Nearly half of self-employed workers are not aware that COVID-19 grants should be declared in future tax returns.
Emergency financial support, such as the Self-Employment Income Support Scheme (SEISS) and Small Business Grant Fund (SBGF), are subject to Income Tax and Self-Employed National Insurance.
However, according to research by GoSimpleTax, 46% of sole traders have admitted that they thought they wouldn’t have to include coronavirus-related grants in any tax returns. This could leave them open to potential penalties from HMRC, as a result of failing to include all sources of income.
Mike Parkes, Technical Director at GoSimpleTax, which conducted the survey, said: “It’s essential to understand the implications and tax liabilities that come with these emergency measures.
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“While it’s next year’s tax bill that will be dominated by coronavirus, it will pay to get ahead of the curve. Firstly, you should complete your 2019/20 tax return and submit it to HMRC as soon as possible. You can also start compiling your 2020/21 tax return. This will give you a good understanding of next year’s potential tax bill, so you have plenty of warning and less chance of unexpected costs.”
According to the research, the most common mistakes made by people when submitting their self-assessment tax returns are assuming you don’t have to declare something, if you’ve not made a profit; ticking the wrong boxes; and putting the wrong information down.
Fines handed out by HMRC, relating to self-assessment tax returns, have reached tens of millions of pounds in recent years.
Parkes added: “Under the current system, HMRC will allow you submit your tax return and then make a resubmission before the next filing deadline of the year after. For example, if you’re submitting your tax return on 31 January 2021, you have until 31 January 2022 to amend anything you need.
“After this period of time, you'll need to write to HMRC to explain the circumstances and request a change. However, it’s important to note that this too comes with financial penalties, if HMRC deems your submission to be careless and deliberately incorrect. Penalties are based on the amount of tax you owe, and are payable in addition to your tax bill.
“Whichever way you look at it, HMRC frowns upon deliberate errors and lateness. When it comes to submitting your self-assessment tax return, it’s crucial that you are prepared, organised and understand fully what it is HMRC is looking for.”
READ MORE: HMRC to waive some late tax payment fines
The self-assessment deadline is just weeks away, and while HMRC has said it would waive late payment fines in special circumstances, it’s worth noting the particularities of the COVID-19 grant system in your finances for next year.
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