Anxiety about being investigated by HMRC

[Selfemployment]

I’m a self employed sole trader who works from home in a creative role (think children’s book illustrator). I earn very little (most ever was £32k annually, last tax year just £18k) and because I’m a low earner I don’t employ an accountant and do my tax return myself. I am, of course, always honest about my income and follow the guidelines for what can be claimed as expenses, but for some reason this always worries me and every year I get really worried that I’ve made a mistake & HMRC will investigate me (I think it’s because I’m not very maths/finance savvy and tax returns are totally out of my comfort zone). Does anyone know of a low-cost service that might be able to guide me through a tax return so I know I’m not getting it wrong? Or should I just trust myself and stop worrying, probably unnecessarily?

You should be able to get a small local self employed accountant to do your tax return for around £250.

It'll still be you that has to gather all the information for her though, so you might just as well input that information yourself as opposed to passing it to someone else to input and giving them £250.

You always worry you'll be investigated - it comes with being self employed lol😀

@DenholmElliot11 Thank you, yes perhaps I should just accept that the worry comes with the job.

To be honest, they have bigger fish to fry, and are extremely unlikely to investigate you unless their algorithms pick up unusual anomalies between one year and another.

When I was self employed I used to use an accountant whose fee included a guarantee that she would deal with any HMRC investigations (sorry I don’t still have her details).

Honestly though, I think you’re probably worrying about nothing. The main thing is to make sure you’re declaring all your income, and that you check what expenses you’re allowed to claim and don’t just go on hearsay for this.

These people charge £169. Worth a go if your income is low and uncomplicated.

https://taxscouts.com/self-assessment-tax-returns/

Organisations such as the FSB or your local chamber of commerce often include free insurance to cover any costs associated with tax investigations.

I don’t think you need to worry though.

I'm similar, OP, author earning not huge amounts but enough that I have to turn in a tax return. My younger son is an accountant, and I run my return past him before I submit and his usual advice is that, as long as it sounds about right and you haven't suddenly earned nothing after having earned quite high amounts, you will probably be all right. I don't employ an accountant because it would take longer to explain all my outgoings and income (as an author, quite a lot is deductible) than it does to do my own accounts, and while I try to be as accurate as I can, there may well be mistakes in my return. I have every expectation that, should HMRC investigate me, they would realise that any errors are genuine mistakes and just let me pay any shortfall that might result.

I really don't think you should worry too much as long as you are being as accurate as you can be. HMRC aren't going to worry about the odd forgotten tenner.

I was self employed for decades, during which my income fluctuated widely. I never had an audit.

You don't need to be mathematically proficient to do your taxes, as long as you are able to add up with a calculator, or use basic Excel.

Just read all the notes that go with the tax return carefully. When you fill it in online it will prompt you if something isn't right.

If you are still worried, invest in having an accountant doing your return just one year and follow his workings thereafter.

Be aware that making tax digital is coming and if your turnover NOT profit exceeds limits, you will be affected from April 2026 ( t/o over £50k) April 2027 ( t/o over £30k) and for those with t/o over 20k someone in the future. Landlords too.

You really need to know this. I'm not suggesting you need an accountant - and I don't know any charging as little as £250 plus VAT, more likely £5-600.

And to add, HMRC are not going to have a free online service as they have now, so if you are affected your costs are going to increase significantly I'm afraid. Search MTD for income tax.

What does 'making tax digital' mean in practical terms, @77Fee ? How is it different from filling in current tax returns online?

Taxpayers affected will have to keep digital records and submit quarterly updates with a final statement (replaces the self assessment tax return) with usual tax payments in Jan and July ( if in payments on account).

The quarterly updates will be like mini p & l accounts though larger tax adjustments will take place in the final statement.

It's the keeping digital records that will complicate things for most people. There are a raft of paid for software eg Xero, who are ready for it but many taxpayers don't use proprietor software ( not yet anyway).

HMRC recently announced they won't offer a free service, disappointingly.

If you google HMRC MTD you'll see their latest news releases.

Would an excel spreadsheet/listing of income and expenses count as 'digital records'?

Apologies for these really basic questions but this is all new to me, and I'm surprised that HMRC have not sent me a heads-up. I realise I'll need to do a fair bit of research to get up to speed on this, but a little help would be welcome.

It doesn't help that I've never used any form of digital accounting, other than very basic Excel.

If you open a business account with RBS, you get free software that takes all the info from your banking entries. It has a tax return option included.

I’ve been using the software for a few years now, and it’s an absolute game changer. No more excel spreadsheets! It does my VAT returns too. So easy!

The software is FreeAgent. You can buy it, but getting it as a freebie is a real bonus.

@Semiramide . I think excel spreadsheets might be sufficient, but please read more here,

www.att.org.uk/making-tax-digital-frequently-asked-questions

Hope that works.

I'm learning this too, and reading those FAQs it is obvious that some form of bridging software WOULD be required so excel in itself is not enough. It's going to be a real nightmare.

A nightmare indeed. I'm retired and the only reason I'd need this is because of a bit of rental income .

My accounts are beyond simple, so why do HMRC think this is needed?

Empty a book keeper or accountant, you can charge it as expenses.
I do remember the worry though!

Reading this and realising I need to get up to speed. I’ve been vaguely aware it’s been coming for a while, but kept getting delayed, so I’ve been putting it to the bottom of the pile. Been using Exel and doing my own returns for a few years and used an accountant for a couple of years before that until they hiked their price and I realised I could copy their example going forward.

Does anyone who’s using one of these software packages know if they can be used for more than one business - do they accommodate for multiple income streams for tax return purposes? Any recommendations please?

So pleased I started this thread. It’s been really informative. Thanks all for you replies, I’m off to look up FreeAgent.

Another recommendation for FreeAgent - I've been using it for years. Integrate it with your business bank account and it makes life so much easier (expense tracking, salary, taxes, VAT return, etc)

I have two separate Ltd companies, so keep separate bank accounts and do two separate returns on FreeAgent. I got both licenses free with my RBS accounts. You can have multiple bank accounts linked to each license/business (even with other banks).

If you are a sole trader, and have different income streams coming in, it is easy to set up bespoke categories that you choose when allocating the bank entries. This sounds more complicated than it is! Really really straightforward!

The software is linked to your accounts and updates transactions daily. It shows these transactions in red until you allocate a description in the software. They then turn green and you don’t need to look at them again! You can upload photos of receipts if you wish.

Its MTD compliant and VAT returns are an absolute dream compared to my excel days!

Im sure they have some videos on their website so you can have a look before taking the plunge.

If you don’t want to bank with RBS, you can just buy a paid for license. It’s maybe about £300pa??

so why do HMRC think this is needed?

at a guess, so it’s not an annual payment but a quarterly payment eventually & closer to “real time” which is where PAYE and benefits are.

so they are. It putting people in debt, for example if the had a boost in their business but didn’t put enough tax away.

many people do budget, but others don’t and can’t find the money to pay the tax demand.

i put away 20% of what I earn, then know I have more than enough to pay my tax demand - but people don’t do this

same as benefits, some are consensus about telling of changes in circumstances- other aren’t, so got into overpayment situations. Now it’s in real time, this reduces overpayment situations. Doesn’t mean it doesn’t happen but far less like

It's not an annual payment now, though. Self-employed tax payers make 2 payments on account a year. If HMRC now want 4 payments that's fine with me.

However, I do object to having to purchase this digital record keeping software that is mentioned on this thread. No doubt this will cost several hundred £££, which is ludicrous as all I have to account for are 24 rent payments and a similar number of expenses - things like agent fees, service charges, safety certification and a few items of maintenance and repair.

I'm somewhat digitally challenged and will no doubt have to pay someone to do my (extremely simple) accounts if HMRC go ahead with this software. They ought to provide a simplified and FREE version of for people with small and/or very straightforward businesses.

@Semiramide if you open an RBS business account, the software is free