One of the major downsides of being self-employed is the dreaded tax return and the question of whether you should do it yourself or pay an accountant to do them for you.
Your initial thoughts may be to file your own taxes to save paying someone to do them for you, but you should never underestimate the time and effort it takes to complete your tax returns and the consequences if you get it wrong.
To make matters worse the goalposts sometimes move and the rules can change depending on new tax laws or even if there is a change in your personal circumstances.
Who should complete and file a tax return?
Most taxpayers that are in full time employment do not have to complete a tax return as this is taken care of as part of the Pay As You Earn (PAYE) system on your wages or occupational pension.
This means that you will not be issued with a tax return.
However, you will be issued with a tax return if you are
- A company director (though not if for a not-for-profit company)
- Have income from rent or properties (there is a lower amount that can fall under PAYE)
- Have another income that is not taxed by PAYE.
If you are unsure whether or not you fall into any of these categories then you should contact the revenue service at www.hmrc.gov.uk.
Tax return deadlines and fines
The filing dates for tax returns are different depending upon whether you return them using paper forms or online.
The deadline for the paper tax returns is October 31 of the following year.
The deadline for online tax returns is January 31 of the following year.
And the bad news is, if you miss these deadlines then there are some strict penalties:
- £100 penalty – tax return is one day late
- £10 per day, up to maximum of £900 – three months late
- The greater of 5% of the tax due or £300 – six months late
- The greater of a further 5% of the tax due or £300 – 12 months late
And the worst news is that you could be liable for these fines if you don’t owe any tax or even if you are owed money – so make sure you file your tax returns!
The law dictates that you must keep all of the records necessary to fill in and correctly complete a tax return. Incomplete returns are subject to penalty fees and interest charges. To find out about what records you should keep visit www.direct.gov.uk
Estimates and errors
If you are waiting for information you need to fill in your tax return then you may use provisional figures or estimates so that your return isn’t filed late. Use the ‘any other information’ box or white space on an online return to draw attentions to this.
If you make an error on your tax return then this can be put right by calling HMRC on 0845 60 55 999.
Should you take care of your own taxes?
If you fall into one of the groups that need to fill in a tax return then you need to consider whether you can trust yourself to get it right and if it is worth the time and potential stress. If not, then it may be best to employ an accountant to do it for you.
Rob E is an avid financial blogger and freelance writer for www.click4personalfinance.com and loves to share his knowledge on personal financial.
- Know About Tax Adjustments Now And Save More (2012taxes.org)
- Which “Perks” need to be Declared on your Tax Return (2012tax.org)