TOP TIPS: Tax expert warns workers to plan now for SEISS and deferred payments
A self-employed tax expert has warned workers to take into account changes introduced by the Government in 2020. This includes special attention around deferring tax payments and grants received through the Self-Employment Income Support Schemes (SEISS), when planning their future tax payments.
With the 31 January deadline fast approaching, Dan Stopp, UK Accounting Manager at Bokio and an expert in self-employment tax, has shared his 6 top tips to help make the self-assessment process as smooth as possible.
It has been 20 years since the tax authority first introduced online tax returns. Just 38,000 online tax returns were filed in 2001 and this year, HMRC estimates around 11 million online tax returns.
According to a Which? survey, this year over 19 million hours will be spent by Brits on their tax returns before the self-assessment deadline on 31 Jan.
Data also showed that the average time taken to complete a return is two and a half hours, and that Brits also have worryingly large gaps in their basic tax knowledge.
Don’t wait until deadline day
Stopp said: "Underestimating the time it takes to file your tax return is one of the main reasons for missing the 31 January deadline. Last year alone, 958,296 taxpayers missed the deadline. Spreading the process over a number of days can help reduce stress, and give you time to address any issues or queries before it’s too late. For example, if you are newly self-employed and you haven't already registered with HMRC, it can take up to 10 days to receive your UTR number, which you will need in order to file your tax return. So make sure to leave yourself plenty of time."
Be aware of the penalties for late submissions
Stopp said: "Perhaps more importantly, by starting the process early, you’ll be more likely to avoid the hefty fines and interest payments that can be levied on those who miss the deadline. You will face a £100 fine for being just one day late, and then an additional £10 for each day late after that. HMRC can also impose fines if it thinks you’ve made careless or purposely misleading mistakes, so it’s worth giving yourself sufficient reviewing time to avoid being in a rush when filing your tax return.
"It’s important to know, however, that if you do miss the deadline for a reason that was out of your hands, you can appeal. For example, If you’ve been affected by the coronavirus pandemic and this has delayed your ability to file or pay your tax return, HMRC says it will consider this as what it calls ‘a reasonable excuse’."
Take into account the changes introduced by the Government in 2020
Stopp commented: "Considering the significant changes introduced by the Government as a result of COVID-19, another benefit of starting early is that you will be able to understand how the various support schemes may affect your tax bill, and therefore plan accordingly.
"One of the most significant changes included the deferring of the second payment on account deadline for the tax year 2019/20, from the 31 July 2020 to 31 January 2021. To add to that, the grants received through the Self-Employment Income Support Schemes are taxable. So it is worth remembering that these different factors may result in your January tax bill being considerably larger than usual."
Make use of the Government’s Coronavirus legislation
Stopp said: "If you have been impacted by COVID-19 and are worried about being able to pay your tax bill, you can make use of the Government’s ‘Time to Pay’ scheme, which allows you to pay the bill across the entire 2021 calendar year in monthly instalments. This also includes the Self Assessment payments that were due on 31 July 2020, that have been deferred to January.
"In order to be eligible, your outstanding Self-Assessment tax bill must be between £32 and £30,000, all your tax returns should be up-to-date, and you must not have other tax debts or other HMRC payment plans set up. Setting up a Time to Pay arrangement will help protect the taxpayer from late payment penalties, although interest charges are usually applied, so it’s important to carefully consider whether you really need to opt for a 12-month Time to Pay extension, as it could be financially draining in the long run."
Don’t forget about claiming for expenses
"Now more than ever, making sure you’re saving money by being as tax efficient as possible is vital, and it can be easy to forget or simply be unaware of the expenses you can claim for. For example, whilst it’s well known that travel and stationary count as expenses, few people may be aware that staff uniform and clothing can also be claimed. To see a full list of expendable items make sure to check the official HMRC website.
"It’s also worth noting that if your annual turnover is below £85,000 you don’t have to itemise your expenses, you can just enter the total amount. Knowing this can save you a lot of time when it comes to filing your tax return."
Use a digital platform
"Utilising reliable and free-to-use accounting software is a great way to cut down the hours spent doing tax returns. Platforms like Bokio offer integrated features that allow income, receipts and expenses to be easily uploaded, organised and broken down, meanwhile bank feeds allow transactions from last year to be imported quickly, saving time. Bookkeeping software can also create automated profit & loss reports, making it even easier to transfer the important figures you need before sending them to HMRC.
"In fact, HMRC is seeking to digitise most of the taxpaying process, with its Making Tax Digital (MTD) initiative, which will eventually require virtually all businesses and individuals in the UK to do their government taxes via software.
"So why not stay ahead of the curve and start using a digital platform, because before you know it, you’ll be using some form of software to file your tax returns."
