What happens if HMRC discovers that a self-assessment is incorrect?

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    The thought of submitting a self-assessment tax return sends shivers down the spine of many a self-employed person! The complexities of tax regulations and the fear of making mistakes can lead to sleepless nights for even the most financially savvy among us. But what happens if you or HMRC do discover a mistake?

    If HMRC finds errors in your self-assessment, they will issue a penalty notice. A fine may be avoided if you report the error first. The amount you are fined depends on whether it was an honest mistake. Deliberate mistakes can incur fines of up to 100% of the tax owed and even result in legal action.

    But I’m not here to scaremonger! In this article, I’ll delve into what happens if a mistake is found on your income tax return and share Jameco’s advice on avoiding common pitfalls.

    If you struggle to keep up with your tax affairs, Jameco Group are happy to help. We can help you manage bookkeeping, compile your self-assessment tax return and ensure you never miss a filing deadline. Contact us today to get started.

    Does HMRC check all self-assessment tax returns?

    One common question my colleagues and I are asked is if HMRC checks every single self-assessment submission. The short answer is no, but that is no reason to be careless.

    HMRC use algorithms to identify returns with a higher risk of errors or inconsistencies. The probability of them checking your self-assessment increases if it contains red flags, such as significant variances in income or irregularities in expense claims.

    They also undertake random checks each tax year. So, while not every return undergoes a thorough examination, you still risk scrutiny and penalties if you make a mistake.

    What happens if the information in your tax return is incorrect?

    If HMRC discovers that your self-assessment is incorrect, there will almost certainly be consequences. Intentional tax evasion may lead to serious consequences, like a fine of up to 100% of the outstanding tax due and even criminal charges.

    Fines for inaccurate filings are calculated as a percentage of the tax due, based on the ‘potential lost revenue’ (PLR). The more lost revenue, the more tax you’ll need to pay. Here’s an overview of the amount charged by HMRC for mistakes on your self-assessment tax return.

    • Reasonable care – 0%-30%: If you’ve taken ‘reasonable care’ to complete your self-assessment tax return and have made a genuine mistake (like putting a figure in the wrong box), you could escape a fine if you are proactive in reporting it. If you’ve made what HMRC considers a careless mistake, you could be fined up to 30%.
    • Deliberate misstatement – 20%-70%: As it suggests – deliberately attempting to mislead HMRC to reduce your tax bill.
    • Deliberate misstatement, which is then concealed – 30%-100%: Where there is a deliberate attempt to underestimate tax liability, and the person has tried to hide the fact from HMRC.

    Remember that if you spot a mistake, it’s important to contact HMRC within 12 months rather than wait for it to be discovered. If you report the mistake to HMRC and help calculate the additional tax due, the fine may be reduced.

    If HMRC spots the mistake first, then an automatic minimum penalty will be applied at a rate of 15%, 35% and 70%, respectively.

    Jameco Group’s top 5 self-assessment tax return mistakes to avoid

    1. Missing the Tax Return Deadline

    One of the most common pitfalls is missing the self-assessment tax return deadline. If you submit your tax return late, you could end up with an immediate £100 fine.

    The later you are, the more you will pay, as follows:

    • 3 months – £10 a day for a maximum of 90 days (£900)
    • 6 months – a further 5% on the tax due or £300 (whichever is greater)
    • 12 months – a further 5% on the tax due or £300 (whichever is greater), or in some cases, it could be 100% of the tax due

    The online filing deadline for self-assessment tax returns is midnight on the 31 January each year.

    Here are some tips to ensure you don’t miss another one:

    • Set reminders – on your phone, laptop, desktop calendar, fridge door – everywhere!
    • Ensure your bookkeeping is up-to-date at all times to avoid a last-minute panic. If your books are accurate, your tax return should be painless. Cloud software like Xero makes it even easier to stay on top of your income and expenses. From 2026, submitting your tax return using this type of software is required under Making Tax Digital, so it’s a good idea to get ahead of the game.
    • Hire an accountant – surely the most effective way to ensure your accounts are accurate and you never miss another filing deadline! While you could use an accountant on an annual basis to file your tax return, it makes sense to outsource your bookkeeping at the same time so that the whole process is taken care of. That way, they shouldn’t have to bother you too much at year-end. They will also help identify allowable expenses and tax reliefs so you don’t overpay tax.

    Jameco Group can ensure that your self-assessment tax return is accurate and compliant, get in touch with us today.

    2. UTR/National Insurance number entered incorrectly

    When you register for self-assessment, you receive a Unique Taxpayer Reference (UTR), a ten-digit number HMRC uses to identify you. When you complete your self-assessment tax return, you must ensure you enter it correctly.

    Also, make sure you correctly enter your National Insurance number, which can be found on your payslip.

    Check, double-check, then check again!

    3. Claiming disallowable expenses

    As a self-employed person, you are responsible for calculating your tax bill by deducting allowable expenses from your gross income to determine your taxable income.

    It’s essential to understand what HMRC defines as ‘allowable expenses’. The rule of thumb is that the expense must be “wholly and exclusively” for business purposes or the percentage of a cost that was for business purposes. For a comprehensive guide on claiming expenses, see the HMRC website page on allowable expenses.

    4. Failure to declare all income

    Underreporting your income, whether intentional or accidental, is a serious offence. If you are found to have underpaid tax, you leave yourself open to severe penalties.

    You must report all your earnings from employed and self-employed sole trader activities, including rental income, savings interest, pension payments, dividend payments and capital gains. If you are unsure about what to declare, then it’s important that you get professional advice from an accountant.

    5. Incomplete information

    “Information to follow” or “TBC” do not cut it with HMRC. You need all the figures to hand before submitting your return. Also, make sure you don’t make a mistake when inputting information. It would be disastrous to be fined simply for ticking the wrong box.

    Set aside a good amount of time in a quiet place so you can concentrate on filling out the online form correctly. If you and forms just don’t get on, consider hiring an accountant to do it for you. The cost is worth it when you consider the potential penalty you could incur.

    How to challenge a penalty notice from HMRC

    If HMRC insists you have made a mistake, but you (and your accountant) are sure you haven’t, it is possible to challenge them on it. You can do this by logging into your HMRC online account and downloading form SA370. You can appeal against the initial £100 fine online via the HMRC website or by phoning them.

    Ensure that your self-assessment is compliant with Jameco Group

    Are you feeling overwhelmed by the prospect of self-assessment tax returns? You don’t have to go it alone. As your trusted accountant and tax adviser, Jameco Group can help manage your expenses and compile your self-assessment tax return form. You can rest easy knowing you have paid enough tax and will never miss another filing deadline.

    If you fear you’ve already made a mistake, then reach out to us for help. Contact us today, and one of our friendly accountants will be in touch.

    Conclusion

    If you’ve made an honest mistake on your self-assessment tax return, it needn’t be a nightmare scenario. If you are proactive and notify HMRC, the penalty could be reduced or even cancelled.

    To avoid incurring penalties, be vigilant about deadlines, declare all of your income, ensure you only claim for allowable expenses and take care to provide complete and accurate information.

    It’s essential to implement a good bookkeeping system to avoid these common pitfalls. The use of cloud software like Xero can make the process even easier and this will soon be essential under the rules of Making Tax Digital. If in doubt, always seek professional advice from an accountant.

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