Self assessment tax return guide.
How do I register? What allowable expenses and allowances can I claim? How much tax will I have to pay?
These are important questions. This guide sets out the basics for getting your tax affairs in order and filling in your self-assessment tax return.
Tax penalties were increased last year, so filing your tax return promptly and getting it right first time is more important than ever. After all, in these difficult times, everyone should be aiming to avoid wasting their hard-earned cash on hefty penalties.
Self Assessment Tax Return guide.
Registering with HMRC
Tax Return basics
Claiming your expenses
Registering with HM Revenue & Customs
Selecting the right form
If you believe you need to complete a Self Assessment tax return, you must inform HM Revenue & Customs (HMRC). There are mainly two forms to use; selecting the right one will depend on your reasons for needing a return:
• If you’re newly self-employed, use form CWF1
• For any other reason, such as you have become a Buy to Let Landlord, you’re likely to need form SA1
Most HMRC registrations can now be done online on their website.
The information required in these forms is fairly straightforward, such as full name, date of birth and address. You will also need your National Insurance number. If you’re registering as self-employed, you will also need to provide details about your self- employment, such as when you started, your address, the nature of your work, etc.
If you’re completing the registration process using paper forms, the address that you need to send them to once complete can be found on the form. You should always keep a copy of the form and note the date that you sent it.
HMRC will send you a confirmation of registration and provide you with your unique taxpayer’s reference, or UTR. This is a unique reference for your tax affairs. You should quote this on any payments you make or any correspondence to HMRC. They will also ask you for this or your National Insurance number if you ever phone them with a query.
The basics of the self assessment tax return
A tax return should disclose your taxable income and gains for the relevant tax year. A tax year starts on 6 April and ends on the following 5 April. Also note that all of your taxable income and gains must be declared on a tax return – even if they have been taxed before you received them ( or ‘taxed at source’), such as employment income or bank interest.
If you are self-employed, and the year end of your business is not the same as the tax year, such as 31 December, there are specific rules about which accounting period for your business goes on which tax return. To avoid complications the simple solution is to slot in with the tax year. So if you started on the say 1st January 2015 your first short accounting period will be from 1 January 2015 to 5 April 2015 and then each tax year thereafter.
HMRC will normally send you your tax return soon after the tax year has started. It is a six-page document and its proper form reference is ‘SA100 – which you will see in the bottom left corner of page one.
Submitting the self assessment tax return
Following the end of the tax year, tax returns must be submitted to HMRC. You can submit your return on paper; this must be done by 31 October following the end of the tax year. Alternatively, you may chose to file your return online, in which case the deadline is extended to the 31 January, following the end of the tax year.
Failing to file your return on time will result in an automatic £100 fine, with further penalties depending on the length of delay. Last year, the penalty rules changed. Previously, if the tax you had to pay on 31 January was less than £100, then your penalty would be reduced to whatever was owed. But this has been scrapped and the £100 penalty is now fixed and automatic.
Paying any tax due
Any tax you owe must be paid by or on the 31 January following the end of the tax year. There are a number of ways you can pay HMRC, such as Direct Debit, Bank Giro, online banking etc.
As mentioned above, income that has already been taxed must still be declared on your tax return. However, the tax already paid at source will be deducted before arriving at the final tax bill.
Be aware that if your tax liability is over £1,000 or not much of your tax is collected at source, you may be required to make an instalment for next year’s tax as well on 31 January. Again, delaying paying HMRC could cost you interest and late payment penalties.
You should keep your records and documents for six years in case HMRC want to examine them in the future.
HMRC is not very precise about the format of records a business should keep. They are indifferent as to whether you should use a manual cashbook or sophisticated bookkeeping programme. Many of our clients simply add up their receipts and enter their transactions directly on to our online forms which are used by us to complete their tax returns, some upload their spreadsheets to their own client login on our website.
When starting out, you may want to begin with simple spreadsheets, a basic book to record your income and expenses or a cashbook and very quickly you should be able to identify what format your business needs its records in.
If you have other sources of income, these are the sort of items you need to keep:
• Bank interest certificates • Dividend vouchers • Portfolio statements • P45s/ P60s from pension providers or employers • P9Ds/ P11Ds from employers • Notifications regarding any state aid such as the State Pension or Job Seeker’s Allowance • Paperwork regarding pension schemes being paid into • Receipts for donations made under the Gift Aid scheme • Paperwork for any assets you have sold, such as shares, land etc. • Income and expense receipts for any land or property you received income from- in the UK or overseas
Again, this list is not exhaustive, but hopefully it gives you a good idea of the type of paperwork it is necessary for you to keep and which will be required for the completion of your tax return.
Claiming business expenses
Common expenses you can claim.
Purchases & Materials
Rent business premises
Repairs & replacement equipment
Computer for work
Professional magazines and reference books etc
Telephone Landline – Business use
Mobile Phone – Business Use
Postage & stationery
Use of home as office or workshop (see notes below)
Bank charges on business account
Wages (See notes below)
Fares & Travelling expenses
Other sundry items
Vehicle running costs (read notes below)
Repairs & Maintenance
Road tax, insurance & MOT
Parking & Tolls
Please note : If you use your vehicle for your own personal use then you need to factor this in when any expenses are claimed. For example if you calculate that you use your vehicle 20% of the time for personal or family use, then you would need to reduce any relevant vehicle running expenses by 20%.
An alternative to claiming the vehicle running costs is the HMRC’s Fixed Scale Mileage Rate which is currently 45p per mile for the first 10,000 and 25p thereafter. This includes a depreciation allowance (capital allowance) for the vehicle but does not include interest on any loan to purchases the vehicle. This can be claimed in addition to the mileage allowance
Capital Allowances can be claimed for vehicles used for work which can be up to 100% of the cost (normally 18% per annum for cars) and any other assets used for the your business. Any assets you owned before you started the business may also be claimed if you use them for your business.
NOTES ON EXPENSES
Use of home
If you work from home, you will be able to put through a portion of the running costs of your home. It could include household bills such as gas, electricity, telephone, broadband, rent, council tax, mortgage interest, insurance, etc. or you can use HMRC’s fixed rate allowance.
There are harsh rules about what training costs can be offset for tax purposes if they are for the proprietor.
Starting out in business and completing your first tax return can be pretty daunting. As you can see, from registration with HMRC through to completing your tax return can be a lengthy and complex area.
A tax advisor or accountant could deal with all of this process for you, and although you do not need either of these to deal with your own affairs, there can be real benefits in using a professional.
KWA Tax Returns Online
The thought of having to complete a Tax Return can be quite a daunting task as well as time consuming. For just £130 (after tax relief £104) we can prepare and file your Tax Return for you without any fuss. Simply provide us with the information we ask for then leave the rest to us.
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayers’ circumstances do vary and if you feel that the information provided is beneficial it is important that you seek professional advice before implementing.. If you take, or do not take action as a result of reading this article, we will accept no responsibility for any financial loss incurred