First things first, not everybody is automatically entitled to a £2000 pound tax rebate if you earn more than £18K and don’t travel to work in your own vehicle then you're probably not entitled to £2k, your probably thinking we've gone crazy and everybody gets at least £2k back! Well in most cases they shouldn’t.
We have been in the industry for over 11 years, we have completed more than 10,000 tax returns and have reclaimed millions in overpaid tax.
We know all the tricks in the book, we know how you get exploited as customers, we also know how the HMRC self-assessment system is exploited, as do HMRC!
This guide aims to debunk the myths and Chinese whispers that surround tax rebates, and what is a good and bad accountant.
Throughout the years we've heard all the stories and been asked all the questions, such as:
We would hope these last two questions somewhat answer themselves by the time you’ve read this guide.
If you want your tax return done properly and want the honest answers to the above points, then please read on, if you are not interested in doing your return correctly and are simply looking to get as much back as you can! Then you might still want to read on to give yourself an idea of what you're getting yourself in too, although were are not the right company to help you with that.
Firstly why £2k, One of the main reasons people come to expect a £2k rebate is the first time you do a tax return, is for the first year that you have worked, and you probably are entitled to a £2K rebate If not more.
As a construction worker, your first year in the industry is likely to be spent labouring, or as an apprentice, your income is generally going to be low, your expenses may well be high as you might have purchased a lot of tools or paid for a college course, you may have paid emergency tax for some time and you may not have worked for a full tax year.
When you come to complete your first tax return, you will either use an accountant or submit the return yourself with ever intention of doing it correctly. One of the most important parts of the tax return now comes in to play, your "Personal allowance" the personal allowance is an amount that you can earn each year that is "tax-free".
On average the personal allowance for the last three years was 11k, if your "net Profit" (after expenses)" is less than the personal allowance then you get all the tax back that has been deducted from you, for most people this first rebate is £2k if not more.
This tax return is correct but this creates an expectation to receive this amount every time and if you receive anything less in future then your tax return must be wrong. Unfortunately, that is not correct.
So, how do you keep getting your £2K plus! Simply put it is by submitting the return incorrectly, whether your aware that is incorrect is the difficult question, although If your paying an accountant, then the fee you charged should give you some idea of the service you should expect.Average industry fees.
The most common way of increasing your tax rebate is increasing your expenses, while the rules on what's allowable and what's not can be confusing, if you are submitting the returns yourself you are expected to know what is allowable and if you're using an accountant then your paying for them to know.
Here are the key points:
The more "expenses" that are claimed, the more your rebate will be.
At this point I can say that some of the most common mistakes relating to expenses are:
If your tax return includes a claim for expenses that you know you haven’t had, then you will always leave yourself open to HMRC investigation.
If you ask an accountant to claim expenses for you that you haven’t had then not only are you asking them to do something illegal, but you're putting their reputation, their business and all there other clients at risk, no accountant will ever submit information that they know to be incorrect.
Yes there are "margins, percentages, averages" or whatever you want to call it that are often used to calculate reasonable expenditure, which is fine until that return is picked for investigation and then those "margins, percentages, averages, assumptions, allowances" are tested, again if it turns our those calculations were wrong, you will get a bill.
Secondly, claiming class 4 national insurance exemption, a common error made by individuals that submit return themselves, if you are in construction you are not exempt for class 4 national insurance, even if your unsure what national insurance class 4 is, it doesn’t mean you're exempt from paying it.
Thirdly claiming you’ve had more tax deducted than what has actually been deducted, again a common error when individuals submit their own returns.
One of the ways HMRC choose which returns to investigate is a simple math based formula on your income compared to your expenses, if your expenses are more than they expect, they will investigate.
You are expected to keep all your business records for six years, even though you're not currently asked to upload your receipts when submitting your return, you will be expected to provide them if you are investigated, once you are investigated you will need to provide evidence to match what was entered on your return.
If you submitted your return yourself and "accidentally" included expenses that were not allowable, while HMRC may accept that it was a mistake rather than intentionally evading tax, that doesn’t mean you will get to keep your rebate, your return will be "corrected" and you will pay back anything that you mistakenly received.
If you used an accountant to submit the return for you, it is your responsibility to provide them with as much information as possible, some companies are able to recover income and tax deducted records from HMRC, but no companies can "find" your expenses, as only you will know that.
If you do not provide any information on your expenses then there should be no expenses on your return, if you have been asked to provide bank statements, receipts, invoices and M.O.T certificates, that’s a good start it means its quite likely your actual information will be used on the return.
You should then expect all that information to be professionally reviewed and any questions to be answered before submission.
Before your return is submitted, you should have seen a copy of it, and you should be asked to sign a declaration that states you agree with the information on the return, while you may not make sense of exactly what's in each box you should have some idea of whether those figures seem accurate, if they don’t you should ask for an explanation of why not.
However, regardless of whether you see the declaration or sign the declaration, you are always responsible for your tax return.
HMRC operates a pay first check later policy, HMRC cannot check every tax return before they make a repayment, HMRC do not expect people to be submitting returns incorrectly, the reason HMRC expect you to keep records for 6 years is it gives them 6 years to check your returns, and if they do decide to check your return even 6 years after submission, you will still be expected to have the records for everything that was included on your return.
As HMRC purse strings tighten and technology evolves HMRC are using that to their advantage, HMRC has a simple formula and expects your returns to fall within the parameters of that formula, if it doesn't they may select that return for a review.
Just wait until you find out about Making Tax Digital (MTD).
We can liken this to getting an M.O.T, its something your legally required to do every year, you may know a company that can get you a pass certificate for a price, but what goods that when your car breaks down 6 months later, and do you think they will give you a refund!
If you're still unsure about what makes a good accountant and whats a bad accountant then maybe take 10 minutes and read this guide again or better yet get in touch, it might save you a fortune.
And lastly the famous, "but why did my mate get more" we don’t know, ask them!