Common tax mistakes and how much they could cost you

RIFT Tax Refunds has revealed some of the most common errors people make while managing and paying their taxes and how these simple mistakes can end up costing thousands of pounds.

With the government’s recent mini-budget U-turn, a great deal of promised tax relief has been taken away from the UK public. So now, perhaps more than ever, it’s vital to make sure you’re on top of your own tax affairs whether you are self-employed or on PAYE.

HMRC makes it as straightforward as possible to correctly pay the tax you owe, but errors, mistakes and oversights still happen. As a result, you can end up missing out on potential savings and also fall foul of the rules which can result in significant penalty fines.

For the self-employed

Putting off your tax return
The self-employed, many of whom take it upon themselves to complete their own tax returns from start to finish, are the most likely to make errors and lose out on potential savings.

The first mistake is putting off the process of submitting a tax return until the last minute, thus resulting in undue stress, mistakes resulting from being in a rush and, potentially, missing the deadline altogether.

As soon as you miss a tax deadline, there is a penalty, starting at a minimum of £100 for being one day late. There is then an additional £10 penalty for every further day that the tax is not paid. The fines increase when payment is three months overdue, and again when payment is six and 12 months late. In the most serious cases, the eventual fine can be 100% of the tax you owe, effectively doubling the money you pay.

Sloppy paperwork
Attention to detail is of utmost importance. Submitting incorrect information can result in underpaying tax and you’ll have to make up the difference. It can also result in overpaying which will require additional legwork to eventually reclaim.

If you make a mistake but HMRC believes you took ‘reasonable care’ when completing your return, they won’t issue an additional penalty fine. But if they don’t think you’ve taken ‘reasonable care’, the additional fine can be as much as 30% of underpaid tax. Based on the average self-employed income (£33,000), this is £2,037.

Failing to claim expenses properly
Expenses are the costs you have endured on goods or services that are essential for you to complete your job. This can include travel costs, a phone bill, a computer, and so on. There are complex rules as to what constitutes a business expense, so you need to read the rules closely.

Getting it wrong can work both ways – you might miss out on claiming for suitable expenses and therefore pay too much tax, or you might claim for inappropriate expenses and draw negative attention from HMRC.

Forgetting about payments on account
Lots of people don’t realise that HMRC often makes you pay some money towards next year’s tax bill at the same time as paying this year’s. It’s a system designed to help you better manage your finances by paying in smaller chunks rather than all at once. However, it can be a nasty surprise if you’re not expecting it so you need to make sure you’ve put aside enough money to pay this additional amount.

For everyone

Not claiming back overpaid tax
It’s not just the self-employed who can make tax mistakes. Everyone who works for a living needs to be tax savvy. One mistake that can be made by anyone is failing to claim back overpaid tax.

HMRC will often proactively return overpaid tax (a tax rebate) but it’s not 100% foolproof. It is, therefore, important that everyone knows how much tax they’ve paid and whether or not this properly aligns with their income and expenses.

The average tax rebate in the UK is more than £1,500, so it’s essential that you claim what’s yours.

For those on PAYE

Not checking your tax code
Your tax code is assigned to you based on your income and life circumstances, etc. However, if you change job, get promoted, take leave from work, or so on, HMRC doesn’t always register the change and therefore your tax code can be wrong. Keep an eye on your tax code to make sure you’re not overpaying.

Forgetting to claim expenses
It’s not just the self-employed who can claim business expenses – PAYE earners can do it, too. It might be travel and uniform costs, or even things like marriage allowance or blind persons allowance. If you don’t submit a claim, you could be missing out on a refund.

CEO of RIFT Tax Refunds, Bradley Post, commented:

“Tax is a gruelling feature of everyone’s life, but one that is essential for the successful running of society. It’s essential to pay what you owe, but too many people end up paying more than they owe through mistakes or understandable gaps in their taxation knowledge.

Due to the complexity of paying tax, not least for the self-employed, it’s often a good idea to enlist the help of a tax expert to ensure you’re not over or underpaying. They will also be able to advise you when you need to pursue HMRC for any money you’re owed, as you’ll be waiting some time for them to reach out to you on such matters.”