Top tax mistakes to avoid



UK taxes can be a complicated affair and if you’re not a trained tax accountant, filling in tax forms can prove, well, taxing. However, tax forms must be filed accurately as mistakes can prove costly. HMRC can make mistakes too, so you need to be vigilant and make sure that all your correspondence with HMRC is checked and double-checked and where possible, always work with a professional accountant who can give you up-to-date advice on tax matters.


What are the most common mistakes when dealing with your taxes?

Below are the top 10 most common mistakes that people make when filling in tax forms.

Not checking their tax code – everybody with earned income (personal pension income or employment income) has a tax code that will determine how much tax they pay.  If your tax code is wrong you may have underpaid or overpaid tax.

Failing to register charitable donations – qualifying charitable donations are eligible for additional tax relief if you are a higher or additional rate taxpayer even if you’ve used Gift Aid on your personal donations. Limited Companies can claim corporation tax relief by deducting the amount donated from their annual profits. In all cases, you will need to keep a record of your charitable donations. 

Forgetting to pay tax – if you don’t pay your taxes on time, HMRC could fine you and charge interest and penalties.

Missing the deadline for self-assessment – if you haven’t completed tax returns in the past, you need to register for self-assessment with HMRC to receive a Unique Taxpayer Reference (UTR) number. It can take weeks to receive one after application, so it’s best to register well ahead of the filing deadline to avoid late payment penalties. If your tax assessment is up to three months late, you will have to pay a £100 late filing fee as well as interest on tax paid late. 

Failing to declare all income – all taxable income must be declared, including earnings and employment benefits, any interest and dividends from taxable savings and investments, pension income, rent from properties, casual money earned from additional sources such as freelancing, pet-sitting, dog-walking, tutoring, etc. 

Being unaware of payments on account – in addition to paying your current tax bill, HMRC may ask you to pay part of the following year’s, known as payments on account. These are collected at the end of January and July. 

Getting your sums wrong – filling in tax forms takes accuracy and attention to detail. If in doubt, ask a registered professional to do it for you. 

Failing to submit the tax form – a common mistake is for a person to fill in the online tax form and fail to see it through to the end. You must click the submit button, which will trigger a confirmation email. If you don’t get a confirmation email, speak to HMRC.

Not listing pension contributions – pension contributions can qualify for tax relief and reduce your tax liability. 

Making mistakes with expense calculations  – if you are self-employed, either as a sole trader or director of a limited company, you can reduce your tax liability by including all allowable expenses and costs incurred in the running of your business. Speak to your accountant for further advice on what you can and can’t include.


What are the biggest tax mistakes business owners make?

Tax affairs generally become more complicated if you’re running a business, especially if it’s a limited company as this adds VAT, corporation tax, business rates, capital gains tax and dividends tax into the mix.

The most common tax mistakes made by business owners are:

  • Not keeping up-to-date records – it is imperative to keep accurate company records. There is a wide range of bookkeeping software available to business owners to make this task simpler. 
  • Not realising that personal tax returns may also have to be filed – if you meet HMRC’s criteria for completing a tax return you must do so, regardless of whether HMRC has asked you to. You’ll need to list any income you’ve earned, such as interest and dividends received on savings and investments, plus any rent from buy-to-let properties, etc.
  • Ignoring allowances – most taxes come with allowances and exemptions, for example, everyone has a personal allowance which is currently £12,300 where they can receive income up to this amount before they begin to pay tax. If you do not account for the various income and capital gains tax allowances and exemptions, you’ll be paying more tax than you need to.
  • Not ring-fencing money for taxes – your taxes must be paid whether or not there is money in your account to pay them. Rather than find yourself scrambling for money at the last minute when PAYE, self-assessment, VAT, or corporation tax bills come in, make sure that you set aside a percentage of earnings for tax purposes.
  • Missing deadlines – tax returns must usually be completed by either October 31st if you are filing using paper or January  31st if choosing to submit online. Each tax year runs from 6 April to 5 April. If you miss the deadline, you’ll be charged a penalty with possible fines after three months. 
  • Failing to claim back overpaid taxes – if you overpaid your tax in any one tax year, you can claim back the overpayment from HMRC plus interest.


What happens if I make a mistake on my tax return?

According to studies, one in five people make mistakes when filling in their tax returns with the most common errors being around pension payments, property income, and interest on savings. The moment you realise that you’ve made a mistake, it’s important that you inform HMRC. You will normally be given 12 months in which to rectify the mistake (from the filing deadline). You’ll likely be charged interest on the underpaid amount.

HMRC does have the power to investigate individual tax cases and can ask for your records, which is why it’s important to ensure that they’re accurate. It’s always advisable to seek professional advice to ensure that your tax returns are correct. 


How much are HMRC penalties?

If you pay tax through self-assessment, tax is due on January 31st following the tax year end. In addition, you can be asked to make payments on account of the next year’s liability as based on the previous year’s income tax. These payments on account are paid twice, on January 31st and July 31st. The penalties for late payment are:

30 days late – 5% of the tax liability

Five months + – an additional 5% of the outstanding liability

11 months + – an additional 5% of the outstanding liability

If late penalties are not paid within 30 days, 7.5% interest will be charged.

Penalties for late filing:

If you fail to submit your tax return by the given deadline, and you don’t have a reasonable excuse for not filing, the penalties are as follows:

1 day late – £100

3 months late – £10 a day for up to 90 days

6 months late – 5% of the tax liability or £300 if higher

12 months late – an additional 5% of the tax liability or £300 if higher, if the failure to submit is not deliberate. If it is deliberate then the penalty can be as high as 200% of the unpaid tax or £300.


10 reasons why HMRC might ask for an audit of your accounts

HMRC does launch investigations into businesses and individuals where it is believed the correct taxes aren’t being paid. They are sometimes conducted randomly and there is never any guarantee that you won’t be investigated, but the following are red flags.


  • HMRC is tipped off – somebody reports you to the tax office. It could be an angry employee, an ex-partner, or anyone who believed you were living beyond your means, i.e. your expenditure seemed excessive compared to your supposed means. A cash-only policy can also arouse suspicions.
  • Mistakes on your tax returns – if you regularly make mistakes on your tax returns, HMRC may become suspicious and launch an investigation.
  • Figures fluctuate wildly  – while business figures do change year-on-year, wild fluctuations might catch the attention of HMRC and cause them to investigate.
  • Making no profit – if you fail to make a profit year-on-year, HMRC might start asking why. If they do, make sure you have good reasons to back up your argument.
  • Your figures differ from industry standards – if your income differs from industry standards, it could be cause for a tax investigation.
  • Directors earn less than staff – HMRC could conclude that you’re taking profits from the business on the sly if you’re earning the same as or less than staff as a company director.
  • Inaccurate accounts – if payments are not included in your books, yet there is a trail between other businesses,  banks, etc, HMRC might consider investigating.
  • You don’t have an accountant – one of the best ways to avoid HMRC investigations is to employ a good accountant who helps to ensure your returns are accurate and up to date. 


Does the tax office make mistakes?

The tax office does sometimes make mistakes. In 2020, a self-employed woman woke to find £774,839.39 in her bank account that HMRC had mistakenly paid. If you are overpaid by HMRC you have a legal obligation to report it and pay the money back as section 24A of the Theft Act 1968 means it is an offense to knowingly keep wrongful credit. 

The above case is rare, but some of the more common HMRC mistakes include:

  • Incorrect PAYE tax codes
  • Software issues
  • Incorrect employee information 

If you spot HMRC mistakes on your payroll, inform them immediately. If you’re not happy with the outcome, you can lodge a complaint. Employing a competent and experienced payroll team or outsourcing payroll, can enable you to spot any errors early and avoid costly mistakes. 

In summary…

Tax returns and payments come with rules and deadlines; not adhering to these following them can result in costly penalties. To avoid making mistakes with your tax returns, consult a professional accountant.