What should you be doing right now?
This blog will address sole traders and partnerships while next weeks will look at Limited companies and directors.
The online filing deadline for your tax return is the 31st January 2015. That means you need to start getting your head around it now. You have one month until the countdown to Christmas becomes in earnest. Once Christmas has been savoured and the arrival of the New Year has been celebrated you will have exactly 31 days (bar one for a mild hangover) to complete your tax return.
Leave it that late and you will be putting pressure on yourself, and if you use accountants, you will inadvertently be putting further pressure on their heavy workload. So, November is the perfect month to make inroads into your tax return.
You will need to make a return if:
a) You are a Sole Trader, Partner in Partnership, Partner in an LLP.
b) Were trading at any point between 6th April 2013 – 5th April 2014.
You have to register to submit an online tax return so make sure you do that in good time. It takes seven days to register. In terms of a partnership, each partner must register with HMRC.
How many tax returns do I need to file?
If you are a sole trader then just the one will suffice.
If you’re in partnership, then each partner must ﬁle a tax return of their own. The partner designated by HMRC as ‘the nominated partner’ will also need to file a tax return for the partnership itself. The partnership’s tax return shows its income less its costs which leaves proﬁt that is then shared between the partners as agreed. The profit does not have to be shared equally between them. Each individual partner’s tax return will show their exact share of the profit.
Registering to do it yourself
Sole Traders will need to register a new business and file tax returns at the same time. Existing businesses need only register to file their tax returns online.
Partnerships will register first through the ‘nominated partner’ who will register the partnership and themselves in one process. Each partner will then need to register separately.
LLPs again involve each partner registering with HMRC. If you are an LLP partner you will register the LLP with Companies House who will in turn register the LLP with HMRC so you do not have to.
Once registered to file your tax return online HMRC will issue a 12-digit user ID or what is also called your ‘Government Gateway ID’. This needs to be stored in a safe place – online storage would be an excellent idea. As you are registering you will choose a password to go with the ID. HMRC then send you an “activation PIN” in the post, which takes at least 7 days to arrive. The moment it arrives you should log in using your Government Gateway ID and password, and key in the activation PIN.
Now that you have registered and know what to expect it is time to put the actual tax return together.
What business income do I need to include in my tax return?
You should include:
• Sales that you invoiced customers for during the 6th April 2013 to 5th April 2014
• Sales that you have completed the work for during the 6th April 2013 to April 2014 but have not yet invoiced the customers for
• Any additional sales to customers
• Any private sales of goods that relate to the business (this includes online strands on eBay, Amazon, Gumtree). An example would be a gardener who sells offshoots, plant pots or gardening books on Amazon.
You should not include:
• Private sales of goods that bare no relation to your business. This would be a gardener who sells car parts on eBay.
• Any interest received from banks (including business bank accounts) as this will go on another section of the tax return and not in the Self-Assessment section.
The other things to consider are:
• Income types that count as part of your sales. These are individual to you so it is a good idea to discuss them with an accountant to see how this income will need declaring.
• Grants that you’ve received for your business
• Royalties received
What business expenses do I put down?
Here is the list of all the expenses you need to put in your tax return – if they are applicable of course!
Oﬃce & Stationery Costs
• Stationary & Pens
• Ink Cartridges
• Other office supplies
• Postage – stamps
• Postage – recorded delivery
Work Memberships & Subscriptions
• Professional bodies
• Trade associations
• Federation of Small Business
• Home insurance (part covering the business)
• Business insurance
• Car insurance but only if you opt out of claiming mileage – it is an either or deal!
• Bus Tickets
• Train Tickets
• Plain Tickets
Hosting & Technology
• Web applications
• Broadband used for business
• Phone Bills
Cost of Sales
• Materials to make goods
• Accessories needed to make goods
• Only if you are developing/updating existing skills
Business bank account:
• bounced cheque charges
• unauthorised overdraft charges
• loan interest
• account interest paid
What expenses can I claim for?
It is important to note that you can only claim expenses if HMRC allow you to. There are some non-allowable expenses including:
You can only claim the cost of business travel, not private. You can claim the cost of business journeys in your own car.
Food and drink expenses
There are only certain circumstances when you can claim the cost of food and drink and they have to be claimed exclusively for business trips out of the office.
You can claim the expense of buying clothing if it is for a recognisable uniform or if it is protective clothing like fire retardant outfits or builder’s site boots. You can also claim for necessary costumes like in the case of a mascot or a magician. Nothing else is admissible as a clothing expense.
You can claim the cost of your accountant preparing your accounts but not for them filing your tax return. Your accountant should separate those costs automatically and include the correct expenses as they are inputting them. You can always ask for an itemised bill if you are unsure.
Do you work from home?
Working from home means that you can claim running costs applicable to your business. These may include heating and broadband costs amongst others.
You not only need to keep receipts but for this tax year you will need to keep them until 2020 as they have to be kept for six years in total.
You can keep virtual copies of those receipts rather than holding onto hard copies. Don’t forget to scan both sides of the receipt. You do need to keep any paperwork that shows a tax deduction (bank interest certificate or dividend voucher).
Any other income explained
You will encounter more than the self-employment section when filling in your tax return. They cover areas including basic information, employment income, rental income etc. You need to consider some other types of income when filling in your Self-Assessment tax return.
What other income will I need to declare?
This is where you have been paid a salary at the same time that you have been running your own business. You will need to declare your tax and income figures from this employment.
The forms you will need and links to where you can get them:
Your P60 and P11D for the year 2013-2014 which will come directly from your employer.
These forms will be received only if you have received any benefits or were paid back for expenses incurred. The info from these forms will be entered into the ‘optional employment’ section of your tax return. Remember to make a note of any expenses incurred that you were not paid back for as well.
Bank Interest and taxes
To fill in the bank interest boxes you will need to use the end of tax year certificate/statement that comes from your bank outlining how much interest you received and how much tax you paid on that interest.
The bank interest and tax information will need to be collected from:
• Business bank accounts
• Joint business bank accounts (take half of the interest and tax)
• Personal accounts used to make business transactions
• Personal joint accounts (take half of the interest and tax)
The only things that cannot be included are ISAs as they are tax free.
Shares, dividends, and other income
Add up any further income that you have received. These may include:
• Dividends on any shares owned in limited companies received between 6th April 2013-6th April 2014
• Income from a trust
• Profit from renting property
Finally, how do you file it?
As you probably know the filing deadline is the 31st January 2015. Don’t leave your filing until the last minute because HMRC’s website gets inundated by online submissions. We are talking about a serious gridlock over the last few days of January. The other incentive for getting your tax return in time is that one day late earns you a £100 fine.
At this stage you should be ready to complete your tax return and file it. If you are a nominated partner in a partnership that means filing the partnership’s tax return too.
Where do I file it?
You can file it via HMRC’s free online portal. However, if you are a partner in a partnership you will need to buy commercial software to do this. HMRC do not offer an online portal for this necessity.
What other information will I need for filing?
It may seem silly but let’s go through everything you need so you don’t have to get up and down several times making the whole process even more frustrating! You will need:
• Full name and address
• National Insurance Number
• Your 10 digit Unique Tax Reference
• Date of birth
• HMRC login
The moment has finally come. Once you are sure everything is complete and every ‘T’ is crossed ‘I’ is dotted, you can send your tax return to HMRC. Hoorah.
Remember to get email confirmation and keep it safe!
And finally, do not forget that you have to pay you tax and National Insurance by the 31st January. The deadline for filing and paying are one and the same.
If you have any questions about completing your tax return then feel free to get in touch or post a comment to the blog. We are more than happy to answer your queries. And if you feel like you need an accountant’s help the process or to complete your tax return for you then you can: