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Nine top tips for preparing tax returns

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13th Oct 2009
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Jonathan Amponsah summarises the key changes for 2009 and outlines best practice procedures for accountants preparing returns for clients this year.

It’s been an eventful year, encompassing a number of changes. Below is a checklist of things to take into account when preparing clients’ returns.

Carelessness tax
The new penalty regime for submitting incorrect tax returns will apply for all returns submitted for the 2008/09 tax year. Practitioners should be extra careful to ensure that necessary checks are taken to reduce defective tax returns. (Check out AccountingWEB's handy guide to correcting errors if you need an extra help in this area).

New rules for capital allowances
Capital allowances are great tax planning tool and practitioners should be aware of the new generous rules for small businesses, including up to £50,000 for the new Annual Investment Allowance.

HMRC computer generated £100 penalties
This is not new but it’s amazing how many invalid penalty notices get generated and are wrongly paid.

Practitioners should validate all notices and also be aware of this important piece of tax legislation: Under Section 98A of the Taxes Management Act 1970, a penalty for late submission must not exceed the amount of taxe(s) due.

Recession
It might seem obvious, but it’s worth making the point that accountants need to take into account the impact of the recession on their clients’ taxes and take appropriate measures.

Postal strikes
There are postal strikes occurring in various parts of the country at the moment and practitioners should therefore remember to give themselves plenty of time and use recorded delivery if they are submitting paper returns.

Nine top tips to make the process smoother

1. Recessionary tax planning
This tax season, accountants should look particularly at the following areas:

  • Losses: Has the client made a loss? What is the appropriate loss relief? Make sure you select the relief that will generate an immediate tax refund.
     
  • Tax credit: Is the client now entitled to tax credit as a result of low income?
     
  • Fall in asset value: If client has assets that have gone down in value or become worthless, can they claim any tax relief?
     
  • Change in year end: Could this help your client maximise their cash flow in the current climate?

2.    Make use of the white space on to explain unusual variations
If you know there’s something unusual on the return you’re submitting, explain it. HMRC is far less likely to start and enquiry if it’s properly explained from the outset.

For instance, if your client’s net profit seems too low to support someone above the poverty line in this day and age, be prepared to supply a plausible explanation. However, try not to be too generous in the information you give.

3.    Carry out an analytical review and quality checks before submitting
It’s so easy to miss common mistakes in classifying expenses on the return. For example, a driving instructor client might have included their fuel cost in the ‘cost of sales’ figure one year and then in motor expenses the next year. This would produce large variations that HMRC’s computer will throw out as a variation for the taxman to look at and perhaps seek further explanations for. By catching these kinds of errors before you send the return, you could avoid a lengthy investigation of this kind.

4.    Make sure all sources of income are declared
It’s easy to forget income sources such as interest being received in the year, but HMRC will know if you have an interest earning account or perhaps an offshore bank account. By omitting this information, you may cause them to wonder if this is where you’ve filtered away undeclared profits and provoke further investigation.

5.    Assess whether to claim or carry forward capital allowances
If your client has a reduced income or made a loss, make sure their personal allowance isn’t wasted by not claiming for capital allowances.

6.    Pay greater attention to risk hot spots
HMRC knows that enquiries into the following expenditure areas are likely to produce some interesting results:

  • Legal and professional expenses
  • Repairs and renewals
  • Entertaining
  • Stock
  • Provisions/accruals
  • Research and development
  • Drawings

The taxman has been known to raise more enquiries into the above expenses. For instance, where drawings are comparatively low, the Revenue may wonder whether there have been undeclared cash sales which have been used to fund your living expenses.

Knowing the rules on the other expense categories will ensure that any questions do not lead to a full blown costly investigation.

7.    Show private use adjustments separately on the self employment pages
HMRC will always be looking to disallow any private use of items, so where you have already restricted motor expenses for private use, for example, it’s possible to avoid enquiries if you show the adjustments separately rather than netting it off so that it’s clear to the taxman that adjustments have been made.

8.    Late records and tax returns
Some clients will bring in their records late and expect you to drop everything and attend to it. Make sure you have plenty of time to do a good job or consider walking away.

Where you do have enough time to prepare the return, explain to the client that last minute preparations of this nature are a premium service which will involve premium fees.

9.    Seek help
HMRC’s campaign tells us that ‘tax doesn’t have to be taxing’, but the standard tax calculation guide provided runs to 16 pages! Plus, if you have certain types of income such as capital gains, you will need the comprehensive tax calculation guide, which runs at over 32 pages. It’s not always an easy process, so if you’re unsure, make sure you seek help as soon as possible.

Jonathan Amponsah is a chartered certified accountants and tax adviser for AMP Associates.

 

Replies (7)

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By User deleted
13th Oct 2009 11:01

what is the point

of  these mundane comments being published so late in the tax return season? Most prqactitioners are already aware of most of the points made

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By Becky Midgley
13th Oct 2009 13:55

Thanks for your feedback; it's important that we hear from our members about our content. 

I think the important thing that you mentioned is the word 'most' - we are aware that not all our content will serve the entire readership, but it may be of use to some, so it is in our interest and that of our members to publish this kind of content.

We would love to hear back from you with some ideas if you want to help us cater more to your needs.  What would you find most useful?

Becky Midgley

Community manager

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By sam_swain
14th Oct 2009 09:19

Recorded Delivery ?
Be careful with recorded delivery, from experience I can tell you that Royal Mail rarely actually obtains a signature and just marks the file with 'delivered' which the Revenue won't accept. If you complain to RM that its a signed for service, they apologise and occasionally send you a few stamps.. very unhelpful against a penalty !

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By geoffwolf
14th Oct 2009 11:27

recorded delivery

does notb track items from sender to recipient but only from recipients sorting office to recipient.

 

special delivery is needed for full tracking and even then sometimes no signature is requested if recipient is not there.

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By pawncob
14th Oct 2009 15:24

This is what HMRC MUST do
If they have received Recorded Delivery items.
http://www.hmrc.gov.uk/manuals/ntcmanual/specialistsec_postroom/ntc05011...

The only proof you need is proof of posting.

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By AdShawBPR
15th Oct 2009 21:25

Some helpful tips - thanks

Have just started a practice so personally found some of the tips quite helpful, especially the expense items that HMRC are particularly interested in.  Thanks.

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By User deleted
17th Oct 2009 21:47

Tax

 Hi, I am a student so these are very useful in helping me to understand my job. Any more like this?

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