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Self Assessment Tax Returns

The deadline for self-assessment tax returns was the 31st of January (for online submissions) and has now been and gone. Anyone who files their tax return later than the deadline is subject to a fine of £100 from HMRC.

However, we have noticed that a lot of people tend to leave their self-assessment to the last minute and then have to rush to provide their receipts and income information so as not to miss the deadline.

A bit like scrambling to get your homework done for 8 classes in one day – it’s not the most practical solution.

When we consider that the tax year ends on the 5th of April (every year) and that self-employed people should have some kind of accounting procedure, it turns out that there’s lots of time to file your tax return before the deadline.

Our own rule is that if we have not been instructed to file a tax return on someone’s behalf by the 3rd of January then we will have to decline to take the work on. This gives us enough time to collect all the information we need, and have it approved by our clients before filing with HMRC.

Our fee for completing a self assessment tax return is £80.00 and is payable before the return is filed with HMRC.

Apart from the obvious benefit of not being fined, we’ve come up with some other benefits of filing your tax return as early as possible:

1)      It helps with budgeting. If you know that you owe HMRC £2000 (for example) and you know that the deadline for payment is the 31st of January, you have a few months to put the money aside rather than desperately trying to come up with a lump sum at once.

Conversely, if you’re due an income tax refund (say you work full time and pay tax and have a part-time business that makes a loss) then it makes sense to alert HMRC to the fact that you’re owed money as early as possible.

2)      You get lots of time to gather all your paperwork and other information. Ideally, everyone would keep their receipts in a handy file and in date order. The reality is sometimes very different and so allowing lots of time to gather all your paperwork just makes sense. Remember that an incomplete or incorrect tax return is a very serious matter and so it’s important to be as accurate as possible when preparing a tax return for HMRC.

3)      There might be questions. Whether you’re doing your self-assessment on your own or having someone do it for you, there might be something that isn’t 100% obvious or clear and needs to be questioned. Even if you are preparing your own return, there might be things that you need to ask someone about, and it all takes time.

4)      Your tax adviser will love you. When preparing a tax return for a client, there are procedures to follow and some of them take time. One of the major points is that a tax return has to be approved by our clients before it is submitted to HMRC. Some clients do it very quickly and others need reminding. As much as we understand that people are busy running successful businesses without your approval, we can’t file your tax return. The longer we have before the deadline, the less stressful this is for everyone.

We have some more advice and again, this can apply even if you’re having someone else prepare your tax return for you.

Learn what is and isn’t allowable as a business expense. The rules can be quite complex and it’s always worth checking (ideally before you spend large sums of money) whether your expenses are allowable as business expense by HMRC.

This is especially important if you travel a lot as part of your business and have to work out  business mileage, if you work from home and want to be able to claim back costs of your home office or if you’re staring a new business and want to know how to go about claiming for items that you bought in preparation for starting trading.

This is one of the major issues that come up a lot when preparing tax and an argument is usually prefaced with “my friend/sister/dad/uncle/neighbour/wife said that xxx is allowed on a tax return because they did a tax return on 1982 and it was allowed then”.

First of all, it never hurts to imagine that things might have changed since 1982 and that something that we were allowed to do then, is no longer allowed.

Secondly, don’t assume everyone is lying to you but do make a habit of double-checking everything just in case whoever is advising you has got something wrong. It happens and people forget things.

The HMRC website is full of important information and if anyone knows what’s allowed, it’s the people in charge of collecting and refunding tax. It never hurts to ask them for advice and they’re usually very happy to help people to get things right first time.

Similarly, if you have a tax advisor, ask them to advise you. You are paying them, after all.

Another good tip is, use accounting software.

An Excel spreadsheet isn’t always okay. Especially if you don’t type in all the details. For example, typing “Boots £52.00” isn’t especially helpful. Do you sell boots? Are you wearing them? Did you give them to a staff member? Did you buy something from the chemist? All completely scenarios when it comes to a tax return.

Whereas if you use accounting software (some accounting packages are free or cost less than £10 a month and almost all of them come with guides that help you to use them properly. Or ask someone to do it for you) it will help you to classify all your costs so that it will be obvious what “Boots £52.00” was.

Most accounting software allows you to add your tax advisor (bookkeeper or accountant) as a user so that they can access your accounting information and help you to prepare your tax return much more efficiently.

Some tax advisors will say that “a tax return costs £xxx” and the fee includes all the advice and help and preparation from start to finish.

However, some will say that it costs “£xx per hour” and so if you’re paying someone by the hour, it makes sense to have everything in an easy to understand format so that you ultimately save money. 

Another good idea might be to authorise your tax agent to talk to HMRC on your behalf. That way, they can help to make sense of anything that goes wrong and help you to resolve it.

Tax is extremely complex, and changes are brought in every year. Rates can go up and down and rules that applied in one tax year can be changed or removed in another the following year. If you don’t understand the system (you’re not alone) then it is worth finding someone who does and making sure that you pay the correct tax at the correct times (remember there are lots of allowances and reliefs and your tax bill doesn’t have to be excessively high).

Absolutely lastly, remember that tax evasion is a crime. It’s better to file your tax return late and pay a fine of £100 than to be taken to court and fined for not reporting any tax at all.