8 tax return tips for freelancers

'Don’t let your tax return peck away at you' is the line that HMRC is running with in its latest marketing campaign to encourage people to file their tax return by midnight on 31 January. 

Quacking ducks bellow out “tax, tax” to remind people not to ignore the niggling feeling they might have as the deadline looms. If you are one of those who is still yet to tackle your tax return here are some useful tips to help you. For more advice, take a look at Contractor Calculator.

01. Check your HMRC services login

If you can't log in, you can't do anything

First things first: If you are doing your own self-assessment (SA) and have a habit of leaving things to the last minute, then make sure your login details for the HMRC SA Service work. Check on the Gov.UK site and get it sorted if not.

02. Get help from a qualified tax advisor

A professional may be worth it in the long run

Getting the SA right can be tricky, and it is easy to make small mistakes. HMRC has sophisticated systems that detect these errors, which will result in an investigation if you get things wrong. Whilst you may have nothing to fear from an investigation, they can be time consuming and costly to deal with. So it’s better to avoid one if possible. While employing a qualified tax advisor is an extra expense up-front, it may be worthwhile in the long run. 

If you name the tax advisor you used on your form there is less likelihood of you being investigated, because HMRC will assume that the professional has got things right. The fee for a tax advisor will vary depending on the complexity of your return – prices range from £50 for something simple to £400 for something more complex.

03. Gather all the information early

In order to complete a tax return, you will need to know all your figures for total earnings in the past year, plus any bank interest, rental income details, and any dividends paid to you. If you don’t already have a tax statement from your bank for any interest earned, then apply for one quickly and/or ring your bank to get the figures you need.

04. Use last year’s return for guidance

If your income structure is similar, this can be very helpful

The format of the return does not change much year to year, and if the structure of your income hasn’t changed much then this year’s return will look very similar to the year before. Dig this one out and use it as a reference for the new one.

05. Remember child benefit tax

You will owe some child benefit back if you've earned over £50k

If you have children and were paid child benefit during the year, then you will need to check whether either you or your partner earned over £50,000 in the year. If this is the case, then the money will be clawed back by the Government on a sliding scale between £50,000 and £60,000. There are questions about this on the return; make sure you get them right. A few years of getting this wrong could result in a hefty tax bill in the future.

06. Consider future payments on account

Your return is for the tax year ending April 2017. If you plan on earning less in the current tax year, then reduce the amount you 'pay on account', otherwise you will over-pay tax. But, beware, if you reduce this too much and end up earning more, HMRC will charge you interest on the amount you should have paid when you complete your next SA tax return.

07. Pay the right amount

Your tax bill won't match exactly what you have to pay

Your tax bill will be calculated in real-time and presented to you on-screen. This will show you the entire amount due for the tax year ending April 2017. However, this won't be exactly what you need to pay: you will have already paid monies on account, and if you under-paid, a balancing figure will be required, plus some interest.

It’s good to do the submission early, then wait a few days for it to be processed. Then you can go back online and see the exact figure you need to pay. This will consist of a balancing figure for the previous year (which could be negative), and interest, and then a payment on account for the current tax year, which defaults to half the last year’s tax bill.

08. Pay early

Make sure you pay the bill before the deadline of 31 January 2018. Do this early, as HMRC’s systems get heavy use and can be known to very occasionally not work at key times. Build in some contingency.

08. File the documents

Keep your return safe

Download a digital copy of the return, and save that somewhere, along with a receipt for the payment you made. You'll be grateful when you have something to reference next year.

09. Consider investigation insurance

Tax investigation insurance can be bought for as little as £100 per year, because the chances of an investigation are very slim – especially if you have a tax advisor complete your return for you. This means if you are investigated, the cost of paying your accountant or tax advisor to defend your corner is covered. 

Despite what some people think, there is no such thing as a random inspection. If you get contacted, it'll be because an inspector thinks there is something wrong. Typically, there won’t be, or if there is it might be minor. Either way, it’s better to have cover.

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