10 Common Mistakes To Avoid When Completing Your Tax Returns
The new tax year is upon us again and the taxman has started sending out tax return forms and notices
Submitting defective tax returns may suggest that the taxpayer has a cavalier approach to their tax obligations. It may also indicate you are disorganised and so maybe your accounting records are a bit disorganised and may not be correct.
This could lead to costly tax enquiry.
Here are the 10 common mistakes people make when completing the forms.
1. Not using the white space on page 10 – box 23.9 to explain unusual variations.
If you know there is something unusual, explain it. The Revenue are then far less likely to start an enquiry. It is crucial your accountant does this although often it doesn’t seem to happen especially when your accountant is snowed under with lots of returns to prepare.
For instance if your net profit seems too low in this day and age to support someone above the poverty line, be prepared for a plausible explanation. But do not be over generous in the information you give.
2. Entering the same expenses in different boxes each year.
In their haste to get the return filed, many taxpayers and sometimes their accountants do misclassify their expenses on the return.
For example, a driving instructor putting their fuel cost in the cost of sales figure one year and then motor expenses the next will produce large variations that the computer will want further explanations for.
3. Failing to declare or forgetting to include all sources of income.
In the rush for 31 January, it’s easy to omit income sources such as interest being received in the year but the Revenue knows you have an interest earning account. Perhaps an offshore bank account.
Is this where you have filtered away undeclared profits they wonder?
4. Using estimates and round sum figures on the return.
This will fuel the taxman’s suspicion that you do not keep proper records and hence use it as a basis to ask for evidence to substantiate the amounts on the return.
If the taxman can show that balancing figures or estimates have been used or that there are no invoices for some of the expenses, then he will tend to take this as carte blanche to propose hefty additions to taxable profits, often based on nothing so much as finger in the air.
5. Entering the net figure of employee personal pension premiums instead of the gross figure at box 14.11 of the core return, i.e. claiming insufficient relief where higher rates of tax are payable.
Whilst this may not lead to an enquiry, it’s a common mistake that costs taxpayer lost personal cash. It’s worth noting that Gross premium is “net premium” x 100/78.
6. Detailing information on separate schedules or entering manuscript notes on the return i.e. “per accounts” and/or “information to follow” instead of entering actual information or figures on the form.
You might think the taxman already knows and can look it up, but that’s not the way his tax calculation program works. You simply have to supply the info in the boxes he requires.
7. Entering the figure of capital expenditure in Box 3.14 of the Self Employment pages instead of the figure of Capital Allowances, i.e. claiming excessive relief.
This is a common error where the tax payer doesn’t understand the tax rules on revenue and capital expenditures.
As a rough guide the most a Capital Allowance can be is 40% of the cost of the equipment except where 100% first year allowance is available.
8. Lack of greater attention to the following usual suspect expenditure areas:
- Legal and professional expenses
- Repairs and renewals
- Entertaining
- Stock
- Provisions/ accruals
- Research and development
- Drawings
The taxman has been known to raise more enquiries into the above expenses. For instance where drawings are comparatively low, the Revenue may wonder whether there have been undeclared cash sales which have been used to fund your living expenses..?
Also knowing the rules on the other expense categories will ensure that any questions do not lead to a full blown costly investigation.
9. Not showing private use adjustments separately on the self employment pages.
The Revenue will always be looking to disallow any private use of items. So where you have already restricted say motor expenses for private use, you will avoid enquires if you show the adjustments separately rather than netting it off so that it’s clear to the taxman that adjustments have been made.
10. Not seeking help
The Revenue’s campaigns tell us that “tax doesn’t have to be taxing…”
However the task of completing your taxes cannot always be considered straightforward especially where a common oversight can lead to an unfriendly letter from the Revenue.
My advice is to seek help if you’re unsure. In most cases, engaging the right adviser will ensure that your return meets certain quality checks before being submitted.
