If you’ve never handled tax returns before, it can seem like a daunting and complicated process. Despite this, if you’re a business owner, you must handle self-assessment tax returns, regardless of how much the prospect may worry you.
For a first-time tax filer, there are certainly a handful of mistakes that you’ll want to avoid so that the process runs as smoothly as possible. Just a few of these mistakes are detailed below.
Leaving It Too Late to Register
The first mistake that many tax filers make is leaving it too late to register with your governing body. All in all, the registration process can take two or three weeks, so you want to make certain that you have enough time to complete it ahead of the deadline.
You will need to have received a Unique Taxpayer Reference (UTR) number before you file your return. Once you have applied for this, it could take around 10 days to be posted to you, and a further 10 days will need to be accounted for to allow time to access your activation code for your online tax account.
Occasionally, your governing body will grant you an extra three months to complete your return upon registration; however, if you’re not granted this extension, you’ll be presented with a fine.
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Neglecting a Plan
If your tax payment doesn’t reach your governing body ahead of the deadline, you’ll be charged interest. In order to avoid this, you should allow plenty of time for forms to go through. You should allow up to five working days when it comes to paying by direct debit for the first time, otherwise, you run the risk of the payment not going through on time.
However, you may find that you’re not able to outrightly pay the tax that you owe, in which case, a Time to Pay arrangement could be an option. These arrangements apply to those who plan to pay the tax that they owe in the next 12 months, those who don’t owe any other funds, those who’ve filed their return of the previous year, and those who owe less than a certain amount in tax.
Not Addressing All Sources of Income
Essentially, you need to record any money that you have coming in on your tax return. These income sources include income from investments in company shares, taxable income from abroad, commission or tips, pension income, investment income over a certain amount, or savings, profits earned after selling valuable items, and rental income.
As well as these, you’ll also need to account for funds from self-employed income support schemes, donations, and child benefits.
Selecting the Wrong Accounting Method
Typically speaking, you’ll be choosing between two accounting methods: traditional accounting or cash-basis. When it comes to traditional accounting, you’ll be recording money that’s been invoiced; this is the best method for larger companies. However, cash-basis refers to the recording of outgoings and income; this is better suited to smaller companies as you won’t have to pay tax on cash that you’re yet to receive.
Disregarding Tax-Free Allowances
In some circumstances, there will be some allowances when it comes to paying tax, and not all will be automatically implemented. For instance, you might be eligible for a marriage allowance or a married couple’s allowance. You will need to opt-in for these allowances so be vigilant.
Not Claiming Allowable Expenses
When you spend money for work purposes, you may be entitled to claim back some of these expenses. This applies to the likes of professional subscriptions, uniform expenses, and business travel. So, claiming back on this could greatly reduce your tax bill.