Preparing for your tax return – how sole traders can avoid these common mistakes
There are many advantages of being self-employed, but one of the hassles of being your own boss is doing the accounts. If you don’t keep tight books it can make your taxes a nightmare - one slip can get you in big trouble with HMRC. With the deadline for submitting your tax return online fast approaching, it’s important that you’re up to speed with exactly what you need to do by 31st January 2019.
Whether you’re recently self-employed and submitting your tax return for the first time this year, or simply need some extra advice for this year or next, we’ve outlined the top three tax return mistakes sole traders make and how to avoid them:
Don’t leave it until the last minute
Tax returns are not a priority for many sole traders who end up leaving it until the last minute, leading to unnecessary hassle and in some cases causing them to miss the deadline. Whilst you’ve almost certainly got far more exciting things to worry about in the build up to Christmas, it’s important to get your tax return sorted as soon as you can. The deadline is looming and there are steep penalties for late payments. You’ll be charged £100 for missing the deadline and £10 for each additional day, with a maximum fine of £1000. If you make it to six months without completing your tax return, you’ll have to pay an additional £300 or 5% of the tax due depending on which is higher – that’s on top of the other fines. It’s probably best to make sure you pay your tax within 12 months of the deadline or else you could be fined 100% of the tax you owe, doubling your bill!
Ensure you have all the info you need
Another mistake that sole traders make when submitting their tax returns is not having all the relevant information to hand. If this is your first time submitting a tax return, you’ll need to register with HMRC online. Once you’re registered, you’ll need to let HMRC know how much you’ve earned, any relevant deductions and what your expenses were. Next, you’ll need to supply your unique tax payer’s reference number which allows HMRC to match your returns with their records. Many sole traders come to fill in their tax return without knowing all the required information and have to go away again and sort through documents – another reason not to leave it until the last minute!
Keep records of everything
Tax returns can be tricky if you’re disorganised. No matter the size of your operation, it’s vital to keep an up to date record of all your expenditures during the year. Admin might not be your thing but there’s no escaping tax returns so it’s vital to get everything in order in time for the deadline. If you’ve not been organised this year, you may find yourself scrambling through old receipts trying to piece everything together. Make it easier for yourself next year by logging the details of every job as you go along, writing down where the work was based, how much you were paid and evidence of all your expenses. The law also states that you must keep records of anything submitted on a tax return for at least five years, so don’t go throwing anything away once you’re done!
With just over a month to go to get your tax return sorted, there’s no time to delay. Get organised and make sure you have everything you need to fill out your tax return, and most importantly, don’t risk the fines by leaving it until the last minute, get it done now!