My top tax return tips
The self-assessment tax deadline is looming for the self-employed. Christina Jordan reveals her top tips - and what expenses you can claim for.
This article is now out of date. For more up-to-date information, please read How to get your online self-assessment tax return right
Every time I see Moira Stewart sitting in that couple’s cupboard on the TV advert I want to punch the screen. Not because I have anything against the erstwhile news anchor (who would?), but because she is reminding the couple, and me, that the tax return deadline is looming.
To most people in a full-time job this is completely meaningless (though higher-rate taxpayers, those with dual incomes and anyone unlucky enough to be asked, do need to fill in a return).
But if you are newly self-employed and a sole trader (like me), it can be a big worry -- especially during a credit crunch.
What you have to do and when
Fill in your tax return online by 31st of January (for the tax year 2007/2008). The paper version deadline was October 2008, so it’s online only now.
In its simplest form your tax return lists all of your income for the period, and all of your allowable business expenses and capital allowances. Deduct the latter from the former and you get your taxable income. The online system automatically tells you exactly what you owe and then you pay it. Easy peasy.
HM Revenue and Customs (HMRC) try to make it as straightforward as possible, with shorter versions of the form for sole traders and plenty of ‘downloadable PDFs’ to explain the nitty-gritty. But try as they might, tax is taxing, and it is complicated. It involves numbers and percentages and worst of all you need proof of everything.
As long as you keep good records your tax return should be pretty straightforward. Unfortunately this was my first mistake.
I didn’t keep a good record of expenses, and here I have really shot myself in the foot, because now I can’t claim for things I actually spent money on.
If I had been keeping records of my expenses I could have claimed the following.
Business travel - including petrol, train and bus fares and best of all, taxis! You can claim for pretty much all business travel, although not straightforward commuting to a place of work.
Office expenses – if you rent an office or a space somewhere you can claim this cost. So far, so simple.
But what if you work from home? Well you can claim some of your home running costs as long as you only claim for business usage. As a rule of thumb you will spend a third of your time working in your home if you do an eight hour day. So work out a third of your bills such as electricity and gas.
But then you have to account for the fact that your work space is not your entire home, and you can only claim for the space you use – for example one third. So a third of a third might be the amount you could claim as an expense (or whatever your proportions are). If I spend £90 a month on gas and electric for example, I can claim £10 a month on my expenses.
Phone costs – Again you need to work out what is spent on work and personal use if you don’t have separate lines. Broadband costs can also be claimed.
Other expenses – paper, postage, repairs, uniforms are all tax deductable, provided they are needed for business purposes and you have receipts.
Business Link has more information on valid Business Expenses.
There is a difference between your running costs and fixed assets, like computers, a car or a photocopier, which you can claim under capital allowances.
Each year you can claim 25% of the cost or value of new equipment and machinery as an annual allowance, meaning you do not claim it all in one year.
In your first year you can claim 40% (or 50% on some equipment and machinery if you are a small business).
Well from the 2008/2009 tax year (not the year you are filing for, the year we are currently in) this all changes and you can 100% of up to £50,000 a year, and in your first year you can claim 100% of items that fall under capital allowances definitions.
HMRC has a comprehensive section explaining Capital Allowances if you need clarification.
Tips for this year
- If you haven’t started thinking about your tax return, start right now, you only have 20 days to file it online – and pay what you owe.
- If your accounts are at all complicated, you don’t have time to go through them or your affairs are complex, I would suggest you contact an accountant today. Charges vary massively. I got three quotes: one at £160 from a woman who completes your return in her own time; £275 from a small local accountancy firm and £500 from a local branch of a well-known international tax specialist. I went with the middle option.
- If you are comfortable doing your return yourself, get cracking, and remember to provide receipts and evidence of all expenses.
- Most importantly if you think you will have problems paying your tax by the end of the month, speak to HMRC. In his pre-budget report the Chancellor made it clear that HMRC may be more lenient with those who come to them with payment concerns and agree a schedule for meeting their obligations. But if you don’t tell them there is a problem, you will face fines and interest.
Next year I intend to do the following:
- Enter every job into my spreadsheet at the time I send the invoice. Or at least do a weekly sweep.
- Buy everything that could constitute a business expense on plastic and ensure every household bill is in my name. Internet banking and online statements come into their own when trying to work out your expenses – far better that sorting through old electric bills or train tickets.
- Write the details of taxis journeys on the back of the receipt immediately. This year I have forgotten what many of my taxi receipts are for, as well as having lost several.
- Make sure that as soon as this tax year ends (in April) I tackle my tax return --and do not leave it to the last minute like this year!
Visit HMRC for help and information about your tax return.