By Trevor Clawson.
Last year, around ten million people filed their Self Assessment tax returns on time, according to Her Majesty’s Customs and Revenue Commissioners (HMRC) figures. With the penalty for late submission starting at £100 and rising by £10 for each additional overdue day, there is clearly a very strong incentive to complete a tedious but necessary piece of administration ahead of the deadline. But despite the prospect of a hefty fine, around 750,000 self-assessing taxpayers failed to press the ‘submit’ button before midnight on January 31, 2018. One reason could be the complexity of the process. A new survey by Which finds that many of us are struggling to understand HMRC’s online submission tools.
For most Britons, the Christmas holiday period represents a welcome break – a time to eat, drink and generally wind down for eight to ten days. But for significant numbers of us, the festive season also represents an opportunity to get our tax returns done and dusted. This year 2,600 people completed their online tax forms on Christmas Day itself and 204 of them had done so by 8.00 in the morning. Fast forward to Boxing Day and a further 8,465 set about the annual ritual of sending off their income and expenses data to HMRC.
A Time-Consuming Process
But not everyone found the process easy or straightforward. According to Which, the annual tax return can take a considerable amount of time to complete. In a poll of 4,500 people, 28% of respondents said they found Self Assessment to be a difficult undertaking. Almost one in ten said it took more than five hours and a small minority said the process took more than 15 hours.
On the face of it, the online tax return process shouldn’t present too much of a problem. For instance, if the Self Assessment relates to freelance or small business earnings, the formula is relatively simple. You key in your sales for the year and subtract any business expenses to arrive at a taxable profit. From there, HMRC’s own software will work out the tax and national insurance owed.
In practice, however, it can be a confusing undertaking – not least because the questions on the online form often appear to be wrapped in the kind of jargon that might be familiar to accountants but not necessarily understandable to the ordinary man or woman on the street.
And more than a quarter of those (28%) who took part in the Which survey said difficulty in understanding the HMRC forms slowed down their progress, while 14% said that jargon was a problem.
Too Much Tax
Anyone who has trouble completing a self-assessment stands to lose more than time. One in ten respondents expressed concern that their difficulties resulted in them paying too much tax. One example would be confusion over allowable expenses – the costs associated with running a business that can be offset against total earnings to reduce the taxable profit. Failure to understand the rules could result in a taxpayer erring on the side of caution, not claiming all he or she is entitled to, and thus, paying too much to HMRC.
There is another danger. Many of those who are required to file annual returns are freelancers or small business owners. They tend to be busy people and as Ed Molyneux, CEO of online accountancy company FreeAgent points out, one advantage of carrying out the Self Assessment process over the relative quiet of the Christmas holiday period is that the job gets done before the normal pressures of working life resume on January 2.
“The real benefit of filing a Self Assessment tax return over the festive season is that business owners can have complete peace of mind for the new year and actually look forward to January, instead of scrambling at the last minute to meet the tax deadline at the end of the month,” he said.
And inevitably, some of those who leave their returns until the very last minute, and then find that process is confusing or opaque, will fail to complete on time and incur penalty payments.
The Rise of Self Employment
Increasing numbers of Britons are working on a self-employed basis – and are responsible for paying their own tax, rather than having it all handled by an employer through the PAYE (pay as you earn) system. According to the Office for National Statistics figures, the number of self-employed workers in the UK has risen from 3.3 million in 2001 to around 4.8 million today. But that’s not the whole picture. Anyone earning more than £1,000 from work or business activities must complete a tax return. That includes those with second incomes, such as property rentals or, say, a sideline in buying and selling goods on eBay. Investment income is also caught in the Self Assessment net.
As things stand, an online tax return must be filled in by January 31, with the figures relating to the previous financial year. In other words, this January’s return will cover the 2017/18 tax year.
While the good news is that those caught up in the Self Assessment process have around nine months to collate and check their figures before the return is due, a lot of people will, perhaps understandably, kick the can down the road until the deadline is too close to ignore.
And those new to the process should beware of the registration trap. As Emily Coltman, an accountant working at FreeAgent points out, in order to file online, a taxpayer must be registered to do so and have a username, password and Unique Taxpayer Reference to allow access to the HMRC site. This can take several weeks to arrange, so if you haven’t registered already, you should do as quickly as possible.
Once registered, it is crucial to have all the income and expenses numbers to hand. Going over old invoices or bank accounts to pull together accurate figures can be time-consuming in itself. HMRC recommends that all business keep an ongoing and up to date record of income and outgoings.
Having all the numbers to hand won’t necessarily help a taxpayer navigate the jargon, but for those who get stuck there is an HMRC helpline (0300 200 3310) and you can also tweet queries to @hmrccustomers.
HMRC is fond of saying “tax need not be taxing” and it is true that the self-assessment process has become more streamlined over the years. However, as Which points out, it is important to allow enough time clear up any queries ahead of the deadline.