One of the most common misconceptions about self assessment is that you don’t really need an accountant or a tax agent to file a tax return.
After all, it is called "self assessment", and on their website HMRC give in-depth guides and information to help tax payers complete their tax returns. Therefore, it is quite legitimately that many self employed individuals would choose to file their tax returns on their own, as per their prerogative.
But is DYI a false economy when it comes to self assessment?
In a nutshell, if you know exactly what you’re doing and are up to date with HMRC’s constant changes in rules and regulations, as well as the tax breaks available to you and HMRC’s acceptable ‘tolerances’ in respect of your particular industry, then yes, by all means, there is no reason why you can’t file tax returns by yourself.
However, and trying to position myself as objectively as possible (we do supply a fee-paying service so a cynic could argue that I'm biased), this is where some people could inadvertently run the risk of falling in one of two extremes – either paying too much tax because one is not knowledgeable enough, or ending up underpaying income tax and national insurance contributions for the very same reason. In both cases, the consequences could be quite serious and financially painful, not to mention unnecessarily stressful.
The problem is that most tax payers who choose to ‘do-it-yourself’ swear blind that they know what they’re doing – even when for some of them it’s blatantly not the case. Years of practice shows us that many tax payers ringing our office are simply unaware that they are making potentially costly mistakes. Classic real life examples involve:
- Tax payers not informing HMRC that they left the country permanently
- CIS contractors who lose some of their CIS contractors’ statements
- Landlords passing off as legitimate business expenses enormous bills for home improvements and refurbishments for their rental properties, incurred prior to letting them out
- Landlords not factoring the cost of their interest in the mortgage for a rental property, when it is still mortgaged, thus ending up paying too much in tax
- Self employed individuals who genuinely forgot to mention that they were employed part of the tax year
And this is just the ‘tip of the iceberg’!
While example 3 shows that the tax payer will end up paying too much tax because of his lack of basic know-how, the other examples could land their authors in serious trouble as HMRC may take the stance that they are flirting with fraud…
Of course, due to the sheer number of tax returns submitted to HMRC – 10.74 million were received by HMRC by the 31 January 2014 deadline – many incorrect (or even fraudulent) tax returns remain undetected. This may lull some people into a false sense of security that this will continue, year in, year out. Little do they realise that HMRC are nowadays increasingly ‘tightening the screw’ when it comes to checking tax returns. As agents, we can see first-hand examples of the taxman revisiting tax returns, even several years after they were initially filed – and the resulting penalties levied against their authors. This is due to the heavy investment undertaken by HMRC since 2007 in terms of staff level and state-of-the-art software, as well as tighter collaboration with many professional bodies and other government agencies (which was not always the case in years gone by…). So, for the sake of paying a tax agent a few pounds, are ‘DIY’ tax returns really worth the risk of not ‘stacking up’ following a surprise investigation by HMRC?
Don't forget that we, as your dedicated tax agent, are truly on your side…! Our interest is first and foremost that our clients’ tax affairs are well and truly in order, ensuring they do not pay the taxman more than they should, all within the law. In itself, this reassurance is one well worth paying a few pounds for, especially considering that our fee is tax deductible and that in many instances the amount saved in tax far outweighs our fee…
If you're leaving the UK (or have already left) and you were a tax payer in the last 4 tax years, you could be due a tax rebate. Call us today to find out free of charge and in all confidentiality.