News At Parliament Hill

Seven common mistakes made by the self-employed, and how to avoid them

Self-employment is at a record high with more than 4.8million people in Britain now classed as self-employed.

However, the growth in self-employment has seen a corresponding growth in the number of taxpayers making common mistakes and paying the wrong amount of tax!

Clearly paying too much tax is a waste of money, but paying too little can have serious financial consequences, with interest and penalties issued by HMRC being up to 100% of the unpaid tax.

Below you will find 7 of the most common mistakes made by self-employed individuals, although there are plenty more.

  1. Failing to notify HMRC you are self-employed – HMRC must be notified by 5 October following the end of the tax year in which you start self-employment. Failing to do this in time will result in ‘failure to notify’ penalties being applied. The penalty is primarily based on the amount of tax you owed and at the ‘tax due date’.
  2. Mixing personal and business finances - using a personal bank account to pay for your business expenses or to receive income, can result in HMRC challenging money you received into your account that wasn’t from self-employment, as undeclared income. If this occurs, the onus is on you to show where the money came from - something that may be very difficult to do after several years have passed.
  3. Failing to keep adequate accounting records – makes it very difficult to prepare an accurate set of accounts. By failing to properly record expenses, you will fail to claim expenses that would reduce your tax bill.
  4. Claiming expenses without a proper record or receipt - if HMRC run a spot check on your accounts and you are unable to prove you incurred the expense for your business, they will disallow it. This will increase your profit and result in more tax being due. In certain cases this can lead to HMRC looking into your earlier year accounts.
  5. Claim incorrect expenses or claiming expenses incorrectly – such as lunches, buying or cleaning suits and other clothes worn for work, claiming for initial training costs, claiming the full cost of equipment in the year it is bought. All of these result in paying too little tax. If or when this is discovered by HMRC, it will result in penalties and interest that can dwarf accountancy fees.
  6. Failing to claim expenses or claiming them in such a way that you pay more tax then necessary - use of home and car are the most common – with the right advice the tax savings on travel costs alone can cover the cost of the accountancy fees every year.
  7. Failing to use losses in the correct way that could help with cash flow in your early years of trading.

The pit-falls of self-employment are there to catch out the unwary, but can easily be avoided with some professional advice or support.

It doesn’t have to cost the earth either. Parliament Hill offer a fixed fee tax and accountancy service through TWD Accountants. With a £252 annual fee (with first year introductory discount of £48 applied) a price match promise and a full satisfaction guarantee, it makes little sense trying to cut corners and save a few pounds doing your own accounts and tax returns when the penalties for getting it wrong can be so substantial. For a confidential no obligation discussion in the first instance, call David Davies on 0161 480 5665.

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