Making mistakes on self assessment forms, however innocent, can lead to additional enquiries and even investigations by HMRC. At the very least they may mean paying too much tax or waiting longer than necessary for a refund.

So here are the top mistakes that many people make:  

1. Forgetting to include income or gains made from Bitcoins

Although relatively new concept, Bitcoins and cryptocurrencies have hit the news recently and you read or hear about people making ‘easy money’ on them without seeking advice on the tax implications.

Because there is very little guidance on them as far as tax is concerned and in the rush to get the return done, it is so easy to ignore the income or gains from Bitcoins. 

2. Fear of £100 penalty

Mark Lee, chairman of the Tax Advice Network recently wrote ‘it’s better to file right and late than on time and wrong’. And he highlighted some of the serious consequences of getting things wrong.

It is clearly advisable to get the return in on time but if you have left things late, avoid the mistake of rushing the return because not only will it cost you more than the £100 in the end but you will potentially miss out on some valuable tax reliefs and claims.

3. Not using the white space to explain unusual variations

If you know there is something unusual, explain it. HMRC is then far less likely to start an enquiry.

It is crucial that you or your accountant do this, although often it does not seem to happen especially if your accountant is snowed under with lots of last minute returns to prepare.

For instance, if your net profit seems too low to support someone above the poverty line, be prepared for give a plausible explanation. However, there’s no need to go overboard or be over generous in the information you give. Keep it straight, honest and simple.

4. Forgetting about the increased £7,500 rent a room relief

In the rush to file their tax returns, many tax payers, unless using an accountant are likely to forget about new rules. If you are a taxpayer with lodgers please do remember to take advantage of the new £7,500 rent a room relief rather than simply claiming the old £4,250 amount. 

5. Not claiming the full mortgage interest relief

Again another new tax rule that I have seen a few mistakes made on tax returns which I have been asked to review.

Higher and basic rate tax payers wrongly excluding mortgage interest on their returns and as a result paying more tax. If you are a basic rate taxpayer, the new rules do not affect you so you can continue claiming the mortgage interest although note the process.

But please note that you could easily become a higher rate tax payer as a result of the mortgage interest relief restriction and therefore become affected by the rules.

For higher rate taxpayers, the new rules start from April 2017 so it will affect you when you prepare your March 2018 not March 2017 tax return and even then, will only exclude 25% of any residential mortgage interest for the 2017/2018. A tax reducer of 20% of the excluded amount can then be claimed in the final tax calculation.

For most basic rate taxpayers, their tax liability will not be affected but they will still need to exclude the 25% of mortgage interest and then claim the tax reducer in their final calculation. 

If you are a Scottish taxpayer, please do bear in mind that there are new rules which will also affect your current and future tax returns. If in doubt, speak to an accountant.

6. Entering the same expenses in different boxes each year

In their haste to get the return filed, many taxpayers and sometimes even their accountants do misclassify the expenses on the return.

For example, a driving instructor putting their fuel cost in the cost of sales figure one year and then in motor expenses the next, will produce large variations that the computer will want further explanations for.

7. Failing to appeal against subsequent penalties

Errors made on your tax return can lead to what we call carelessness penalty which can range from 15% to 70% of the tax due.

But you can ask the taxman to suspend the penalty and put you on some sort of probation for say two years because you will put measures in place to avoid further inaccuracies on your tax return. This is an area where case law goes against the taxman so do remember to appeal.

8. Lack of attention to risk areas and hot spots

HMRC knows that enquiries into the following expenditure areas are likely to produce some interesting results:

• legal and professional expenses
• repairs and renewals
• entertaining
• stock
• provisions and accruals
• research and development
• drawings
• pensions
• employment expense
• termination payments

The taxman has been known to raise more enquiries into the above expenses than any other areas. For instance, where drawings are comparatively low, HMRC may wonder whether there have been undeclared cash sales which have been used to fund your living expenses.

9. Not showing private use adjustments separately on the self employment pages

HMRC will always be looking to disallow any private use of items. So where you have already restricted say motor expenses for private use, you will avoid questions if you show the adjustments separately rather than netting it off so that it’s clear to the taxman that adjustments have been made.

10. Ticking box 1 (unremittable income) on the foreign pages and assuming no tax is due

If you have foreign income, this is an area you really need to take extra care or pay an adviser to help you.

Taxpayers with foreign income wrongly assume that by not remitting foreign income to the UK and by ticking the above box, they do not need to take any further action and hence they do not need to pay tax on their unremitted overseas income. Then they receive letters from HMRC which usually start with ‘Dear X, Are you confident you have fully declared all overseas income and gains?’

11. Claiming for expenses that cannot be claimed

The rules on what expenses can/cannot be claimed is not as straight forward as you may think. You should proceed with care or appoint a good accountant or tax adviser.

For instance, you might assume that an actor who rented accommodation in Scotland during a film shoot for his business could claim the cost of the accommodation against his income right? Wrong. HMRC denied the expenses and won the court case. It was decided that the expenses did not meet the so called ‘wholly and exclusively for the purpose of trade’ test.

12. Claiming termination payments twice

This happens where an employer has already taken the £30k termination payments into account through the payroll and given tax relief at source, but tax payers innocently claim it again on their tax returns.

This is very common and a classic mistake that has led to a number of tax tribunal cases. The effect being that taxpayers are asked to pay, on average, £3,000 in carelessness tax penalties. It may be possible to get one of these hefty penalties suspended for at a tax tribunal.

13. Forgetting about student loans or child benefit clawback

This is another area that gets picked up very often by HMRC and leads to a letter saying ‘your tax return was inaccurate…you may have to pay inaccuracy penalty…’

So this is where you have taken a student loan a while ago but you are now having to make repayments through the tax return because your earnings exceed the threshold. Because the loan was taken a while ago, it is so easy to miss this on your return.  

Child benefit clawback is another classic mistake, and is becoming more common among higher income earners who are receiving child benefits and who earn over £50,000.

Essentially the amount of child benefit is clawed back under what is called the ‘high income child benefit charge’. Because child benefit is normally dealt with under the benefits system, it is easy to forget to include it on the tax return even though the return does provide a box for this.

14. Ignoring tax code notices

Nearly all tax papers are entitled to an annual tax free allowance. This is usually shown as a tax code to enable employers to deduct the right amount of tax. Sometimes the taxman will add or deduct certain items from your tax code, for example, benefits in kind, or pensions or tax underpayments.

By ignoring the tax codes, you risk not adding or reflecting these items on your return leading to an incorrect tax return.

15. Forgetting about foreign income. This is huge

This was such a common oversight that the law was changed to make this error a criminal offence. Please proceed carefully and use the checklist (a basic one like the HMRC self assessment checklist can help) to take greater care of your return. Or instruct a professional.

Tax can be tricky – so, if in doubt, seek professional advice. That said, you can certainly do it yourself and use HMRC’s site or other online platforms, but do take extra care, use a checklist and do not leave it to the last minute.

You can engage professional help by taking your records to an accountant or sending them via post or email.

Alternatively, you can save yourself the hassle by using an app like Easy Tax Returns or others where you can handover your tax return to a tax pro, without the need for posting or emailing, and you will remove the risk of tax penalties.

About the author

Jonathan Amponsah CTA FCCA is founder and CEO of The Tax Guys and co-founder of Easy Tax Returns (a tax return app)