Today is the last opportunity for the self-employed to file a paper tax return before the first wave of the Government’s Making Tax Digital initiative comes into effect.
Those that miss the paper filing deadline must either file a late return, and incur a deadline of £100 from HMRC, or file an online return before the January deadline.
Under the forthcoming Making Tax Digital for VAT legislation - the first step towards fully digitising the UK’s tax system - VAT-registered businesses with a taxable turnover above the VAT threshold will be required by legislation to keep records digitally and use software to submit their VAT returns from 1 April 2019.
Over the coming years, Making Tax Digital (MTD) is set to be to be expanded across other UK taxes including income and corporation tax, although HMRC says this will not happen before April 2020 at the earliest. This means that Self Assessment will soon become a completely digital process, representing the final nail in the coffin for the traditional paper tax return.
There are a number of other issues to be aware of this year when filing your tax return; Bitcoin’s value has grown exponentially and HMRC’s guidelines on the crypto-currency may cause confusion among non-traditional investors looking to include the information in their Self Assessment tax return; the average Airbnb host makes upwards of £3,000 per year. These individuals need to assess whether they meet HMRC’s “badges of trade” if so, they will need to register for Self Assessment as soon as possible, or else receive a £100 fine from HMRC, and risk further penalties for not paying the tax they owe.
Additionally, HMRC will no longer accept credit card payments for late payers and taxpayers can no longer pay their tax bills at the Post Office.
Ed Molyneux, CEO and co-founder of award-winning cloud accounting software provider FreeAgent, said: "Every year, hundreds of thousands of people across the UK end up incurring fines for failing to file their tax return on time. Yet, in many cases, these penalties are entirely avoidable provided that people check the tax implications of what they have earned throughout the year and start their Self Assessment in advance of the filing deadline.
“Airbnb rents and other earnings from the gig economy can often trip people up when it comes to knowing whether they have to file a tax return. But this year, an added complication could come from Bitcoin, as some investors in the crypto-currency will have taken advantage of its high valuation this year to cash out their investments.
“It’s likely that HMRC see Bitcoin profits as being subject to Capital Gains Tax, but there does not appear to be a definitive answer on the issue yet, which could cause confusion among investors. I would, therefore, urge anyone who has made money from Bitcoin to contact HMRC directly to check whether they need to include the information in their Self Assessment tax return or in a different capacity."
Last year a total of 758,707 returns were received by HMRC on deadline day and if you’re likely to be a last minute filer, Emily Coltman FCA and chief accountant to FreeAgent has five top tips for you:
1. Don’t leave it too late
You still have until January 31st 2019 to file your tax return online. However, before you can do this, you must register your business with HMRC and receive an activation PIN and Unique Tax Reference (UTR) from them. Without these, you won’t be able to file - so make sure you don’t leave things too late.
If you do file your tax return after this deadline, HMRC will fine you £100 and you’ll also be charged interest if you pay your tax late - but that doesn’t prevent you submitting your tax return after the deadline has passed.
Just don’t get lulled into a false sense of security. HMRC starts increasing the penalties for late filing if you leave it too long, and there are also additional charges and interest to pay when it comes to actually paying your tax bill late. Dawdle too long and those penalties will quickly start to add up!
2. Be prepared for some hard work
If you’ve got a great accounting system in place - or a good bookkeeping method that you use to stay on top of your financial information throughout the year - then all the information about your business income and expenses should be easily accessible. You just need to find it and include it in your tax return alongside any other income you’ve earned throughout the year (such as dividends on shares you own, interest on savings accounts etc.).
However, if you store expense receipts in a shoebox and only check your finances once every few months, you’re going to find it less easy. You’ll have to meticulously go through all of those expenses, and check all of your bank payments and transactions, to get the information you need; which could take many hours.
Put in the hard work and don’t cut corners! If you rush your tax return you’re more likely to make mistakes or miss important information out which could mean that either a) you miss out on claiming tax relief on an expense you’ve incurred or b) you get your figures completely wrong and risk being penalised by HMRC for submitting an incorrect tax return.
3. Follow the rules
Tax is very complicated, so make sure you follow all of the rules to the letter when completing your tax return. For example, be very careful when you’re adding up your income and expenses for your sole trader or partnership accounts because, unless you use the cash basis to prepare your accounts, you have to count income depending on when you did the work, not when the customer paid you.
Also make sure that you’re fully up to speed with rules surrounding business expenses, especially with regard to travel, accommodation, food & drink, entertaining, clothing and the business use of your home. You can do this by checking your proposed expenses against the info on HMRC’s website, or use another reputable source of expenses information for sole traders, partnerships and limited companies.
4. Check the forms - and submit them correctly
When submitting your tax return online, you will have to complete everything and file the form before midnight on 31st January 2019 otherwise HMRC will issue an automatic fine of £100 - and this applies if you’re even a day late and even if you don’t actually owe any tax.
Make sure you complete every section correctly and leave plenty of time to double-check everything before you submit it. Remember that a single, simple mistake or omission (such as not ticking the confirmation box at the end) could result in your tax return being rejected by HMRC and you being fined.
5. Don’t forget to pay
Once you’ve submitted your tax return, don’t get lulled into a false sense of security. There’s still one important step left, which is to actually pay your tax.
HMRC will charge you interest if you do this late and will also impose penalties on late payment, so it’s important to pay your tax as soon as you can if you want to avoid getting hit with a hefty fine!
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