Common tax return errors and how to avoid penalties

Making errors on your tax return can be costly in terms of penalties and interest, particularly if the error covers several tax years. Common mistakes we see are missed deadlines, misunderstanding how the system works, missing income or incorrect information.

Missed deadlines – automatic penalties

HMRC apply penalties for missed tax return filing deadlines and when payment of tax is made late. A late tax return will trigger a £100 automatic penalty. After three months, daily penalties of £10 per day can apply (up to a maximum of £900). Further charges at six and twelve months also apply.

As well as interest, late payment of tax will attract 5% penalties at 30 days, six months and twelve months.

Undeclared taxable income

A typical cause of penalties is failing to disclose taxable income. Common missed income sources are rental profits, dividends, savings interest (non-ISA), foreign income and freelance profits.

Pension contributions and charitable donations via gift aid

For higher rate tax payers, it is very sensible to review your position in relation to pension contributions. Personal pension contributions which have not received full relief at source (ie. via salary sacrifice or a net payment scheme) can qualify for further tax relief via a tax return.

Similarly, donations under the Gift Aid scheme can also receive further tax relief for higher rate tax payers. Donations can also be carried back to the previous year, which can accelerate the tax relief.

High Income Child Benefit Charge

If you or your partner earns £60,000 or more and are claiming Child Benefit, then this benefit is proportionately clawed back and is completely repaid for those earning £80,000 or more. The charge can easily be missed from tax returns where the lower earning, non-filing spouse claims the benefit.

In recent years, where possible, HMRC has started to collect the charge via tax code adjustments. It is important to review that the amount is correct. The charge may not be due if, for example, a couple has permanently separated.

How to avoid penalties

file early – tax returns can be filed from 6 April onwards following the end of the tax year
use HMRC approved software
engage a professional tax adviser
keep digital records
review tax return entries carefully before submission
file early to avoid last minute errors

Voluntary disclosure

If an error has occurred, it is important to come forward as soon as possible. Making a voluntary disclosure to HMRC can significantly reduce the penalties. If HMRC notice the error first, penalties can be far stricter.