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23 Jan 2020

7 mistakes to avoid on your first tax return

Deadline day is one week away

The deadline for your 2018-19 tax return is just over a week away, so now is the time to start if you haven't already.

If it's your first time dipping your toe into the waters of self-assessment, there's no need to panic.

Here, we point out seven common first-timer mistakes to help you avoid making them yourself.

1. Not getting a UTR number

Filing a self-assessment return requires a unique tax reference (UTR) number. Like a National Insurance number, it stays with you for life. But unlike a National Insurance number, you have to apply for one to get one.

If you haven't already applied, the bad news is it might be too late. UTR numbers generally take 10 days to arrive by post, and after that you'll need to wait for an account activation code, which could take 10 more days.

You were meant to apply by 5 October last year if you knew you had to file a 2018-19 tax return, but registering late is fine as long as you pay your bill on time.

If you haven't registered already, you can work out how much tax you need to pay and submit a payment by 31 January without a tax return, using this HMRC form.

HMRC will sometimes give you an extended deadline of three months to send your return from when you register, but if it doesn't you will be charged a penalty of £100 on the first day, and an increasing amount after that.

2. Forgetting payment on account

You might be ready to pay your 2018-19 taxes on 31 January, but have you prepared for a payment on account?

A payment on account is an installment towards your 2019-20 bill, also due on 31 January.

A payment on account is half your previous year's tax bill, meaning if you haven't prepared for it you could be in for a shock. In your first year of filing a tax return, you could be paying 150% of the tax you're due for the previous year, in essence.

You'll have another payment on account of the same amount due on 31 July, and you'll settle anything outstanding on 31 January next year - or receive a refund if you've overpaid.

This does mean that you'll have to pay a lot less at once at the end of that second year, but that doesn't make it any easier for first-timers.

You are exempt from payments on account if your tax bill is less than £1,000, or if you have already paid 80% of your overall tax bill through your tax code or other deductions.

3. Mixing up your documents

As well as a UTR number, you'll need your address, date of birth and National Insurance number to fill out your tax return.

You'll also need a P60 if you're employed, a P11D if you have one, a P45 if you've changed jobs during the tax year, and in some cases a PAYE notice of coding.

To claim expenses, you'll need bills and receipts. Hang onto these even after you've filed your return, as you're required to keep them for at least five years. HMRC can even launch an investigation up to 20 years later if it suspects fraud.

4. Forgetting tax-free allowances

Tax-free allowances allow you to earn more money before being taxed on it.

The first of these is your personal allowance, which is £11,850 for 2018-19. You won't be taxed for earnings below this threshold unless you earn over £100,000 - in which case it will be lowered by £1 for every £2 you earn over £100,000.

Then there's the marriage allowance, which you can use if you're married or in a civil partnership with one partner earning below the personal allowance threshold. In these cases, you can effectively transfer 10% of one spouse's personal allowance to the other.

For investments, there's the dividend allowance, which means you aren't taxed for the first £2,000 of any dividends you earn.

The personal savings allowance of £1,000 (£500 for higher-rate taxpayers) can be applied to interest earned on non-Isa savings.

You also have the property and trading allowances, £1,000 each, which apply to money you make from your property or selling assets.

5. Using the wrong self-employment supplement

Self-employed taxpayers need to fill out an SA103 supplement as well as an SA100 - the main self-assessment tax return (find out more here).

To complicate things further, there's a short form and a long form - and the length of form you need depends on a number of factors. See the chart below to find out which you need:

6. Not claiming any expenses

Our research has found people who don't claim for expenses on their tax returns could be paying hundreds of pounds more than they need to be each year.

You can claim for things like working from home, business trips, vehicle usage and paying employees.

You'll need to have receipts for most of these claims, but there are some you can claim at a flat rate without having to show a receipt every time.

7. Misunderstanding which taxes you pay

You only need to worry about paying some taxes for self-assessment. These are just the taxes related to your earnings:

Other taxes like inheritance tax and council tax are paid in a different way.

File your 2018-19 tax return with Which?

For a jargon-free, easy-to-use approach to filing this year's tax return, try the Which? tax calculator.

Use it to tot up your tax bill, get tips on making savings, and submit your return direct to HMRC.

Click here to get started.