Tax, they say, is one of those inevitable things in life. However, the exact nature of tax can be confusing if you are not an expert, specialist professional. This means that a lot of people are unsure about the way tax works or the various rules surrounding the UK tax system in different situations. This has led a number of myths and misconceptions to spring up, some of which are best dispelled before you fall afoul of tax law.
You Can’t be Employed and Self-Employed at the Same Time
A lot of people believe that if they are in employment and just doing a little work on the side, they don’t need to register as self-employed or complete a tax return. After all, they aren’t self-employed sole traders – just regular employees earning a little extra income now and then. In fact it is perfectly possible to be employed and self-employed at the same time. If you are doing work outside of your regular employment or running a side business – however small – then you need to register with HMRC, keep accounts, and submit a tax return each year. You must also register for self-assessment if you have any other income stream, for example if you take in a lodger.
Children Are Tax-Free
Many people believe that children are entirely exempt from tax. As an extension to this, a lot of people believe that by passing money down to their children they can avoid paying tax on it. While the majority of children do not need to pay tax in normal circumstances, they are not exempt. As most children are not earners tax concerns will not apply to the vast majority of them – which is presumably the reason for this myth, but this is not the same thing as being exempt. If your child’s income in a year is over £10,000 they will be taxed, and if you give money to a child and the interest is over £100, this will still be treated as your income and taxed accordingly.
Small Businesses Don’t get HMRC’s Attention
Some people genuinely believe that if you work mostly or entirely in cash then you have no need to pay tax, which is completely untrue. Others know that tax is due, but believe that they can easily get away with sloppy bookkeeping practices or failing to declare all of their income. After all, cash is hard to trace and HMRC is not likely to notice or investigate a sole trader doing one-off jobs for cash is it? In fact, HMRC considers this type of business a considerable risk factor. Dealing mostly in cash payments makes tax avoidance – accidental or deliberate – relatively easy, and though individually these businesses are small the fact that there are a lot of them trading at any time means they make up a significant portion of tax due. For this reason, if your accounts seem off there is every possibility HMRC will notice and investigate, so it is best to keep everything in order.