How to Prepare for Your First Self-Assessment Tax Return
Starting a new business or sole trader venture can be stressful, worrying and confusing, and then someone mentions being ready for year end, accounts or filing your tax return – these feeling are likely to multiply and questions flood into your brain about where to start. HMRC also requires some employed people to file a self-assessment too, as it is the system used to collect tax on all income. Often is it deducted from savings and pensions, as well as wages, but people who rent out properties and some who are in receipt of child benefit will need to declare this revenue and pay back the appropriate amount of benefit or tax.
Accountancy fees are not tax deductible in certain circumstances and some people may not feel ready to utilise an accountant like Adams Moore in their first year of business. Therefore, we have written this advice to stand everybody in good stead for the 2017/18 financial year. As that year ended on 31 March, now is the time to organise your tax return. With five days to go before the deadline in January 2018, over 25% of people hadn’t sent it – don’t get caught out and prepare early.
First things first…
Do you need to file a self-assessment tax return? If you’re self-employed and are a sole trader, a partner in a business, a company director (unless it’s an unpaid position for a not-for-profit organisation) or are self-employed as well as hold an employed position you must send a self-assessment. As already mentioned above, self-employment includes income generated from property. If you aren’t sure, visit this page on the Government website to see the full list of those with an obligation.
The first job to do is to register with HMRC, and it can take up to 20 days to receive your activation code. The code must be used within 28 days or it will expire and you will have to re-apply for one. Another task that may take a little time is gathering information from third parties, which could include the interest gained from bank accounts, savings and investments. You should know how much you have contributed to pensions, income from property and all financial information relating to your sole trader earnings and outlay.
Keep neat and tidy records of all financials
Good bookkeeping practice is essential, which simply means carefully recording all your business outgoings and income. If you have been piling receipts into a box, all isn’t lost, but we would suggest you choose a specific time to look after your finances each week, starting this week! Some people choose to employ a bookkeeper, but when starting out this can be an unwarranted expense. ‘Doing the books’ daily may sound like a sure fire way to keep things up to date, but for many it is less efficient than carving out a space in your weekly schedule where you can concentrate for a longer period of time. Keep a place where you can file any hard copy receipts during the week, use a similar system for digital invoices you receive and a have a log of any invoices that need to be raised. Stock taking and creating purchase orders go hand in hand with these tasks, so we suggest this is undertaken weekly, fortnightly or monthly on your ‘finance day’. Really, when you break it down, best practice comes with a routine so items don’t get forgotten, paperwork doesn’t get lost and books don’t get messy – you’ll soon regret the lack of habitual practice when it’s time to collate details for year end.
Great advice, but how do I record the details?
Whether you’re a spreadsheet aficionado or not, using a programme such as Windows Excel is all you need, and create the following column headings on one sheet to record purchases:
> Date, Company, Item, Category, Capital Expense (property, plant or equipment), Total Amount, VAT (if you are VAT registered), Amount Minus VAT.
On another sheet you should detail your income:
> Date, Company/individual, (some won’t have this information), Services/Products, Additional Service/Product Categories, Amount Minus VAT, VAT, Total Amount.
Sole traders must keep records safe for five years after the first 31 January deadline so it’s important to back up in case your computer breaks down.
Should you be thinking digitally?
Yes! With the Government’s ‘Making Tax Digital’ initiative it is wise to scan receipts and hold all information digitally. This can be done by yourself or there are a wide number of choices when it comes to software, held locally or on the cloud. Adams Moore uses Xero accounting software, which you can read more about here; it allows you to keep on top of your books on the go and we can access all your records. The days of people making a trip to their accountant with a file full of paperwork and receipts are over.
When filing your tax return, you simply fill in sections that apply to you and the online system reacts to your answers meaning you only complete the necessary information. You can save as you go and send when you’re happy. Should you have got into financial difficulties and anticipate not being able to pay your tax bill by 31 January you should call the Business Payment Support Service and discuss the possible deferral options.
If you are considering hiring an accountant to assist with your bookkeeping and tax return, please contact us and book your free accountant consultation appointment to discuss your requirements.