Being confronted with a tax return for the first time is an unsettling experience for many people - but it’s genuinely not as bad as it first seems. Accurate financial record keeping, a level head and a knowledge of what support and guidance is available to you along the way can take the sting out of the whole process.
As soon as you become self-employed, you are legally obliged to notify HM Revenue & Customs. This is easy - a quick call to the HMRC's Helpline for the Newly Self-Employed on 0845 915 4515 will set the wheels in motion. If you fail to notify the HMRC within three calendar months of becoming self employed, beware, as you could face a penalty.
If you’re in any doubt as to the distinction between being employed and self-employed - and it many circumstances it isn’t always obvious - the HMRC publish a guide to help you acertain your employment status which is available from their website at: www.hmrc.gov.uk/employment-status/index.htm or from your local tax office.
‘Thinking of working yourself?’ (REF PSE1) also provides clear introductory information and is well worth a read. This can be downloaded from: www.hmrc.gov.uk/leaflets/se1.pdf
Make sure you receive your self assessment form
Once you’ve registered as self-employed, you should (in theory) automatically receive a self assessment pack the following April - the beginning of the new tax-year.
The HMRC wants to know what your taxable income is based on your trading activity within the perimeters of both the last and the current financial years. If you have any income to declare that falls outside of working directly as an employee (under the PAYE scheme), the onus is on you to contact the HMRC to request a Self Assessment pack.
The ‘core’ form is called an SA100 and the self-employed, which can be found at www.hmrc.gov.uk/forms/sa100.pdf. The self-employed are also required to complete a supplement (SA103) where details about a business’ income and expenses are completed. It can be found at www.hmrc.gov.uk/selfemployed/fagsa103.shtml
Again, if you haven’t received SA103 within your pack, you must notify the HMRC as soon as possible - it is your responsibility, not the taxman’s. The HMRC self assessment forms order line can be contacted on 0845 900 0404.
A step-by-step guide to filing online can be found at www.hmrc.gov.uk/sa/help-using-online.htm#4
The HMRC wants to know what your taxable income is based on your trading activity within (in most cases) the perimeters of the last financial year.
Your taxable income is calculated by subtracting allowable business expenses from your business’ income. The accompanying notes to SA103 provide information to get you started but calling the HMRC directly with any questions that occur is a good idea. The HMRC Self-Assessment helpline can be contacted on 0845 366 1204.
In order to calculate your taxable income quickly and easily, it is imperative that you keep accurate financial records from day one of trading.
You will need to maintain a record of all payments and receipts alongside details of all goods purchased or sold. Additional documents, such as copies of invoices you have sent to your clients (and those sent to you by your suppliers) are also important, as are bank related records such as paying in books, cheque book stubs and bank statements.
‘Self Assessment - A general guide to keeping records’ is available from the HMRC by clicking here.
Support and guidance
The HMRC wants people to understand tax (it’s in their interest as much as anyone else’s) and to this end operate Business Support teams throughout the UK. The Business Support teams offer free local workshops aimed squarely at new and small businesses. A directory of these can be found at: www.hmrc.gov.uk/bst/
Employing an accountant or tax advisor to complete you tax return on your behalf is another option. Yes, this does cost money but if your financial records are in reasonable order, this needn’t be too expensive - and you’ll be free to allocate your time to other areas of your business.
Do be aware, however, that September to January are the busiest times for many accountants, and you can expect to pay a premium rate if you turn up with incomplete records (or a Sainsbury’s bag full of receipts and invoices) close to the 31 January deadline.
The Institute of Chartered Accountants of England and Wales publishes a directory of its members at www.icaewfirms.co.uk as does The Chartered Institute of Taxation at www.tax.org.uk
Once you’ve completed the form, don’t forget to sign it - this is the single most common reason why returns are returned. If you’re close to the deadline this innocent oversight could cost you a penalty - a great shame after all your hard work.