Tax Fact or Fiction?
Somebody told me, that you knew a tax myth, that looked like a tax fact, that cost you in February of last year.
January. Month of post-Christmas blues; dark, wintry nights and, if you’re self-employed, the looming self-assessment deadline. For many who aren’t yet doing things digitally, it’s a rather panicked month of catching up on the bookkeeping, filing the return and praying you’ve squirrelled enough away to cover the tax bill. And at such stressful times, it’s hardly surprising that many people follow ‘advice’ in January that lands them in hot water come February.
So here’s our guide to the top tax myths that you really should ignore:
1. If you don’t owe tax you don’t need to file a tax return
Fact or fiction? Fiction
The test for whether you need to file a tax return is not whether you owe tax. It’s whether you have any source of income that isn’t taxed elsewhere (e.g. PAYE earnings). So if you’re self-employed but your earnings fall below the personal tax allowance threshold, you still need to submit a tax return.
If you are a trustee of a registered pension scheme or other trust, you’ll need to file a tax return. And if you are a trustee or representative of someone who has died, you will (all together now) still need to complete a tax return.
There are lots of other reasons why you might need to file a tax return too. We wrote a post about them here.
2. You won’t pay tax if you become a limited company
Fact or fiction? Fiction
Yes, payment on account is a pain. So it’s tempting to look for a way to stop the advance tax payments and you may have heard that will happen if you become a limited company. The reality, however, is that as a director/shareholder of a limited company you will still be doing tax returns and potentially making payments on account. So you will still pay tax, although you may pay less.
That’s because there are specific tax rules for companies you may be able to take advantage of – tax free dividends for directors, corporation tax (which, at 19%, is lower than the personal tax rate) etc, but their benefit is nowhere close to preventing you from paying tax altogether and it may be your own circumstances make staying as a sole trader the sensible option.
To find out for sure, talk to The Tax Farm’s accountants.
3. I don’t have to submit a tax return until HMRC asks me to
Fact or fiction? Fiction
If HMRC knows you’re due to submit a return (because you do it every year) you probably will receive a tax return request or reminder. But you shouldn’t rely on this.
Your self-assessment tax return is due on 31 October (if you submit a paper return) or 31 January for online, and the lack of any formal letter from HMRC won’t change that fact. Wait even an extra day beyond deadline and it’ll cost you £100.
4. I’m late with my paper return, but I won’t get a penalty providing I submit by 31 January
Fact or fiction? Fiction (but fact if you switch to online)
The paper tax return deadline is 31 October. The online deadline is 31 January. So if you miss the deadline for a paper return, the solution isn’t to file the paper return late and hope HMRC doesn’t notice (because they will). The answer lies in switching to an online return. Do that, and you will effectively buy yourself three extra months to file.
5. Most self-employed people still file paper tax returns
Fact or fiction? Fiction
If you’re still posting off your tax return happy in the knowledge that everyone is doing likewise, you might be in for a shock. According to HMRC, 86% of all self-assessment returns are now done online.
6. Go digital and HMRC provides the accounting software free
Fact or fiction? Fiction (HMRC don’t, but we do)
You’ve probably heard of Making Tax Digital, the Government’s plan to transform UK tax. And you may know that, in due course, every business is likely to be affected. So you might be thinking that if you hang fire for now, HMRC will eventually offer you the accounting software for free to make the switch.
The bad news is they won’t. They haven’t done to date for the organisations already required to switch to digital accounting. They’re not about to start anytime soon.
But the good news is that, whilst HMRC won’t give you the accounting software for free, we will. We work with lots of accounting software partners, and when you join The Tax Farm, you get some very special rates on their services.
Just the facts
Ignore the myths. For sensible advice and tax made simple, talk to The Tax Farm
