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Filing Your Self-Assessment in Time for the Deadline

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
• Paper
• Stationary & Pens
• Ink Cartridges
• Other office supplies
• Postage – stamps
• Postage – recorded delivery

Work Memberships & Subscriptions
• Professional bodies
• Trade associations
• Federation of Small Business

Insurance
• 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!

Business Travel
• Mileage
• 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

Training Costs
• Only if you are developing/updating existing skills

Bank Charges
Business bank account:
• charges
• bounced cheque charges
• unauthorised overdraft charges

Bank Interest
Business bank:
• 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:

Travelling expenses
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.

Clothing expenses
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.

Accountancy Fees
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.

Keeping Receipts
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?

Employment income

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:

Give us a ring: 01427 613613

Check us out further by visiting our website: http://www.abc-accounting-services.co.uk

Email us for more details: info@abc-accounting-services.co.uk

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Dispelling the Myths of Accountancy

The myths of accounting like the myths of any industry have travelled far and wide. The whole point of these blogs is to get to the bottom of what people want from the accounting industry – what we can offer to make your relationships with accountants smoother. There are some government bodies who are extremely efficient at worrying people into making impulsive decisions and paying tax bills instantly without a seconds hesitation.

It is far better for our clients, and for any business owner, to know the facts and understand exactly what is happening with the information they provide. Accountancy is not a dark art and truthfully there is no magic wand. There are incompetent accountants that can make the rest of us look like magicians but once we have answered your questions and dispelled some myths you should be able to spot a dodgy accountant a mile off!

We have put together a short video of the first five myths we objected to. We will be producing a monthly blog on myths to run beside the monthly questions and answers piece (coming up next week folks!). So, by the end of the year you will be polished experts on the topic of accountancy and all that it involves. Enjoy the video and get in touch if you have a myth you wish dispelled or confirmed, or questions you need the answer to – we are always reachable.


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What do we think about the 2014 budget then?

Firstly, we had good news in the fact that the economy is recovering at a faster rate than was previously expected. Yes, it is still in recovery but there is room for optimism here it seems. The UK is growing at a faster rate than other economies including Germany, Japan and the US. Hooray! Of course if the economies surrounding the UK, particularly the Eurozone, are recovering at a slower pace then high commodity prices will make the UK’s outlook sensibly cautious at best.

Then came the expected announcement that the £1 coin will be replaced in three years’ time with a more technologically advanced version to reduce its vulnerability to forgery. It will be cutting edge science blended with historical inspiration to keep it current and yet nostalgic. I wonder if vending and car park machines will need to be altered or has someone thought about that? I have a suggestion – reduce parking costs to 50p a pop! My budget speech would be far more news worthy!

TAX

Now we are into the serious stuff, although it has to be said there wasn’t a lot of it! HMRC are to be given even greater powers to collect debt from the bank accounts of those who can afford tax but refuse to pay it. Transferring profits between companies within groups to avoid tax will be banned.

The misuse of enterprise investment schemes and venture capital trusts will also be prevented from happening. There is an awful lot of monitoring going to have to take place to enforce all of the above. Has the number of civil servants doubled in size or are folk just going to become more honest with the dawn of the new tax year?

BUSINESS TAX

Corporation tax will fall to 21% in a few weeks and will drop to 20% next year. The business rate discounts and enhanced capital allowances for enterprise zones will be extended for another three years. High street stores will receive £1,000 off their rates and there will be an Employment Allowance for every business in the country which will provide £2,000 cash back on jobs.

 

The Annual Investment Allowance will be doubled in April – making it £500,000 and this will run until the end of 2015. That will enable 99.8% of businesses to qualify for a 100% investment allowance.

PERSONAL ALLOWANCE

The expected rise to £10,500 of personal tax allowance has been honoured. This will come in effect next year and from April 6 2014 it will climb to £10,000. The higher rate threshold is also rising from £41,450 to £41,865 in April and will reach £42,285 next year.

MANUFACTURING

It seems like the right decisions have been made for keeping manufacturing jobs in the UK which is what counts right now. The £7 billion package introduced to cut energy bills for British manufacturers will reduce production costs and even the playing field. It includes a cap on the Carbon Price Support rate at £18 per tonne for Co2 from 2016-17 until 2020. The current compensation scheme for energy intensive industries will also be extended for another four years to 2019-20.  Manufacturing lives to fight another day in the UK!

DUTIES

No rise on fuel duty. Thank goodness! It is costly enough as it stands thank you very much. Bingo duty will also be halved to 10%. However, duty on fixed-odds betting terminals rises by 25%. Tabacco duty has also risen by 2% – no surprises there. Beer duty will fall by 1p so the pint is safe (don’t think that is the only measure needed to save local pubs though) and duty is frozen on Scottish Whiskey and cider. We now know what to drink if inclined to toast the budget speech!

PENSIONS

I was a little lost when watching Osborne glide through what sounded like massive reform to the pension system. This is how it pans out. The guaranteed income requirement for flexible pension drawdown will be cut from £20,000 to £12,000, while the capped drawdown limit will be raised to 150% from 120% of the GAD rate. The size of qualifying small pension pot will be increased to £10,000 and the total pension savings that can be converted into a cash lump sum will be almost doubled to £30,000.

The reform comes in the way that pensions are withdrawn. Osborne has handed the powers back to pensioner’s to control their own finances. He plans to remove all tax restrictions on how pension pots are accessed and stresses that they will be offered free, impartial advice on how to best convert defined contributions into a retirement income. The message is that it is their money so they should be able to use it and manage it as they see fit.

SAVINGS

Premium bonds cap on contributions will raise from £30,000 to £40,000 this June and this will increase to £50,000 next year. Great I had no idea where I was going to put that £10,000 I had stuffed under the mattress!  

 

There will be up to 10 million new, taxable Pensioner Bonds that offer expected rates of 2.8% for a one year bond and 4% for a three year bond. Up to £10,000 can be invested in each bond.

The annual ISAs allowance will be increased to £15,000 with Junior ISA limits being increased to £4,000. This is great news for savers – if only we all had something to save!

CONCLUSION

So, that was the budget – at least the main areas. Nothing overly offensive or surprising but I am sure Labour and the Conservatives will thrash out all the arguments they can about each insignificant point. At the end of the day, we are happy enough with the budget speech, just a little bit less childish disruption in the House of Commons and more straight talking decision making would be appreciated. They all manipulate the English language quite well to try and disguise something bad as something good so we remain informed but ultimately weary of what lies ahead! 


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HMRC is adamant that RTI is working – is it?

I have to admit that it was far less of a disaster than we thought it might be. Yes, there were many long phone calls, changing of the goal posts and annoying glitches to be handled but they were handled without any catastrophic meltdowns. Just. HMRC’s phones must have needed replacing by the end of last year the amount they were being used. And you would have thought the holding music could have been a little more engaging given the audience numbers it was getting.

That aside though we do seem to have a more effective, more informative and modern PAYE system in place with RTI. HMRC on the other hand still succeed in baffling us with errors. As an article by accounting web reports – 400,000 organisations earlier this month received late filling alerts in error: Full article. HMRC promptly gave out the advice to ignore those messages.

Their reason, straight from the director general for personal tax, was that though they had decided not to send out the messages – they had not got to the system quickly enough to stop them. I can just imagine a HMRC employee dashing across the room and diving for the ESC button on a computer only to realise the 400,000 emails had sadly made their way to their destinations. Really! They couldn’t stop the system in time? None of their around 80,000 strong team could stop the system to save their company another wave of embarrassment. Oh dear!

On a more positive note because of the teething problems HMRC have decided to push the penalties back. The automatic penalties for late filing will be pushed back until October 2014 and the automatic payments for late payment until April 2015. So we can breathe a sigh of relief on that front. Ruth Owen came up with some impressive statistics to show that RTI is working – for example – 99% of employer records are being reported in real time and 70% feel that RTI is actually easier than the old system.

She also tackled the key issues of duplicate records, disputed charges, business tax dashboard mismatches and generic network system messages head on. They are aware of them and they are working on them, particularly on the software that needs to detect duplicate reports and deliver messages to the right people. But, with the amount of errors employers have had to contend with Owen wasn’t really left with any place to hide – she had to respond with a proactive defence and she did.

The year end is looming and ultimately we want to believe that the system will be up to scratch but deep down we suspect otherwise. There will be more teething problems and more mistakes made but HMRC took a bold step to update a system that needed to reflect contemporary employment patterns. I think it has done that and we are hopefully nearing the end of the bedding in period. Owen addressed concerns and finished with an odd thing – an apology. She said:

‘If you try and sort out your payroll at the end of the pay period and if it’s not working for you or when you log in to your dashboard and you’re not recognising the figures HMRC is paying back to you, it must feel very frustrating and I am sorry to anyone experiencing difficulties’. (accounting web: Full Article)

Yes we will remain cautious and a little anxious but if they are prepared to apologise for mistakes made then maybe, just maybe there is still a human element to HMRC. So for that alone I stand by RTI and hope we are over the worse of it. 


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Business Records Check: Something for all businesses to keep in mind

HMRC over the next year are sending letters to randomly selected businesses (mostly cash businesses such as taxi firms, hair dressers etc.) asking for a Business Records Check.

This is a check on your business records which means they will look into how you manage them and what information you have immediately to hand. This is to make sure that you are able to complete your tax returns correctly and pay the right amount of tax at the right time to avoid interest and penalties. It will also flag up any businesses that are submitting inaccurate tax returns and keeping inaccurate records.

On the letter they will have scheduled a phone call to the business owner/director/manager when an assessment will take place. This phone call could then lead to a HMRC visit.

If you receive one of these letters you should get in touch with your accountant. They should then:

  • arrange a conference call with HMRC so you have their support throughout
  • If a visit comes out of it, arrange it to take place on their premises so again you have the full support and suitable facilities on hand to accommodate a HMRC inspector.

This is going to get a lot more popular over the next year so you need to make sure your accountants are aware of this possibility and be prepared to support you when you need it.

 

For more detailed information on Business records checks we encourage you to visit this link and have a look at the compliance checks at the bottom of the page that HMRC may enforce: http://www.hmrc.gov.uk/dealingwith/bus-record-checks.htm

 

You can always call ABC on 01427 613613 if you are worried about this or would appreciate some advice.