Expenses, income, tax: Self Assessment tax return blunders to avoid

Updated on 23 January 2024 | 1 Comment

Making mistakes over your income and expenses on your tax return can cause financial hits as well as added stress.

Recent years have seen thousands of people take the plunge and go self-employed, opting to be their own boss.

And while the pandemic has certainly made life as a freelancer more challenging, there are some significant benefits that come from working for yourself.

Unfortunately, an unavoidable aspect of being self-employed is having to fill out your own tax return.

Now I’m not infallible ‒ I’ve made my own mistakes when filing my tax return, even with my background.

The reality is that it’s all too easy to get something wrong, and that innocent error could end up costing you a fair bit down the line whether in the form of a fine or simply having missed out on a tax break open to you.

Financial brokers OnlineMoneyAdviser has picked out some of the classic mistakes that self-employed people most often make when submitting their own tax return ‒ let’s take a look, and highlight how you can avoid repeating that error yourself.

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Claiming your expenses

It doesn’t matter what business you’re in, if you’re self-employed, you will be incurring some level of expenses through conducting that business. 

For some, it won’t be a huge amount. Personally for example I only really spend on things like subscriptions to newspapers or to operate a website, but for others, the expenses involved will be significant, particularly if they are out on the road a lot.

Getting this right is crucial though.

You only pay tax on your profit, on the difference between the money you bring in and the expenses you incur, so if you ignore some of those expenses then you will inevitably end up with a larger tax bill than is necessary.

It’s, therefore, a really good idea to have a system in place for tracking those expenses, as well as retaining the receipts so you can prove that you spent that money to the taxman should you need to.

Get help with your tax return: sign up to Simply Tax today

Claiming the wrong expenses

Just as important here is making sure you only claim the right expenses, for the money that is spent on actively running the business rather than costs that can, at least partly, impact your private life.

Take utility bills. I work from home, using my own broadband. But I couldn’t claim all of my broadband bill as a work expense, given it’s also used by me and my family during the evenings.

It’s the same with the energy bill  ‒ some of the energy we use each month goes towards my business, but it’s only a fraction compared to the overall use of the household.

Now, you can go through your usage and bill to calculate precisely how much is devoted to your business activities and then claim for that. But personally, life’s too short, so I claim for the simplified amount. 

This allows you to claim a flat rate per month, based on the number of hours of business use you spend at home working. For 25-50 hours you can claim £10, for 51 to 100 hours you can claim £18, and for above 101 hours, you can claim £26.

Ultimately, if the thing you’re spending money on is used in its entirety for your business actions, then you can claim the whole amount back. But if not, then you’ll need to adjust how much you’re claiming to reflect its all-round use.

How much have I earned?

You need to include all of your income in your return, beyond the money you’ve received from your business. So for example, if you have a little side hustle, like a buy-to-let or an eBay store, then you will need to include that income in your Self Assessment.

You might not have to pay any tax on it of course ‒ we can all earn £1,000 per year from certain side hustles before tax is due ‒ but it’s good practice to include it all, and can avoid some uncomfortable conversations with HMRC later on.

Get help with your tax return: sign up to Simply Tax today (affiliate link)

Keeping track

I can say from experience that sorting out a tax return is an awful lot easier when you have detailed records to fall back on.

Tracking exactly when you have been paid, for what job, and the various expenses you’ve incurred along the way makes it far more straightforward for filling in that return without making any mistakes.

Leaving it all to the last minute, and having to go through email chains and bank statements in order to fill in the blanks, can only add to what’s already a stressful process and should be avoided.

I know that this is an area I’m not great at, so I try to schedule in a couple of hours at the end of each month to go through my records and get my accounts up to date. If I don’t, it’s all too easy to fall seriously behind.

Paying the tax bill

Here’s an error that I know an awful lot of self-employed people make ‒ failing to put aside money throughout the year to actually clear that tax bill. It’s easy to do ‒ you’ve just got paid from a job, you have bills to pay, and you want to treat yourself a little. 

The trouble is that a few months down the line the taxman is going to expect you to hand over what you owe, and chances are it’s going to be a significant amount.

Before I went self-employed, I asked a few freelancer friends for their biggest tips and by far the most useful has been to move a portion of your pay for each and every job straight into a dedicated savings account. It keeps the money separate, ready to pay the taxman come deadline time.

There will inevitably be moments when you’re tempted to dip into it, but the discipline really pays off.

And if like me you’re the cautious sort and put aside too much, then you have your own form of tax rebate to enjoy once the bill is paid.


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