Top tax mistakes to avoid as a self-employed individual

By Anita Jaynes on 24 April, 2023

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Self-employment is becoming increasingly popular nowadays as a choice to earn significant income while enjoying a balanced life outside work. However, as much as we love its benefits, it’s not exempted from specific legalities. If you haven’t been aware of these, the consequences of non-compliance can be severe, so we will help you go through some of the most common mistakes self-employed individuals make.

Not filing a self-assessment return

You should file a self-assessment return if you earn more than  £1,000 as a freelancer or independent talent. Unfortunately, many people do not know about this, and the Majesty Revenue and Customs (or HMRC for short) often imposes penalties on those who fail to comply.

Doing such responsibility will not only help keep your taxes on track. Keep in mind that the point of tracking is to promote fairness and transparency for other taxpayers. Also, a knowledgeable financial advisor in Bristol suggests you file a self-assessment return even if you don’t technically have to. The reason behind this is to keep your financial affairs in order.

Filing late

Tax filing on time is essential. If you have no idea how important this is, filing your tax on time avoids certain penalties. However, that’s not the only consequence you would probably face. The IRS will impose certain interest charges on top of other penalties, which can add up if you fail to file your taxes on time. For example, you have been mailed an extension request and failed to comply. As a result, any refund amounting to your unfiled tax will become your debt plus interest. Of course, that’s not a position you want to be in.

Missing out on the tax rebate

The tax rebate is your reimbursement of the total income tax and National Insurance Contributions (NIC) you paid the previous year. To qualify for this, your overall income should be less than £100,000 annually if you’re working as an individual or £120,000 if you’re legally married or in a civil partnership. You may wait for a certain amount of time before claiming it, but there is a certain difference that you will have to pay. 

Not claiming personal allowances and exemptions

You may be entitled to claim personal allowances and exemptions depending on your circumstances. Personal allowances are a fixed amount of money that can be claimed by all taxpayers, while the amount of income tax you pay will depend on how much personal allowance, if any, you use up. This means that your total income is below your personal allowance limit. In this position, you should claim your allowance and ensure your tax code is correct. 

Conclusion

We have presented some of the most common mistakes self-employed individuals make in the UK. No matter what form of tax compliance and responsibility you must do, follow certain steps and conditions. As always, you have to carry out due diligence to track and note when to comply with each legal requirements.

Photo by Kelly Sikkema on Unsplash