The average self employed person earning £20k a year could be overpaying in tax by £1629.
74% of self-employed people find tax affairs 'stressful'.
The self-employed spend up to six months* of their working lives dealing with tax matters such as calling HMRC, sifting through receipts and trying to work out what are classed as allowable expenses, according to new figures released today.
The research, carried out by free online tax-filing platform SimpleTax, looked at how much time, on average, self-employed people spend each month dealing with issues relating to their self-assessment. More than half (58%) said they spend, on average 1.5 days per month working on their books while another 10% spend over 3 days a month struggling. Only 16% spent less than one day a month on their accounts.
The findings also revealed that the self-employed could be overpaying their tax bill by as much as £1629 if earning £20,000pa and a staggering £2771 if earning an average of £30,000pa. The figures were calculated by comparing the average tax liability for self-assessments filed with HMRC and those filed through SimpleTax. (See Table below.)
Confusion over what is an allowable expense is the most likely explanation for the differences found when comparing the two. While HMRC forms are fairly straightforward, there are no suggestions as to what could or should be claimed. People can end up paying much less tax if they are armed with the right information through pattern recognition software. This software makes suggestions as to what can and should be claimed based on what other sole traders in the same industries have claimed.
The three main areas found to be causing expenses confusion were, car running costs, particularly when the car was also used for private trips, home office cost calculations and food claims. Nearly a third said they had thrown away receipts rather than claim for them because they had been 'uncertain' about the rules and preferred to pay the extra tax than risk filing an inaccurate return.
The survey of 1216 self employed people also revealed that 74% find tax matters to be the most frustrating part of being self employed, surpassed only by the stress of finding new business and clients.
Celso Pinto, founder and CEO of SimpleTax said:
'What began as a trickle of self-employed people has turned into a tide, but tax matters relating to self-assessments certainly aren't getting any easier.
'Many sole traders would appear to be paying too much tax simply because the system is too complex for most to understand and many find accountants fees more than they can afford.
'Not only are people overpaying, they are spending precious days each month battling with their returns, whether that be calling HMRC or trawling through receipts and tax guides.
'HMRC forms can be straightforward enough, but unless you are a tax expert or have time to spend hours trawling tax books, you could miss out on potential savings.
'Not only does SimpleTax suggest what you should be claiming for, it also does hundreds of calculations and double checks to ensure your return is correct.'