As a freelancer since 2000, Sam Cann jokes that he has had “19 happy years of tax returns”. He is one of 11.5 million people who filed a self-assessment tax return in the UK last year, and is already preparing for this year’s return ahead of the 31st January deadline.
Who needs to file?
Employees of a company usually have their earnings deducted automatically from their pay package, so do not need to file a self-assessment tax return.
However, sole traders and self-employed people earning more than £1,000, as well as those in business partnerships, need to file a return every year.
The following people may also need to file a return:
- Anyone earning untaxed income over a certain threshold, such as money from: renting out a property; tips or commission; income from savings; investments and dividends; foreign income
- People earning more than £50,000 who receive child benefit
HMRC has developed a tool so people can check whether they need to send a return.
How to file
Once you know that you do need to send a return, the first thing to do is register for self-assessment with HMRC. You will receive a Unique Taxpayer Reference (UTR) in 10 working days.
Once you have your UTR, you need to sign up to file your tax return online. You’ll get an activation code in the post within seven working days of signing up.
Should I Keep records?
During the year, keep a record of all of your income, as well as anything you spend that is related to your business. Those expenses can then be deducted from your total income for the year, to calculate how much profit you have made, as you only need to pay tax on your profits.
Allowable expenses include:
- Office costs, such as stationery or phone bills
- Travel costs, such as fuel, parking, train or bus fares
- Things you buy to sell on, such as stock or raw materials
- The costs of your business premises. If you work from home, decide what proportion of your home you use for work, and you can claim that proportion of your bills as an allowable expense
James keeps a record of his expenses month by month, and every job he has been paid for that year. “Often I have to cross check it with employers, so I’ll send them an email a few months ahead of time to get a figure. And those are the main things I do to prepare for it.”
He says one of the things he finds most annoying is having to tot up small amounts of interest he has earned on different bank accounts. “I find that really fiddly.” Some banks, including Starling, provide a statement for the year clearly detailing all interest paid in that tax year.
Do you need an accountant?
He has not used an accountant in all his years of freelancing. “I’ve found it reasonably straightforward to do my tax return on my own,” he says. “Perhaps I don’t claim for as much as people who have an accountant do.”
Some people use an accountant for their first year of self-assessment, in order to gain confidence in filing a return. Those with more complex situations may choose to use an accountant to ensure they file correctly.
Some say the amount they save by using an accountant more than pays the accountant’s fees, which may come to around £150 plus VAT for self-assessment; or £90/month plus VAT for small businesses.
Teodora Dimitrova, an accountant with Chart Accountancy, which works primarily with contractors, freelancers and small businesses, suggests freelancers and sole traders who decide to use an accountant should appoint one as early as possible. “The accountant will give advice on the most tax-efficient set-up, making sure the [tax] reliefs available are claimed.”
She highlights some of the areas freelancers need to take extra care in and issues they need to note:
- If you are a higher-rate taxpayer you can claim relief for pension contributions
- Spouses can transfer unused personal tax allowances
- The interest on any PPI compensation is taxable
- Those earning over £50,000 could retain their right to Child Benefit by making higher pension contributions, or donations to charity with Gift Aid
- Only 50% of finance costs for residential properties earning rental income are now available for tax deduction
Using accounting software
The government’s Making Tax Digital scheme requires VAT-registered small businesses and sole traders to keep digital records and use software – such as FreeAgent and Xero, which are available through online & offline accounts – to submit their VAT returns. The scheme may be extended to cover income tax in April 2021. Sam says accounting software is useful, even for businesses that are not currently required to use it by law. That is because it gives business owners the ability to calculate in real-time their profits and tax bills. And it gives their accountants the ability to ensure that clients are updating their book-keeping records regularly.
How to Pay your tax return?
It is important to ensure you save money during the year to pay your tax bill, particularly as the first payment is due by the 31st January when money can be tight.
The first year you pay your self-assessment tax bill, you will be paying tax on the previous year’s earnings, plus half that amount again. That will go towards next year’s tax bill and is known as a “payment on account”. The second payment on account is due on 31st July.
The idea is that in your second year of self-assessment, you will already have paid the majority of your tax on that year’s earnings by January 31st. Then you only need to pay any remaining tax for the previous tax year – known as a “balancing payment” – and the first “payment on account” for the following year.
So, is being self-employed easy? Let’s find out…
One of the main reasons many individuals want to be self-employed is that they don’t want to be dependent on a job. Some take the route of being self-employed to work whenever and wherever they want.
For some it is all about having “freedom”. But there are many others who who wouldn’t dare quit their job.
Are you wondering if being self-employed will always be easy?
In a simple answer, No. Definitely not. Being self-employed means being able to afford to live without having a regular income (a salary). It all falls down to whether you will earn or have enough money or not. You have to be motivated each and every day – because if you’re having a “day off” ( being lazy or not feeling well), you won’t be earning any money. And when you’re self employed, no one else is going to motivate you.
The first step is going to be a tough choice. You have to believe that the product or service that you are going to be providing will be better than others that are already available. You have to have self-belief that you can do it. You have to be committed to what you are doing. And, of course, you need to be dedicated.
What sacrifices need to be made?
You’re going to have to sacrifice your personal time. You have to accept the fact that you are going to be working for a few years like no one else would do. In the early days, this will not necessarily seem like work though, because you will be enjoying your new found energy and passion for being self-employed. Some self-employed individuals may work harder than they used to as an employee. Some people are happy and content working their 9-5 job but that isn’t for everyone. Many will sacrifice going for a night out, or family time, or treats to remain focused on delivering their product or service and maintaining their self-employed life. Put in the time and effort in the early days and you will be able to reap the rewards later.
This reminds me of an image of a guy standing by his Lamborghini saying to an employee, “If you work hard, put in the effort and increase the revenue for the business,… I can buy another one of these.”
So why take the plunge to become self employed?
Like the story of the business owner and the employee (above), some don’t want to work hard for others to reap the rewards. So they take the risk of setting up as self-employed to reap the benefits themselves.
Many self-employed individuals have not regretted their decision either. It’s been tough at times but they love being self-employed and working for no one else but for themselves.
It doesn’t mean that you’ll be driving flash sports cars and own all the luxuries available but if you work hard and put in the time and dedication to your own business, you can make a success of your business. There are also many advisers and consultants that you can discuss your plans with. It’s always sensible to speak with an accountant and we would be happy to discuss your plans, to see if we can be of assistance.
Don’t forget, if your dreams are big enough and you are strong willed, nothing will stop you from being successful.
So, is being self-employed easy? No, it is not – but it is very worthwhile.
FILLED IN YOUR SELF-EMPLOYED TAX RETURN CORRECTLY… OR NOT SURE?
A survey from accounting software provider Intuit QuickBooks asked 1,010 self-employed people across the UK what they would rather do instead of file their tax return.
Of the 11.6 million people who have to complete the self-assessment tax return:
- one in five people (2.4 million) said they would rather give a speech to 100 strangers
- one in five people (2.3 million) would rather spend a night in a haunted house
- one in five people (2.2 million) said they’d rather hold a tarantula for a minute
- one in seven people (1.7 million) would rather get trapped in a lift
- one in eight people (1.4 million) said they would rather jump out of a plane
Other findings from the research include:
- one in two people (5.3 million) worry they haven’t filled in their tax return correctly
- two in five people (4.5 million) feel stressed about doing their tax return
- one in four people (2.6 million) will complete their tax return in the final two weeks
- Women take twice as long as men (12.3 hrs vs. 6.7 hrs) to complete their tax return
It doesn’t have to be that scary. With QuickBooks Self-Employed, it’s possible to take pictures of receipts in the app. The software will then automatically categorise your expenses, and when it comes to January, allow you to prepare your self-assessment without the fuss. It’s a user friendly app and doesn’t have all the technical accounting options required by accountants – but it does integrate with our scaled up version with all the bells and whistles.
Other innovative features in the QuickBooks Self-Employed software include automatic mileage tracking within the app, and the ability to integrate with your bank account to automatically keep track of invoices and scheduled payments from clients and customers.
QuickBooks Self-Employed also includes QB Assistant, a conversational chatbot that combines data-driven insights and natural language processing to unearth valuable insights for people who work for themselves.
Shaun Shirazian, Head of Product, Europe at QuickBooks, said: “The self-employed have more than enough to worry about between keeping on top of their cash flow, drumming up new customers and balancing their work and private lives. Self-assessment shouldn’t be another stress to add to the list. Using software like QuickBooks Self-Employed, all your financial information is at your fingertips, ready to easily submit to HMRC.”
The research, conducted by Opinium from 5-15 January 2019, also revealed young people were twice as likely as older people to submit their returns at the last minute (6% of 18-34-year-olds submit in the final 48 hours vs. 3% of those aged 55+). One in 100 people (110,000) were already planning to file their return after the 31 January deadline.
Content from www.businessleader.co.uk
Common Tax mistakes that business owners make from juggling various tasks.
Common Tax mistakes and how to avoid being a victim or culprit of these common tax mistakes. As a business owner, you juggle many roles and when there are urgent business tasks to do, spending time with your accountants may not be your number one priority. However, if you’re not regularly talking to your accountant, then there’s a danger of making some of these common tax mistakes:
NOT KEEPING PROPER RECORDS
Bundles of receipts – collating, sorting and keeping them all is not a hugely exciting job is it..? However, for VAT registered business owners, not keeping them is a common mistake. You might as well hand your well earned funds straight to HMRC. The next time you are offered that VAT receipt for your purchase, consider this – will you pull out your wallet and chuck it away? I would hope not.
Now, with so many apps on the market, the task of keeping your tax records properly has become less… taxing (sorry). With these apps, you can easily take a quick photo of the receipts as you receive them and then collate them later. This amazing technology and your awesome accountant will handle it from there. We recommend AutoEntry.
HOME EXPENSES – CLAIMING TOO MUCH
What’s wrong with claiming household expenses related to your business? Nothing, there is nothing wrong with claiming these expenses. The problem lies with over claiming them, leaving you with potentially paying a lot more tax in capital gains tax when you come to sell your property. Why is this? As the value of your home increases and you lose generous tax relief on the part of your home that you turn into business.
THE BUSINESS STRUCTURE/EMPLOYMENT STATUS
Maybe, when you started your business, you were advised to go for a sole trader, partnership or a limited company. However, the rules change… and change. When did you last take time to review and compare the different tax structures available?
Similarly, an important and complex area is that of self-employment. Whilst you may safely get your own status right as a business owner, are you confident that your freelance workers and associates are correctly self-employed? Be aware that HMRC is cracking down on the ‘gig economy’ and are putting the accountability on business owners to make sure this aspect is correct.
WASTING TAX ALLOWANCES (£26,000)
It is said that tax allowances are like your muscles. Use them or lose them. But did you know that if you add up the income tax allowance, capital gains tax allowance, savings allowance and dividends allowance, you get a whopping £26,000 plus allowances in the year? Previously we have seen many of these tax allowances go to waste. So make sure are making the most of your “muscles”.
You may have been introduced to and taken steps in using crypto currencies like Bitcoin, Litecoin, Ethereum and Ripple. Make sure you make the most of the capital gains tax allowance.
Have you considered how to make use of the allowances of your spouse and children?
POOR EVIDENCE (OR LACK OF) TO BACK UP CLAIMS
The rules on expenses that can or cannot be claimed are not as clear and as straight forward as you may think. By not choosing to appoint a good accountant or tax adviser, many business owners make this costly yet avoidable error. For example: a business owner, who rented accommodation (short term) in order to avoid the higher expense of hotel bills whilst on a long business trip, was denied tax relief because the evidence that had been submitted was not sufficient to meet the so called “wholly and exclusively for the purpose of trade” test.
When claiming expenses for business, make sure that the primary purpose is for the business – and be able to provide all the relevant documents to support this.
MISSING OUT ON THESE TAX BREAKS
Did you know that there are more tax breaks available within the law that most entrepreneurs miss out on. Here are the most common ones:
- R&D – Research and development.
- Bad Debt Provision (make sure you have taken all the relevant steps to recover the money)
- Capital allowances on equipment used for the business including fixtures as part of the building that you have bought
- Lease premiums
- Warranty provisions
- SEIS and EIS tax reliefs
- Entrepreneurs relief
- £40,000 lettings relief (although this might be scrapped by HMRC)
And the reason why most of these available tax relief options get missed is that you actually have to make a claim to get them.
BANKING MONEY FOR TAX (OR NOT)
Many businesses suffer with cash flow and it can be a huge problem at times. But when it comes to VAT and PAYE, it’s not your money. It is due to the taxman. When it comes to Income Tax and Corporation Tax, waiting until December or January to discover that you have a huge tax bill with no funds put aside to settle it is an extremely common mistake business owners make.
Our simple advice is: To avoid this problem, look at your business model and plan for your taxes and liabilities. We recommend opening a separate bank account to deposit funds to cover your taxes that will be due.
30% MORE TAX WHEN SELLING YOUR BUSINESS?
You’ve decided to sell your business and put your feet up (time to retire). However, you’re dealing with a buyer who is well-informed with regards to tax. They propose paying more for the company’s assets but is not interested in the shares. Let’s say that you agree to the sale of the assets at the higher price. The problem is, you have potentially lost out on a 10% tax rate with a potential additional 30% tax (or more). Why is this? Hypothetically, the company sells the assets at the agreed higher price and it pays corporation tax at 19%. Conservatively speaking, you would pay 20% income tax on the cash extracted. 19% and 20% is obviously more than 30%.
BUSINESS PROPERTY RELIEF – TAKING ADVANTAGE?
Of course your business has value. However, a common mistake we see, is the lack of planning around how the business should be passed-on tax free. Subject to some conditions, the rules allow your hard earned work to be enjoyed tax free by your loved ones. ALERT: If you do not have a Will or if in your Will you’ve passed the business to your spouse, you’re wasting this generous tax relief.
BUYING YOUR COMPETITOR’S SHARES
Ooh the empire is building and you’ve decided to acquire your competitor. In order to wrap up the deal quickly, you buy the shares of the company instead of the assets. As in one of the previous points above, this is a common tax mistake because whilst buying the shares is a good move for the seller, you lose the tax relief associated with buying the assets. Essentially a reverse of the point about selling the business earlier.
Check you are not a victim or culprit of any of these mistakes. If you are at all unsure about these points, give us a call. Rather than being reactive and attempting to do some retrospective tax planning, make sure you have a tax plan in place alongside your business plan.
70% of eligible taxpayers have filed their 2017-18 tax returns already – are you one of them?
It is now less than a week to the deadline for submitting your self-assessment tax return online covering 2017-18.
It’s Friday and the end of another week. But it also means that there is now less than a week to file online self-assessment tax returns!!!
No pressure there then… but we have been doing the occasional reminders in the run up to the deadline.
It would seem that approximately 25,000 more tax payers have filed their self-assessment tax return compared to this time last year and HMRC are keen to reinforce the £100 late filing penalties against those who submit their tax return beyond the deadline of the 31st January – and this is regardless of whether any tax is owed.
HMRC has confirmed that 70% of eligible tax payers had managed to file their tax returns in advance of the deadline but almost a third of taxpayers have left it to the last minute scrambling to complete their self-assessment online in this last week.
How Maze Accountants can help relieve that pressure of submitting your self-assessment tax return
There are many offerings with comprehensive online support provided by HMRC but their support does not provide organisational skills and how to minimise your tax liabilities.
Maze Accountants can help make sure that you are paying the correct tax and that you’re on time and definitely before the 31st January deadline. So you’ll be wanting to speak to us in plenty of time before any deadlines are due!
We can complete your tax return, calculating the tax liability and submit your online tax return. We’ll also advise you on the amounts owed and the payment due dates.
Want to know if any tax savings can be made? We’ll also run over that too and it’s all part of of our fixed price service. This of course allows our client base of sole traders, contractors and small to medium sized businesses to focus on running their business.
If this appeals to you too, pick up the phone and call us on 020 8643 9633
to arrange a free initial consultation and we can help you be prepared for your tax return and avoid any late filing penalties. Of course, you can also complete our online enquiry form
How would a no deal Brexit affect VAT for businesses?
HMRC have released official documentation detailing how a no deal Brexit would impact VAT rules for UK businesses trading with EU countries. The government department have spent the last two years preparing for all scenarios.
The paper said: “This is contingency planning for a scenario that the UK government does not expect to happen, but people should be reassured that the government is taking a responsible approach.”
Even though most businesses will see no change to VAT rules, it is important for them to understand how a no deal result would affect them and start to take mitigation steps. This government notice provides early planning on VAT to help businesses understand the potential impact of a no deal, and further details and actions will be released in due course.
The current rules state that VAT is charged on most goods and services sold within the UK and EU, and VAT is payable by businesses when they bring goods into the UK, even though rules differ depending on whether goods come from EU or non-EU countries.
Exemptions include goods exported by UK businesses to non-EU countries and EU businesses. They are zero-rated, meaning UK VAT is not charged at the point of sale. Any goods exported by UK businesses to EU consumers have either a UK or EU VAT charge, depending on the distance selling thresholds.
The UK will continue to have a VAT system after it leaves the EU next year and, even if no Brexit deal is reached, the government will aim to keep VAT procedures as close to how they look now as they can to provide continuity for businesses.
The paper highlights changes UK businesses must plan for if no deal is reached for when importing goods from and exporting goods to the EU, supplying services to the EU, and interacting with EU VAT IT systems, as outlined below.
Accounting for important VAT on goods imported into the UK
The government will introduce postponed accounting for import VAT on goods brought into the UK.
UK VAT registered businesses will be able to account for import VAT on their VAT return rather than paying it on or after their goods arrive in the UK. This will apply to both EU and non-EU countries. Customs declarations and any other duties will still have to be paid and further detail on accounting and record keeping will later be released.
VAT on goods entering the UK as parcels sent by overseas businesses
VAT will be payable on goods meeting this criterion.
Low Value Consignment Relief (LVCR) won’t be extended to goods entering the UK from the EU, including parcels. For parcels valued up to and including £135, a technology-based solution will allow VAT to be collected from the overseas business selling these goods to the UK. For goods worth more than £135 sent to the UK from an EU country as parcels, VAT will continue to be collected from UK recipients in the same way as the current procedure for parcels from non-EU countries.
VAT on vehicles imported into the UK
Businesses must continue to notify HMRC about vehicles brought into the UK from abroad as they do now.
This will still be done through the Notification of Vehicle Arrival Procedures (NOVA) system, which also ensures VAT is correctly paid on imported vehicles. Import VAT will be due on vehicles brought into the UK from EU member states after next March.
UK businesses exporting goods to EU consumers
Distance selling arrangements will no longer apply to UK businesses and UK businesses will be able to zero rate (not charge VAT at the point of sale) on sales of goods to EU consumers.
Current EU rules mean EU member states will treat goods that enter the EU the same as goods entering from non-EU countries – import VAT and customs duties will be due when they arrive.
UK businesses exporting goods to EU businesses
VAT registered UK businesses will continue to be able to zero-rate sales to EU businesses but will not need to complete EC sales lists.
As current EU rules say, EU member states will treat goods coming into the EU from the UK in the same way as those entering from non-EU countries with associated import VAT and customs duties due when goods arrive in.
UK businesses selling their own goods in an EU Member State to customers in that country
The UK will be able to carry on selling goods they have stored in an EU member state to customers in the EU as is the case for the rest of the world.
UK businesses will need to register for VAT in any EU member state where sales take place to account for the VAT due in those countries.
Content from Accountancy Age