31 January, the deadline for filing Self Assessment tax returns, is fast approaching. If you have decided to wait until after Christmas to prepare and file your tax return, what could you do now to make that job easier when the time comes?
Emily Coltman FCA, Chief Accountant to FreeAgent who provide awardwinning cloud accounting software to small businesses, freelancers and contractors gives her five top tips to help you get ready to complete your tax return.
Register with HMRC
If you haven’t filed a tax return before, and if you started your business before 5th April 2014 and HMRC don’t yet know that you’re in business, you must register with them. When you do this, HMRC will issue you with a Unique Tax Reference (UTR for short), which you’ll need to include on your tax return. Follow the appropriate link for your business type here to register with HMRC for the first time.
Why do this now? Before issuing you with a UTR, HMRC sends you an activation PIN in the post, which you’ll need in order to complete your registration. The longer you wait to register, the more likely your activation PIN is to be delayed (or even lost) in the Christmas post.
Identify which pages you’ll need to complete
The Self Assessment tax return has a number of different pages; it’s a good idea to identify which ones you’ll need to complete when you’re ready to begin.
All tax returns have a Main Return page, where you enter common income types like bank interest received, and dividends you’ve received on shares you own. The Main Return page also covers everyday tax reliefs, like those on money you give to charity under Gift Aid, or contributions you pay into a pension.
If you have any other kind of income, such as wages from a job, earnings from a sole trade business or partnership, or rental income from a property you let out, then you’ll need to fill in a separate set of pages for each different kind of income.
Why do this now? It can save you a lot of time and hassle to use online accounting software to complete your Self Assessment tax return. There are many software options to choose from, but if you know in advance what kinds of income you have, and which different pages
you’ll need to fill in, you’ll be in a better position to decide which software is right for you. In FreeAgent, for example, you can fill in the Main Return and Employment pages, and the software will automatically complete many of the boxes on these forms for you. For sole traders FreeAgent also automatically completes up to 90% of the Self Employment form.
Collect your paperwork
Once you’ve identified your sources of income, make sure you’ve collected all the information you’ll need to fill in the relevant pages on your tax return. For example, if you rent out a property, make sure you have details of everything you’ve earned in rent and all the costs you incurred over the tax year 6th April 2013 to 5th April 2014. If your bank pays you interest on a bank account, find the interest certificate they would have sent you soon after 5th April. It will show the interest you earned in the tax year and any tax that the bank deducted.
Why do this now? The earlier you start collecting your paperwork, the more time you will have to locate anything that’s missing, or to obtain duplicates. Similarly, if you ask an accountant to help you prepare your tax return and you give them your paperwork early, they will have more time to ask you any questions they may have or flag anything that’s missing.
Make sure your books are up to date
If you’re a sole trader, or in partnership, then you need to make sure your business’s books are up to date and complete up to the end of the accounting year that’s going to be reported on your tax return. That might be the year up to 5th April 2014 or it might be up to an earlier date check with your accountant if you’re not sure.
Make sure you’ve posted all the business’s income and costs to your accounts. Your business’s profit which is what you’ll tax pay on is calculated by subtracting your costs from your income, so it’s important that this information is correct and up to date. Online accounting software allows you to post income and costs to your accounts quickly and easily. FreeAgent uses this information to automatically calculate your business’s profit and your liability to income tax and class 4 National Insurance contributions.
Why do this now? If your books are not complete when you come to fill in your tax return, you could pay too much tax, or equally you could pay too little tax and risk fines and penalties. Also, if HMRC inspects your records, it can fine you for inadequate recordkeeping so make sure your books are kept up to date. Put aside an hour every week to do your books in the future, so that you don’t risk getting behind again.
Find an accountant (if you don’t already have one)
The UK’s tax system is so complicated that unless your business is tiny, I would highly recommend you engage an accountant to at least check and “rubber stamp” your tax return before you file it. As a nonaccountant, there are tax pitfalls that you might not know about, but HMRC still hold you responsible for the accuracy of your tax return and can fine you if you get it wrong! An accountant can check your figures and help you avoid the tax traps. They may even be able to suggest ways that you could save some tax.
Why do this now? If you approach an accountant for the first time in January, they will be very busy indeed completing their clients’ tax returns. They may not have time to take you on as a client, or they may charge you a premium for coming to them so late in the day. Look for an accountant now and you should be received more favourably!
Prepare for Self Assessment with FreeAgent – and file directly to HMRC!
Using online accounting software can really help to take the hassle out of preparing for your Self Assessment tax return. FreeAgent is specifically designed for freelancers, contractors and small businesses and is the only UK accounting software that lets sole traders and directors of limited companies file their tax returns directly to HMRC.
FreeAgent uses your daytoday bookkeeping data to calculate your Self Assessment liability and completes up to 90% of the Sole Trader Self Employment form. When you’re ready, you can submit your tax return directly to HMRC in a single step.
Try FreeAgent for free at www.freeagent.com