Mistakes I've Seen in Tax Returns

Jan 29, 2025

Tax return season is wrapping up, and it's time to reflect on some common mistakes often seen in the tax returns of the self-employed. Avoiding these errors can save you stress and potential penalties.

1. Not Submitting Anything

One of the most significant mistakes is failing to submit a tax return at all. It’s crucial to determine if you need to file, and HMRC’s online tool can help clarify this for you.

2. Misclassifying Hobbies as Businesses

Earning money from a hobby doesn’t necessarily make it a business. Ensure your activities qualify as a business to avoid incorrect claims.

3. Ignoring Certain Income

Your tax return should include all income, even if it’s been taxed already. Check with a professional if you’re unsure about what income to report.

4. Claiming Inappropriate Costs

Expenses claimed must be wholly and exclusively for business purposes. If there’s a personal benefit, it likely doesn’t qualify.

5. Misunderstanding Sole Trader Payments

Sole traders cannot pay themselves a traditional salary. Instead, payments are considered drawings and not deductible as expenses.

6. Including Mortgage Principal Repayments

Only the interest on a mortgage is deductible, not the principal repayments, whether you’re a landlord or working from home.

7. Overlooking the Trading Allowance

If your business expenses are under £1,000, you might benefit from claiming the trading allowance instead. Don’t overlook this potential advantage.

Being aware of these common pitfalls can help ensure your tax return is accurate and compliant. Always consider consulting with a tax professional if in doubt. Happy tax filing!

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Market House, 25 Market Square

Leighton Buzzard LU7 1EU

hello@tinysharkaccounting.co.uk

01525 838524