Top tips on how to avoid HMRC’s self-assessment penalties

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It’s that dreaded time of year again – the HMRC self-assessment deadline. While the more organised of the UK’s self-employed have already completed their tax returns, there are still millions of us feverishly filling out our forms online, desperate to avoid a dreaded late penalty notice landing on our doorstep in a few weeks’ time. The good news is, with a little common sense and knowledge, we can sail through the self-assessment task without any penalties.

Take a look at some of the common mistakes people make when filing their self-assessment tax returns and pay attention to our advice on how to avoid them.

Don’t be late

It may sound obvious but failing to meet the 31 January deadline for filing self-assessment forms is one of the key reasons people incur a penalty. To avoid having to pay a £100 fine, make sure you get your 2012/2013 tax return back to HMRC before the deadline. Also, be warned that getting your form electronically across to HMRC a minute to midnight on 31  January won’t suffice. You have to ensure that you have paid what you owe by this point, so you may wish to do your return earlier.

Don’t delay further

It is also fairly common for people to erroneously believe that if they don’t meet the deadline they’ll pay the £100 fine and will then be able to fill out the form at their leisure. Wrong. The longer you delay filing your return, the more you’ll have to pay. The initial fixed penalty might be £100 but it is rapidly followed by additional penalties the longer you leave it.

The HMRC website provides information on how much you will have to pay in penalties the longer you put off completing your return.

Whilst HMRC may accept legitimate excuses for late tax returns, they will not accept your goldfish passing away as an excuse or that you had a run-in with a cow, as one farmer reportedly pleaded. It might be worthwhile visiting the ‘appeals against HMRC tax decisions’ page to see if your excuse constitutes a legitimate one or whether you’ll be wasting your time trying.

First timers get in early

If you’ve not long been self-employed and this is your first time filing an online tax return, you’ll need to leave plenty of time to register. The necessary numbers, such as your Unique Tax Reference number (UTR) can take several days, even as long as a week, to arrive in the post. Whilst not difficult, the registration procedure can be time-consuming and therefore those using this online service for the first time would be wise to leave additional time for registration in order to avoid the late penalty. You can register to use HMRC Online Services on this page.

Understanding your tax affairs

Tax is a complicated issue and if you are struggling to understand or work out how much you owe in tax or may be owed, you are by no means alone. It is therefore important that you try and understand your tax before you fill out the self-assessment form. Be aware that if you have income from other sources, such as a rental property, you will need to declare it on your tax form. Or if you have disposed of or sold any assets, you may need to pay capital gains tax.

It is also important to remember that you pay tax on your profit rather than your sales. It is therefore necessary to keep accurate records of your expenditures in order to stay on top of your tax situation. Keep records and receipts of your income and gains in order to get your tax return right first time and avoid being issued with a penalty – nonconformity and inaccuracy  are not well-received by HMRC.

If your business is experiencing financial difficulty, Ideal Corporate Solutions will work with you to provide a viable solution that is tailor-made for your business’s individual requirements.