC website, it is worth knowing the pitfalls to avoid.

The most common mistake people make is not starting the process early enough. Saffery Champness found that, last year, the percentage of returns filed on time was a record high – partly due to HMRC’s harsher fine regime. But more than 1m people were still penalised for late submission in 2012. The starting penalty for late returns is £100, which increases the longer the return is left outstanding – by £10 per day, with daily interest.

If you’re self-employed, you can request extra time to pay the January portion of your tax liability, provided you have agreed a payment schedule with HMRC by 31 January. You should not face any penalties or surcharges, but interest will still run. “HMRC will only enter such an agreement once you have filed your tax return, so it needs to be done as soon as possible to give you time to negotiate”, says Tim Gregory of Saffery Champness.

Bear in mind that completing the return can be time-consuming – especially if you need to complete supplementary pages. The filing process will be much easier if you have all necessary paperwork to hand. So “check you have everything now,” advises Andrew Penman of PFK. If you don’t have all the information you need, you may be allowed to include estimates in your submission, but the best idea is to consult your bank or broker early to get any missing certificates. Richard Mannion of Smith and Williamson recommends starting a fresh record on 6 April each year, and noting details of “income received, capital gains and losses, pension contributions and gift aid payments as they happen throughout the tax year”. You won’t then find yourself frantically searching cupboards, or trying to obtain duplicates, when the deadline comes around.

Accurately calculating your income and establishing what is taxable can be hard work for the non-expert. But, says Jason Hollands of Bestinvest, there are some helpful software packages, like TaxCalc, that can assist you in completing your return. They do the calculations, provide notes, and enable you to file online. Penman has highlighted some of the key areas that cause confusion – some state benefits, for example, are taxable; others aren’t. Dividends are taxable – even if you have signed up to take them in the form of new shares – unless they are received from Isa investments.

The process itself should be simple, so long as you work methodically through the HMRC online programme, or commercial software, and carefully review the information you are submitting. For those who are self-employed, remember to complete a supplementary page for each individual job.

To avoid missing out, make sure you take advantage of all relevant tax reliefs when filing your return. If you are a higher rate taxpayer, you can reclaim the tax on your pension contributions. “Remember to include tax-deductible expenses,” says Patricia Mock of Deloitte. Mannion advises considering whether your taxable income will fall in 2013/14. If you anticipate a drop – for example, because profits have fallen – then you can claim a reduction in your payment on account.

If you make donations to charity, higher rate taxpayers are entitled to claim back the difference between the higher rates of tax at 40 or 50 per cent and the basic rate of tax at 20 per cent of their gross donation. It’s “as simple as buying tickets to a museum,” says Gregory.