HMRC is waiting for you to make this tax error – don’t give it an excuse to investigate | Personal Finance | Finance
Anyone who misses the January 31 deadline for filing their tax return for the 2022/23 financial year will pay an automatic £100 penalty, with no right to appeal. There are further fines and penalties the longer you leave it, but a tax expert is warning that you could face far worse than that.
Filing your return too late or making errors may now be costlier than ever as HM Revenue & Customs pours more resources into tax compliance investigations.
HMRC says around 12.1 million Britons need to self-assessment tax returns for 2022/23 but with just one week to go 3.8 million still had not got round to it. That is likely to trigger a last-minute scramble in the run up to midnight on Wednesday.
Tardy taxpayers need to avoid making this simple slip-up, as it could cost them dear.
HMRC has taken on thousands of extra staff to boost tax yields, leading to a significant increase in the number of investigations.
Figures collected by chartered accountants Lubbock Fine show 248,000 in the 2022/23 tax year, up from 232,000 the year before. That figure will rise.
It is warning that taxpayers who file late or make mistakes are more likely to be investigated and risk stiff penalties.
Penalties for careless errors can total 30 percent of the tax owed, which rises to 100 percent for deliberate errors. That’s on top of the actual tax bill.
Penalties rise to as much as 200 percent for offshore tax dodges.
Lubbock Fine’s tax director Graham Caddock said as tax investigations rise it is vital you complete your return correctly. “If HMRC investigates and discovers errors or underpaid tax, taxpayers could face costly penalties or even trigger wider-ranging investigations.”
As I’ve warned readers before, the HMRC Connect computer system holds more than 55 billion items of data from a wide range of sources including banks, credit cards, estate agents, government records and even social media.
Its stash of data is getting bigger by the day.
From January, it secured new powers to track online trading activity on platforms such as eBay, Gumtree, Etsy and Vinty, and has access to activity property sites such as Airbnb, Rightmove and Zoopla.
This will enable it to track down people who are earning more than £1,000 a year from selling goods online, without paying tax on their profits.
HMRC is now using artificial intelligence to cross-check the data for discrepancies, such as somebody declaring unexpectedly low levels of bank interest or earnings from self-employment.
Either of those could give you away. Or any other slip-ups, because the robots are watching everything.
If you didn’t file a tax return last year you probably don’t have to this year either. However, you will if your financial circumstances have changed or you have new sources of income.
Today’s higher interest rates mean growing numbers will have to start filing. If your income from non-Isa savings and investments is more than £10,000, HMRC wants to know about it.
Higher-rate taxpayers who make pension contributions have a positive incentive to file a return. While basic rate 20 percent tax relief is paid automatically, the additional 20 or 25 percent must be actively claimed. Higher earners have lost £1.3billion a year in four years by failing to do so.
READ MORE: HMRC warns 3.8million to ‘act now’ or risk £100 fine – check if it could be you
Keep records of any pension contributions you make to claim the appropriate tax relief, said Trusha Shah, tax manager at accountancy firm HW Fisher. “Remember to include charity gift aid payments.”
Always keep a copy of your completed tax return, Shah said. “If you are employed or a pensioner, keep all paperwork for 22 months after the end of the tax year. Self-employed people or landlords should keep all paperwork for five years and 10 months.”
The risk of errors is obvious as only a third of us feel confident that we could complete a self-assessment tax return form correctly, while more than half don’t even know the deadline for filing, according to research from Standard Life.
If you have suddenly realised that you need to file for the first time you’re probably already too late because registering to file a return can take 20 days, said Dean Butler, managing director for retail direct at Standard Life. “However, the sooner you get going, the earlier it will be in, and you’ll be ahead of the game for next year.”
Take extra care in if racing to beat the deadline, as mistakes are more likely when you’re in a hurry.
While filing your tax return is no fun, a tax investigation is a nightmare. Don’t risk triggering one.