Online accounting providers’ Freeagent share some tips for a more relaxing tax return.
The New Year has just begun, which means there are only a few weeks to go until the deadline passes for filing your Self Assessment. So, if you’re one of the millions of small business owners who has to file a tax return for the past tax year, what’s the best way to make the process as stress-free as possible?
Last year we provided some tips of our own, but today, Emily Coltman FCA is here to tell you! She’s the Chief Accountant at FreeAgent, the UK’s market-leading online accounting system specifically designed for micro-businesses and freelancers, so we asked her to share her know-how to help you have a painless Self Assessment - even if you’re approaching it at the last minute.
Here’s her top tips for tackling your tax return.
Register – and use the right numbers
You can’t actually submit your tax return online without being registered with HMRC first. If you haven’t already gone through this process, you need to do so ASAP! It can take a few weeks for your activation PIN to arrive through the post, and HMRC won’t give you the information over the phone, which means that if you leave it too late to contact them, you probably won’t receive the information in time. As a result you’ll likely miss the deadline and you’ll automatically get fined.
You’ll also need to quote your Unique Tax Reference (UTR) on your tax return, which is a 10 digit-long number that you’ll find on paperwork from HMRC such as a “Notice to Complete a Tax Return”. If you don’t know your UTR, you’ll have to contact HMRC’s Self Assessment Helpline and ask them to post it to you.
Don’t confuse your UTR with your National Insurance number. Sometimes HMRC puts this number (which is always in the format AA 12 34 56 B) in the “Tax Reference” field on your Notice to Complete a Tax Return. Don’t make the same mistake – put in your UTR when asked for your tax reference number.
Collect all your information
Before you can file your tax return, you’ll need to collect all of the necessary information that you have to include in it. As a basic rule, this will be any money you’ve received or earned from pretty much anywhere, including wages from a job, income from a trust, interest from your bank account, profits from operating a sole trader or a partnership, etc…
Unsure about what information to include? Here’s a few pointers:
If you have a job and you’re paid wages – and this includes if you’re a director of your own limited company – your employer should have given you a form P60 showing your salary and tax for the year to 5th April 2014. You’ll need that form to include with your tax return and if your employer gave you a form P11D showing any expenses or benefits you received, you’ll need that, too.
If you have a bank account that pays you interest, you’ll need to know how much interest you received in the tax year to 5th April 2014 and how much tax was taken off that. However, don’t include interest on any ISAs you have in this figure and remember that you can’t claim tax relief on bank interest you had to pay on a non-business bank account.
If you’re in business as a sole trader or partner, you’ll also need to know your business’s income and costs for the tax year. If you haven’t started sorting through the receipts for these costs you’ve collected, you should start doing this now.
If you’ve received dividends on shares you own, whether these are in your own company or another, you’ll also need to include this dividend income on your tax return.
If you earn more than £50,000, and you or your partner receives Child Benefit, then these payments also have to be included on your tax return.
If you’re only just getting round to collecting this info now, it’s probably going to be a bit of a hassle getting everything together. But you could make things easier and less stressful for yourself next year by setting up a “tax return information” box file and collecting this paperwork as it arrives. You might even consider setting up files for each month.
Follow the rules
There are many rules and regulations when it comes to tax, so make sure you follow these to the letter when completing your tax return.
For example, be very careful when you’re adding up your income and expenses for your sole trader or partnership accounts. Unless you use the cash basis to prepare your accounts, you have to count income depending on when you did the work – not when the customer paid you.
Furthermore, make sure that you’re fully up-to-speed with the rules surrounding business expenses and what you can and can’t claim, especially when it comes to travel, accommodation, food & drink, entertaining, clothing and the business use of your home. You can do this by checking your proposed expenses against the info on HMRC’s website, or use another reputable source of expenses information for sole traders, partnerships and limited companies.
Check the forms – and submit them correctly
When submitting your tax return online you’ll have to complete everything and file the form before midnight on 31st January 2015, otherwise HMRC will issue an automatic fine of £100 – and this applies even if you’re just a day late and you don’t actually owe any tax!
There are a number of ways you can do this, which include:
Filling in the Self Assessment forms on HMRC’s website and submitting them there once they’re complete.
Using alternative technology. For example, if you’re a sole trader or the director of a Limited Company, you can complete and file your Self Assessment form directly within FreeAgent, without needing to use HMRC’s website.
Using specialist software such as TaxCalc to help fill in your tax return, before you then use HMRC online to actually submit the forms.
Make sure you complete every section correctly and leave plenty of time to triple check every part of your tax return before you submit it. A simple mistake or omission, such as not ticking the box at the end to confirm everything is correct, could result in your tax return being rejected by HMRC and you receiving a penalty.
And remember, if you still have any concerns about Self Assessment it’s a good idea to speak to a qualified accountant who will be able to answer your questions and double check your tax return for errors. Just bear in mind that January is the busiest month of the year for most accountants, so if you don’t already use one, it may be quite expensive to hire the services of an accountant at this late stage.
Everyone wants to get their Self Assessment completed on time, but every year hundreds of thousands of people miss the deadline. So if for some reason you don’t file before January 31st, don’t panic! Remember that filing your tax return a few days late will earn you nothing worse than a £100 fine from HMRC.
However, that’s not an excuse to get lulled into a false sense of security. Remember that the longer you take to submit your tax return after the January 31st deadline, the more fines you will incur – so that initial £100 penalty may start getting larger!
And remember that you also need to PAY your tax too! HMRC will charge you interest if you do this late and will also impose penalties on late payments, so it’s important to pay your tax as soon as you can if you want to avoid getting hit with a hefty – and growing – fine!
Emily Coltman FCA is Chief Accountant to FreeAgent, who provide the UK’s market-leading online accounting system designed to meet the needs of small businesses and freelancers.
FreeAgent enables sole traders and directors of limited companies to “Fast File” their Self Assessment tax returns from directly within its award-winning system, rather than through HMRC Online. Discover more about FreeAgent Self Assessment here
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