Common tax mistakes made by self-employed contractors
Behind every successful business is an entrepreneur who pays precise attention to detail. However, whether you are an independent contractor or head of a small start-up, you will have to deal with the pain of taxes. While most entrepreneurs have an excellent skill set to promote and sell their services, still most of them tend to make mistakes while filing their tax returns. The consequences of these mistakes can be highly unpleasant and expensive. Avoiding these five mistakes will ensure that you don’t fall into any trouble.
Not applying for self-assessment
You must register yourself with HMRC if you earn more than £1,000 in one or more transactions. People have the misconception that it is their basic allowance and there is no need for registering with HMRC. It is important to note that even if you earn below the personal allowance (i.e., £12,000 for the 2020/21 tax year), you still have to declare your earnings. This can only be done after you register yourself as self-employed.
Delaying self-assessment tax return
Not respecting the deadlines is one of the most common tax mistakes. The deadline for filing self-assessment tax returns is January 31 for online applications and October 31 for paper tax returns. Missing these deadlines can attract penalties for both; late filing and late payment of personal tax returns. Missing the deadline by one day will cost you £100, and it will continue getting worse every day.
Not saving for personal tax return
Not having proper funds to pay taxes can be very problematic, especially if you have forgotten about National Insurance Contributions. Keeping aside a portion of your earnings is the best thing you can do to avoid last-minute stress. Create a separate tax savings account and don’t touch it till the deadline.
Misreporting earnings
If the HMRC finds out that you have deliberately misreported your earnings, you can be fined up to 100% of the extra tax owing. Keeping records of all invoices and receipts can help you avoid many problems as HMRC can ask you for proofs and evidence anytime. Also, keeping records will decrease the chances of potential misreporting.
Not contributing to National Insurance
Depending on how much you earn, these are the two types of national insurance.
• Class 2- for-profit above £6,475 a year
• Class 4- for-profit above £9,501 a year
You can either pay through your tax return, or you can voluntarily contribute to NI using HMRC’s official website.
The most convenient way to avoid these mistakes is by hiring a tax return accountant in Manchester. If you have the resources, you should outsource all your accounting and tax duties to an expert accountant. This is the best thing you can do for your business to give it an extra growth boost. The accountant will also help you in financial forecasting and growth planning while ensuring you have enough time to focus on tasks other than accounting.