First timers to self-assessment can often feel overwhelmed. With the right approach, plenty of preparation time and the right information it can be much more straight-forward.
Let’s take a step back. For those not yet in the know self-assessment is a HMRC vehicle for collecting income tax. For people in employment it is usually collected through salaries, pensions and savings. People (and businesses) with other income need to complete a tax return.
How do I know if I need to complete a tax return?
Let’s do a very quick walk through the general categories of people who need to explore if they should register for self-assessment and therefore complete a tax return.
Self-Employed. These are people who are sole traders or freelancers. They can be from any area of business from cab drivers to trade services such as plumbers, electricians, personal services such as dog walking, child minding and beauty services. In fact, any area of business – including the fast-going sector of network marketing (also becoming popularly known as a “side hustle”).
Property Landlord or Lodging Provider. If, during the year to which the tax return applies, you have rented out a property as a landlord, or you have had a lodger – including offering rooms to rent through sites such as Airbnb.co.uk and SpareRoom.com – you will need to complete a tax return.
Construction Industry Scheme members must complete a tax return which takes into account your CIS deductions for sole traders. There is a different process in place for limited companies with respect to CIS deductions.
Limited Companies need to file accounts and a Corporation Tax Return and Directors of the company will need to file individual tax returns too.
If you are classed as a High Earner with your adjusted net income more than £100k a year you have to complete a tax return.
Partnerships will need to file a partnership tax return.
Expats who have income or capital gain in the UK will need to complete a UK tax return.
What are the deadlines for completion?
You must submit your tax return and pay your tax bill by the 31st January for the tax year ending the previous 5th April. For example, the tax for the tax year 2017/2018 which ended on the 5th April 2018 must be paid by midnight on the 31st January 2019. Digital tax submissions are due by this deadline also whereas paper forms must be completed and returned by 31st October following the tax year end, so 31st October 2018 in our example above.
If you miss the deadline an immediate £100 penalty will be issued, with additional penalties applied based on the late date of submission.
Claiming Deductible Expenses
There are number of tax-deductible expenses that can be claimed which include things you might not have thought about such as including gift aid on your charitable contributions. There are three that commonly go unclaimed by sole traders:
- If you pay a professional subscription for a journal or organisational membership that is related to your business then you can claim it as a deductible expense. There are a number of exceptions, for example you cannot claim for membership to political parties, gym membership or lifetime subscriptions.
- Use of Home for Business is one that is often missed. You may be able to claim a portion of your heating, electricity, Council Tax, mortgage interest or rent, internet and telephone use. If you don’t use the HMRC simplified expenses for the self-employed using flat rates, you will need to ensure that you can clearly show how you arrived at your ‘reasonable’ figure.
- Subsistence is an allowance for meals whilst you are away from your base of operations, normally the home for most sole traders. For example, you have to stay away from home on a business trip. There have been a number of challenges by HMRC and disputes which have shown to be costly.
Those who run their own limited company follow a different set of rules for claiming these expenses.
Please feel free to contact us to clarify your individual circumstances and what you can claim.
Simple steps to make completing your tax return less taxing
- Ensure you register for self-assessment at your earliest opportunity and open up your online account. This can take time, so do it well in advance of the deadline.
- Apply a filing structure to the self-assessment information you will need during the year; rental agreements, lodger receipts, pension statements, office equipment, fuel receipts and so on. With regards to your business, process as you go record keeping is recommended – and digital is even better. There are a number of apps for smart phones that can collate your expenses and track your business mileage – much better than the carrier bag of receipts approach to record keeping!
- Make sure you know your allowances, both personal income allowance tax and capital gains tax allowance.
- Any income that has not been taxed already must be declared. Interest from savings, dividends from investments, pensions and income from rental/lodgers. State pension income needs to go on the tax return and child benefit income where your income is over £50,000. You don’t need to include income that is tax-free (ISAs, Premium Bonds, Lottery Wins). Occasional online marketplace sales selling unwanted belongings or gifts such as ebay.co.uk or etsy.com don’t have to be included, however if you are buying items and re-selling them on these type of platforms for profit then these will need to be included.
- The tax return – both paper and digital is organised into sections. The first thing to do is identify which sections you need to complete. If you are working on paper – make a copy of the (sections of the) tax return and complete this copy, when you are happy transfer your information to the original tax return document. If you are submitting online, the tax return has a save button at the bottom of the screen therefore you are able to work on your return over a period of time before submitting it to HMRC.
- Give yourself plenty of time to collate and prepare your tax return. We recommend that you set yourself a deadline a long way in advance of the HMRC deadline.