06 Aug Freelancers overpay tax due to DIY bookeeping
A recent survey has shown that self-employed individuals who keep their own business records and complete their own self-assessment tax returns are unnecessarily overpaying their tax. This is compared to other self-employed individuals who employ an accountant to sort their finances and calculate their tax.
Almost half the UK’s freelance contractors manage all of their work finances themselves, and a quarter estimate they end up over-paying their tax as a result, according to online specialist accounting and support services company Boox.
Overpayments head the list of top five tax errors in its Boox Report which analyses the work patterns of the UK’s self-employed workforce and is based on a survey of around 1000 freelancers. Respondents were evenly split between those who do their own accounts (42%) and those who employ an accountant (42%), with the remainder using an online platform.
For those who handle their own tax affairs, Boox found the most common mistake was paying too much tax annually, cited by 26%. In joint second place were missing a payment deadline, mentioned by 15%, and failing to send out invoices on time (15%).
In addition, 11% of those polled reported problems with paying too little tax annually, while 3% had overpaid suppliers.
The survey showed most (43%) of freelancers spent between one and four hours a month on their books, with a third (36%) devoting less than an hour a month on their accounts. Just 3% admitted to stuffing receipts into a plastic bag and 10% put them away in a drawer. The majority (68%) had paperwork organised into a file and 16% used a box.
Banking (89%) and IT (80%) emerged as the most organised, with special files for their tax affairs. In contrast, only a third of designers reported using this option, with more than a quarter opting for putting paperwork in cupboard drawers.
The survey also found that nearly a third of designers fail to send out invoices on time, making them twice as likely as the national average of 15% not to be on top of their billing duties. A quarter of PR, advertising and marketing freelancers reported similar problems.
Laurence Collins, managing director of Magic Accounts, an online accountancy services specialising in small business finance, said: ‘Freelance contractors who manage their own finances are often guilty of a number of errors which are losing them money and putting their own financial security at risk. It is important for these individuals to outsource their accounting to specialists who can help them to minimise their own tax liability and stop falling foul of these mistakes.’
Source: Accountancylive.com. Dated 31st July 2013
If you would like to ensure that you do not pay more tax than you need to, please contact Hughes Accountancy for a free no obligation consultation. All end of year accounts and self-assessment tax returns are quoted on a fixed fee basis.