5 common problems with self-assessment

Apr 28, 2023 | Business, Tax

Even though the tax year is over, you shouldn’t become complacent — now’s the time to start thinking about your tax return for 2022/23. After all, it’s a good idea to prepare for your taxes well ahead of time.

To avoid a stressful experience next time, look out for these common challenges.


Pension contributions

Pensions are a crucial part of retirement planning. Individuals can contribute to pension schemes to secure their future and even get money from the Government as pension tax relief.

Specifically, taxpayers — regardless of whether they’re employed or self-employed — can get tax relief at 20%, 40% or 45%, depending on their income tax bracket.

In practice, that gives basic ratepayers an extra 25p for every £1 they saved and more for taxpayers in a higher tax bracket.

However, while basic ratepayers automatically get the tax relief, higher- and additional ratepayers must claim for the tax relief on their self-assessment tax return.

But that’s only for the relief at source method. If you claim to get pension tax relief through the net pay method, you don’t need to claim the tax relief to receive it.

The easiest way to check which method your scheme uses is to ask your HR department (or whoever handles payroll for your employer) or, if you’re self-employed, your pension provider.


Managing various income streams

Having multiple income streams — employment, self-employment, rental properties, investments and so on — can be great.

For one, it diversifies your income, so you can afford to take the hit if your venture goes awry. They also maximise the amount of money you get to take home and enjoy.

However, multiple income streams can also make filing self-assessment returns more complicated because of the sheer amount of financial data there is to deal with.

You’ll need to ensure you’re reporting all your income accurately, and may need to pay tax on each stream separately.

Additionally, if you’re receiving income from abroad, you’ll need to ensure you’re complying with the relevant tax laws.

To overcome your challenges, ensure you’re keeping income and expense records organised and up-to-date. You would also benefit from an accountant checking all your figures.


Basis period reform

Businesses generally draw up their annual accounts for the same date each year. This is called the ‘accounting date’.

Meanwhile, a business’s profit or loss is measured every twelve months up to the accounting date.

This is called the ‘basis period’ and is used to calculate your taxable profits or losses for your self-assessment tax return.

This tax year is more complicated, however as HMRC is planning a basis period reform for the 2024/25 tax year. under these changes, the current tax year will act as a transitory period.

The basis period will align with the tax years, which means the period you use to calculate your business profits or losses for tax purposes may change — potentially resulting in a higher tax bill.

Meanwhile, the 2023/24 tax year is a transitionary period, which could see some businesses with overlapped profits for which overlap relief will be available.

If all that sounds confusing, that’s because it is. Make sure to check out our previous article all about the basis period reform.


Maximising your allowable expenses

If you’re self-employed, there are several allowable expenses that you can claim on your tax return to reduce your tax bill. But making sure you claim every expense you’re able to, can be a challenge — especially if you have a lot of business expenses.

To maximise your allowable expenses, make sure you:

  • keep accurate records on your expenses
  • use simplified expenses for things like office rent and travel costs
  • claim for all allowable expenses — we can confirm whether something counts or not
  • don’t forget about capital allowances for plant and machinery.


Contacting HMRC

As you prepare your self-assessment tax return, you’ll come across many other issues that you may struggle to understand — even after reading through the guidance on the HMRC.

The logical next step would be to pick up the phone and give the tax authorities a call. They’re the experts, after all.

The problem with that is it can be quite frustrating trying to get in touch with HMRC. Indeed, MPs recently called HMRC’s customer service “unacceptable”, with calls taking an average of 12 minutes to connect.

Furthermore, HMRC is sending out fewer payslips and payment reminders than it used to, so it’s easy to miss updates.

If you have a question, you can always ask us — we’re always reachable by phone or email. Get in touch today

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