GoSimpleTax

As we know a hobby is an activity performed for fun, whether that’s making art prints of movie stills or teaching guitar basics on YouTube. When this activity becomes monetised, that’s when the attention of HMRC is drawn and the hobby may be regarded as a business.  

As an accountant you will be aware that once the income (not profit) exceeds the annual trading allowance of £1,000, the income needs to be declared to HMRC.  

Rachel Rutherford, Director of Policy and Public Affairs added “If the sole purpose of the activity is to turn a profit, then this is a business and HMRC must be advised once the annual income exceeds £1,000. Of course, there will be people who might just be selling old clothes on the likes of eBay or Depop in order to make a little pocket money, and if these are personal possessions then there is no need to report this to HMRC. 

“To help keep your clients on the right side of the taxman, we’ve invited Mike Parkes from strategic partner, GoSimpleTax to explain this further – as well as outline the next steps if it’s required to report taxable income.” 

What is the trading allowance?

Selling across the likes of Facebook Marketplace, Etsy or eBay in spare time, there is a set amount of money allowed to be earnt before there is a requirement to tell HMRC. The trading allowance allows earnings up to £1,000 a year tax-free. 

Keeping a log of all sales made across each platform ensures the amount is not exceeded, giving protection in the event of a HMRC investigation. Should this be the only income then no tax will be paid until more than the personal allowance is earnt. 

A reminder of the personal allowance 

The Personal Allowance is the amount of taxable income made before Income Tax is incurred. It factors in employment earnings, rental income, and any additional online trading profit made – among other sources. Therefore, if the items sold online result in less than £12,570 annually (the Personal Allowance as of 2021/22), and there are no other sources of income, there won’t be any Income Tax charged. 

Once that amount is exceeded, there will be tax: 

• 20% on the portion of earnings between £12,571 and £50,270 
• 40% on the portion of earnings between £50,271 to £150,000 
• 45% on the portion of earnings over £150,000 

The same is true if tax is paid through PAYE at a current employed role, and earn more than the trading allowance. Income Tax will be charged according to the total amount of taxable income that is earnt. 

Is a tax return required?

A Self-Assessment tax return is required if the trading allowance is exceeded, regardless of whether or not there is also employment. Within the self-assessment it is required to report the sales made along with anu associated business expenses. However, before this can be completed it is a requirement to register for self-assessment and this will depend on if you’re self-employed or not. 

Once registered, a letter will be sent with a Unique Taxpayer Reference (UTR) number on. This reference number is essential to using HMRC’s Self Assessment service and takes 10 days to arrive, so remember to register long before the deadline.  

An activation letter will also arrive with an activation code – when both are received it is possible to start a self-assessment tax return. 

Can the tax bill be lowered?

When HMRC treats online selling as a business, then the eligibility for the benefits of business expenses comes into play. Business expenses are purchases made that can be claimed back on in a tax return, provided the purchase was for business purposes. For example, claims could be made on: 

• Office supplies – any stationery used, envelopes or printing costs
• Delivery costs – postage and packaging costs
• Website charges – either for a website owned or the fee of the seller site
• Bank and credit card fees – charges incurred from selling online
• Marketing and advertising costs – any adverts ran on seller sites 

There could be a possibility to be able to reduce the cost of running a home! A portion of utility bills, council tax, and telephone and internet costs can be considered a business expense, depending on the amount of time spent using a house as a base for the online selling. All that is needed is to keep a log of the expenses being claimed, and store evidence for them should HMRC ask for it, potentially reducing the total tax bill. 

Getting the most out of online sales for your clients

If a hobby tips slightly into business territory, don’t panic. Registering for Self-Assessment and completing a tax return is straightforward provided your clients have the right tools and act early. If sales exceed £1,000, register your client as soon as you can, and ensure they keep records of income and expenses to include them on their tax return. 

From there, you’ll be able to work out their profit and possibly lower their total bill by making sure they have recorded all allowable expenses.  

Further Advice

If you require further advice on tax related matters go to the AIA Tax Insights Page, or alternatively visit the AIA GoSimpleTax Partner Page.

In the UK, landlords are able to save tax by sharing the Personal Allowance of their lower-earning spouse. This way, they can maximise the total household’s take-home pay without falling foul of the taxman. 

Rachel Rutherford, Director of Policy and Public Affairs added an air of caution “Whilst the marriage allowance can provide undoubted tax benefits, there are strict rules to adhere to.  

“And it’s for this reason that we’ve asked Mike Parkes from strategic partner, GoSimpleTax to explain the Marriage Allowance and how landlords can qualify in more detail”.  

What is the Marriage Allowance? 

The Marriage Allowance is a tax perk for married couples and those in civil partnerships. It allows households to share part of their Personal Allowance – specifically, the Personal Allowance of the lower earner who is able to transfer £1,260 to the higher earner. 

The higher earner will then receive a tax credit equivalent to the amount of Personal Allowance that has been transferred to them. Once the higher earner’s tax bill arrives, there will be a deduction of the same size. 

Marriage allowance, are you eligible?

There are two financial requirements you’ll need to meet in order to receive the allowance: 

• The lower-earning partner’s pay before tax must be less than the Personal Allowance – which, as of 2021/22 and until at least 2026, is £12,570.
  

• The higher-earning partner’s salary must fall between £12,571 and £50,270, making them a basic-rate taxpayer. 

Provided you meet this criteria, you can request that HMRC transfers any unused Personal Allowance from the lower earner to the higher earner. Within 14 weeks of registering your interest in claiming the Marriage Allowance, HMRC will contact you and ask you to complete an application form.  

How does the Marriage Allowance work? 

Once HMRC has approved your transfer application, the lower earner can give a maximum of £1,260 to their partner’s Personal Allowance. If the lower earner has an income of less than £11,310 (the Personal Allowance minus £1,260), you can do this without being liable to pay any tax. 

Currently, those earning above £11,310 but below £12,570 can still transfer £1,260 of their Personal Allowance, but they will become liable to pay tax on any income in excess of £11,310. This means the higher earner still makes a saving, but the total saving made by the household is lower. 

It’s worth bearing in mind that you’re able to claim Marriage Allowance while on maternity leave or if you're unemployed. However, once set up, this allowance will be transferred to the higher-earning spouse automatically every year until you cancel it or until your partnership comes to an end.  

If your financial situation changes midway through the tax year, don’t worry – HMRC will simply ask you to disclose your total income at the end of the tax year via a P800 form. Whether because the lower earner exceeds £12,570 or the higher earner exceeds the basic-rate tax band, you’re required to fill out the form, helping HMRC adjust your tax code for the following year. 

What are the benefits for landlords?

Provided they meet the above requirements, everyone is eligible – whether they’re self-employed and have a large portfolio or are employed and have invested in one buy-to-let property. The reason why landlords are encouraged to transfer their Personal Allowance is because it allows the household to maximise rental earnings. 

This is especially true if the higher earner works full-time while the lower earner handles the property management side of things, as the employment income will come at the cost of rental earnings. However, by transferring some of their Personal Allowance, the higher earner is able to claim more tax relief at no cost to the lower earner. 

Further Advice

For more information about how the Marriage Allowance works, and how you can apply for it, check out the GOV.UK website. 

If you require further advice on tax related matters go to the AIA Tax Insights Page, or alternatively visit the AIA GoSimpleTax Partner Page. 

Self-Employed Income Support Scheme (SEISS) has been a lifeline to many sole traders during the coronavirus pandemic. Provided they’ve met the necessary criteria, these individuals have been supplemented with up to 80% of their average trading profits.

Rachel Rutherford, Director of Policy and Public Affairs added “Undoubtedly the Self-Employed Income Support Scheme has provided much needed support for businesses paralysed by the ongoing pandemic.

“However, these grants are taxable – meaning that they’re subject to Income Tax and National Insurance contributions in the tax year in which they’re received. As a result, they need to be included in your client’s Self-Assessment tax return.”

So, to make that as easy as possible for you and your client’s, we’ve asked tax return expert. Mike Parkes, Technical Director at GoSimpleTax to set the record straight on SEISS grants and how to record them for HMRC.

Grant 4 now open

If your client had reason to believe that they have suffered a significant reduction in trading profits between 1st February 2021 and 30th April 2021 due to the coronavirus pandemic, and they are eligible, they can now claim support.

To apply, you’ll need your client will need:

• National Insurance number
• Government Gateway user ID and password
• Unique Taxpayer Reference (UTR) number
• UK bank details, including account number, sort code, and name and address linked to the account

This fourth instalment of SEISS closes on 1st June 2021. To determine your client’s eligibility, HMRC first reviews your clients 2019/20 tax return. Your trading profits must be no more than £50,000 and account for more than 50% of your taxable income.

Changes to grant 5

The eligibility criteria for the fifth grant will be different. As it stands, the amount your client receives will be dependent on your turnover between April 2020 and April 2021.

In effect, this means your client may receive support if your sales have fallen by:

• 30% or more – In which case, the fifth grant will be 80% of three months’ average profits (up to a maximum claim of £7,500)
• Less than 30% – In which case, the fifth grant will be 30% of three months’ average profits (up to a maximum claim of £2,850)

This fifth and final instalment of self-employed support is expected to ‘cover’ the period from May 2021 to September 2021.

Declaring grants 1, 2 and 3 on your tax return

Your client won’t need to repay the SEISS grant, but they are subject to Income Tax and Class 4 National Insurance contributions. This means that, if your client claimed grants 1, 2 or 3, they will need to be reported, in full, in their 2020/21 Self Assessment tax return.

HMRC is making this easier for users by including a box on the 2020/21 and 2021/22 tax return forms. You’ll need to include a 4th or 5th grant on the latter tax return should you claim them in 2021.

Alternatively, you can easily declare that you’ve received support through tax return software. Platforms like GoSimpleTax include this as a simple drop-down field.

If your client discovers that they received a SEISS grant that they were not entitled to, or were paid more than they should have been, notify HMRC within 90 days to arrange repayment. Fail to do so, and your client may be charged a penalty.

Provided you have claimed the correct amount and include all grants within your clients Self-Assessment tax return, you should both stay on the right side of the taxman.

As we are aware on 1st April 2021, the soft-landing period for eligible businesses over the VAT threshold to comply with Making Tax Digital (MTD) for VAT will come to an end. Anyone currently following the rules of MTD for VAT will need to make sure that the software they use is able to send information directly to HMRC going forward.

This marks the start of a series of incoming tax changes that will impact how sole traders and landlords file their tax returns to HMRC. And while these individuals have until January 2023 to implement these changes as part of MTD for Income Tax, the longer they leave it, the harder it will be to adjust. But don’t just take our word for it. Below, GoSimpleTax’s Mike Parkes sets the record straight on what you need to do to prepare yourself.

What is MTD, Just In Case You Need Reminding…

MTD is a government initiative designed to digitalise taxes in the UK. According to the HMRC, avoidable mistakes cost the Exchequer £8.5bn between 2018 and 2019. Digitalisation would mean that income can be more effectively assessed, and taxpayers will find it easier to get their tax right.

Initially, the legislation only applied to some VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 (with those below the threshold required to follow the rules from April 2022). Soon, however, it will apply to sole traders and landlords with an annual income exceeding £10,000. This will begin in 2023 – specifically, from their accounting period starting on or after 6th April 2023.

How does it affect sole traders and landlords?

Sole traders and landlords with income above £10,000 will be required to use compatible software to keep digital records and send HMRC updates for their Income Tax. This means the end of the free HMRC tax return submission tool – instead, your client’s need to choose an HMRC-recognised platform that’s compatible with MTD for Income Tax.

There will also no longer be a need to submit a Self Assessment tax return. In its place, your clients will be required to send four quarterly updates, an end-of-period statement, and a final declaration to HMRC. But don’t worry, if your clients are now using software, you will both end up spending less time on admin under this legislation than you did previously.

What are quarterly updates?

At least every three months, your client will need to send HMRC a statement of their business income and expenses. The same is true for any property income that they earn. This allows HMRC to present you with a more up-to-date forecast on how much tax they will owe.

Again, software should make this process easy for you as you can log income and expenditure information in real time.

What about end-of-period statements and the final declaration?

End-of-period statements (made at the end of the accounting period or tax year) will involve a similar process to the current one for Self Assessment tax returns.

As for your clients final declaration, this is where they confirm that the figures submitted to HMRC are final and correct. This submission will then be used as the basis to calculate any tax they need to pay.

Why should I prepare now?

While sole traders and landlords have until 2023 before MTD for Income Tax comes into effect, if your clients leave it too late to sign up for approved software, 2023 could be a bit of a nightmare year.

Not only would they need to submit their 2021/22 tax return by 31st January 2023 as normal, they would also then have to quickly get up to speed with MTD for Income Tax before their first MTD submission. This first submission would most likely be for the period 6th April 2023 to 5th June 2023, and be due no later than 5th July 2023.

That’s why we recommend familiarising yourself and your clients with digital tax return software as soon as possible. By beginning to log their 2021/22 income and expenditure as and when they occur, you can both effectively be ready to submit the corresponding tax return as soon as you’re able to (6th April 2022, the start of the tax year). That means you and your client won’t have to worry about the 31st January 2023 filing deadline, freeing you both up to focus on your new MTD responsibilities.

You can start by choosing an MTD-compatible platform today, and getting to grips with keeping digital records. So what are you waiting for? 2021 is the perfect year to get organised.

If your clients want to prepare for the 2021/22 tax year, they need look no further than Rishi Sunak’s much-talked-about Budget. In it, the Chancellor promised to do whatever it takes to protect jobs and livelihoods, and outlined how the government intends to support the self-employed.

To save you and your clients the trouble of researching each change, we’ve asked Mike Parkes from AIA strategic partner GoSimpleTax to list the three big updates and explain how they might affect you.

Additional COVID-19 support

Both the Coronavirus Job Support Scheme (or furlough scheme) and the Self-Employment Income Support Scheme (SEISS) are set to be extended until September 2021. There will be two remaining SEISS grants, amounting to five grants in total.

The fourth will cover February 2021 to April 2021 and, provided you filed your 2019/20 tax return before midnight on the 2nd March (and meet similar criteria as the previous rounds of funding), you’re eligible. It’ll also be open to those who became self-employed in the 2019/20 tax year. This means that around 600,000 more people are now entitled to 80% of their average trading profits.

As for the fifth grant, there’s little confirmed yet. However, we do know it’ll cover a maximum of £7,500 and that the eligibility factors will be slightly different. Instead of focusing purely on net profit, the government will be reviewing a sole trader’s drop in turnover as well.

Our expectation is that only sole traders whose turnover has fallen more than 30% will receive the full allowance (80% of 3 months’ average trading profits). If your turnover has fallen by less than 30%, your grant will be capped at £2,850.

Income Tax thresholds to change, then freeze

The Personal Allowance will increase by £70 from £12,500 to £12,570 in April 2021. This will then be frozen until 2026 – a decision that is expected to drag 1.3 million people into paying tax as inflation increases wages and the cost of services.

Similarly, the higher-rate tax threshold (of 40% on taxable income) will increase from £50,001 to £50,270 and then be frozen. One million people are now expected to fall into the higher bracket by 2026.

These aren’t the only rates to freeze. The pension Lifetime Allowance will remain at £1,073,100 until 2026. This isn’t to be confused with the pension Annual Allowance of £40,000, which has seen no changes.

The reason for all these freezes is undoubtedly to claw back some of the money spent on COVID-19 relief. If you’re worried about teetering into a higher tax band in the next five years, it’s important to plan ahead and prepare for a change in your take-home pay.

HMRC to invest in a new taskforce

If your client’s strategy is to avoid falling into a higher bracket and involves not disclosing their total income, I’d advise you reconsider! A substantial section of the Chancellor’s Budget announcement was dedicated to the new Taxpayer Protection Taskforce.

£100m will be spent on a team of investigators who will combat fraudulent claims on taxpayer money – including those who have exploited COVID-19 support schemes.

Realistically, this is unlikely to target sole traders, as the most likely abusers of COVID-19 relief will be businesses. However, it is worth recognising the level of investment that HMRC is putting into tax avoidance and fraud.

It remains to be seen whether or not this taskforce will investigate the much larger problem of pension scams, that have cost the UK taxpayer over £30m since 2017. Likewise, there was no confirmation as to whether this group will target the rampant COVID-19 vaccine scams that have been targeting people for months now.

Rachel Rutherford, Director of Policy and Public Affairs added: “AIA would urge you and your sole trading clients to keep a keen eye on the latest changes to legislation as much as possible and contact the AIA membership team if you have any outstanding queries.

“Filing your 2020/21 tax return as soon as possible can also help to ensure they are eligible for upcoming grants or forms of support.”

About GoSimpleTax

 GoSimpleTax is a secure cloud-based solution and it is officially- recognised by HMRC.

It includes partnership, non-resident and previous year returns.  it has an easy-to-use interface and submits direct HMRC. GoSimpleTax are ready for MTD and the software shows the Tax liability in real time.  It has a simple dashboard allowing you to switch between clients easily.

AIA members now receive a 25% discount on GoSimpleTax to receive your discount code sign-up here (example 50 client submissions £150.00 inc VAT and using discount).

There are always some clients who prefer paper-based accounting. Reluctant or uninterested to learn to use new tools, they prefer physical copies over digital documents. But this comes at a cost – to both them and you.

By transitioning to digital, not only will your clients’ accounts be easier to manage, but they’ll take a fraction of the time to process, enabling you to work on other elements of your practice.

We’ve asked Mike Parkes from GoSimpleTax  to explain more, and highlight how accountants can benefit from going paperless.

Offer real-time answers and advice

Paper, by nature, is chaotic. You’ll need filing cabinets, meticulously labelled, to accurately record each of your clients’ accounts – up to six years of their accounts, in fact, to ensure that they’re covered if HMRC launch an investigation into their tax return. That’s sure to take up a lot of space, and it also doesn’t provide you with an easy-to-access overview of what any of your clients owe the taxman.

Digital files, on the other hand, are much easier to read. Especially if you invest in a tax return solution like GoSimpleTax. Tools like these allow you to record client income and expenditure in real time, meaning that whenever a client asks for their expected tax bill, you can answer in just a few clicks.

As a professional advisor, this allows you to submit an accurate tax return on their behalf and help them manage their cash flow. Plus, as some tax return software providers also highlight any opportunities to claim tax relief, there’s an extra incentive for your clients to stay on top of their record-keeping.

Record income more easily

Another benefit of going digital is the ease with which you can record client income. At the moment, you have to log each of your client’s paid invoices into their tax returns. But with invoicing tools, that all changes.

By using software to request payment, any invoices paid will automatically update their accounts. For example, if a client receives payment for an invoice you sent, their predicted tax bill will be automatically updated based on the amount of that payment. This saves you time and also unifies two of your practice’s most important services: invoicing and the tax return.

You can also use these digital tools to understand when to schedule sending invoices as well as the follow-up emails to ensure that their customers pay on time. Integrations with online payment solutions like SumUp and PayPal can additionally help your clients’ customers pay them more quickly using a debit or credit card, saving you from chasing payments in the first place.

Each of these payments will then filter into your clients’ tax returns, making the 31st January tax return deadline much easier.

Enhance security

Tax return and invoicing software also allows you to log all client income and expenses in the system. That means no more hoarding scraps of paper for your customers – instead, they can take photos of their expenditure and you can upload it to the cloud, where it’s secure and less likely to be stolen.

This is true of all client information in fact. As data processed online is governed by GDPR, customer information is often safer when stored on software as opposed to in your drawers. What’s more, they’re backed up in the event of data loss.

Be MTD-ready

Last but not least, going digital means you’ll be ready for upcoming legislation. Making Tax Digital (MTD) was a government initiative launched in 2019 to gradually digitalise the UK tax system. It started with MTD for VAT, which stipulated that VAT-registered businesses with a taxable turnover above the VAT threshold would need to digitalise their accounts by 2022.

Soon this will extend to all self-employed individuals with an annual income above £10,000. The reason for this is that the government believes, by using software to submit tax returns, there will be fewer avoidable mistakes. These mistakes cost the government £8.5 billion in 2018/19.

By adopting this software now, you’re able to effectively onboard all your paper-based clients well ahead of the MTD for Income Tax roll-out date. So, not only will you be compliant with the incoming legislation, but you’ll also benefit from a streamlined workload well ahead of your competitors.

It’s time to go digital

After 2020, accountants should be looking to add value to their service in a way that protects both the needs of their clients and the needs of their practice. Many sole traders will be reeling from the pandemic, and you’ll need to stress how your services are essential to their success.

Traditional bookkeeping won’t be enough. However, by digitalising your clients’ accounts, you can offer a more comprehensive solution. This doesn’t require any additional effort on your part. Simply by adopting tax return and invoicing software, you can start alerting them of opportunities to claim expenses and even simplify their payment request process.

About GoSimpleTax

GoSimpleTax is a secure cloud-based solution and it is officially- recognised by HMRC.

It includes partnership, non-resident and previous year returns. It has an easy to use interface and submits direct HMRC. GoSimpleTax are ready for MTD and the software shows the Tax liability in real time.  It has a simple dashboard allowing you to switch between clients easily.

AIA members receive a 25% discount on GoSimpleTax to receive your discount code sign-up here  (example 100 client submissions £187.50inc using discount).

With Making Tax Digital for Income Tax around the corner HMRC will be moving away from maintaining their own software. Now is the time to switch to digital.

Digital software helps those that need to submit a tax return keep on top of their bookkeeping. But that's just the beginning. We’ve asked Mike Parkes from AIA strategic partner GoSimpleTax to better explain the benefits.

1. It’s easy to use

Unlike the HMRC portal, the majority of digital tools are really easy to use. That’s their core selling point: simplifying your clients tax return process.

2. You can get tips on how to make savings

Opportunities to lower your clients tax bill are highlighted to you by some software providers. GoSimpleTax, for instance, can point out payments that qualify as allowable expenditure.

Not only does this help you save some cash for your clients, but it also helps plan your clients finances for the next year.

3. You can find out what you owe at all times

‘I always encourage our clients to file early. Why? Because filing early lets you know how much your tax bill will be in advance.’ Say a lot of accountants – getting this to happen on the other hand can be hard work. But even before you file, most digital software providers allow you to see an estimate of your clients bill at any time. They take the income and expenditure information that you input throughout the tax year and automatically calculate how much Income Tax they will owe in advance of any deadlines.

4. It’s MTD-compliant

While not a concern right now, come 2023, HMRC will expect you to have brought your clients tax return process online. As part of their Making Tax Digital (MTD) campaign, all sole traders and other Self Assessment users will be expected to file online in a certain way.

Failure to do so might result in a fine. But if you choose to use a digital tool to file, you can rest easy. Most of them are MTD-compliant and provide the crucial ‘digital link’ to HMRC.

Whatever platform you decide on, you and your clients will immediately recognise the benefit of using digital software to send tax returns instead of using HMRC’s own portal.

About GoSimpleTax

We have partnered with GoSimpleTax so you will be ready for Making Tax Digital for Income Tax, in the simplest most cost-effective way possible as HMRC moves away from maintaining their own software - this is the perfect time to switch.

GoSimpleTax is a secure cloud-based solution and it is officially- recognised by HMRC.

It includes partnership, non-resident and previous year returns.  it has an easy to use interface and submits direct HMRC. GoSimpleTax are ready for MTD and the software shows the Tax liability in real time.  It has a simple dashboard allowing you to switch between clients easily.

AIA members now receive a 25% discount on GoSimpleTax to receive your discount code sign-up here  (example 100 client submissions £187.50inc using discount).

Dreading January? As an accountant to self-employed sole traders, we’re going to guess that’s a yes – unless you’ve managed to file your clients Self-Assessment tax returns already… hats off to you if you have!

Getting this monumental task completed early is no mean feat. But it is possible to get through the tax season without experiencing a stressful sprint to 31^st January.

Here, Mike Parkes from AIA strategic partner GoSimpleTax explains how.

Gather all information soon

Don’t delay get the required data together off your clients now. Make a checklist such as the one below to ensure you have everything avoiding unnecessary delays. This aids you and your client if shared and updated between you.

Documents and Information Checklist. (suggested format)

Be sure to have yourself registered with the 64-8 form for new clients, to be officially recognised as their agent by HMRC so you can act on their behalf.

Remind your clients of what is required

You have shared your checklist of standard data required, but you may require extra information.

Perhaps your client has a student loan. Maybe your client (or their partner) are claiming Child Benefit. If there’s the slightest possibility your clients circumstances will affect how much tax they need to pay, you should be aware.

Make clients aware of possible penalties

Submitting the Self-Assessment late comes with penalties, so make sure your clients are aware of these and know how you will need to provide all the necessary data to ensure they avoid them.

Minimise errors with tax software

The chances of any mistakes can be reduced through Self-Assessment tax return software. It will take all the administrative work off your hands, ensuring the numbers are correct. Your client can also see their tax liability in real time, which should be an incentive not to leave it to the last minute!

Think ahead for Making Tax Digital – HMRC will not continue to maintain their own software

With MTD over the horizon begin converting your clients to a software such as GoSimpleTax and utilise their income tax calculator and submission tool for your clients business. Giving them full visibility of your tax liability in real time whilst giving and reviewing your pension contributions and investment opportunities.

About GoSimpleTax

GoSimpleTax is a secure cloud-based solution and it is officially-recognised by HMRC.

It includes partnership, non-resident and previous year returns.  it has an easy to use interface and submits direct HMRC. GoSimpleTax are ready for MTD and the software shows the Tax liability in real time.  It has a simple dashboard allowing you to switch between clients easily.

AIA members now receive a 25% discount on GoSimpleTax to receive your discount code sign-up here (example 100 client submissions £187.50inc using discount).

Whether you’re client is new or not to self-employment, record-keeping might sound like hard work to them – and certainly will be to you when they have days to spare for the deadline and cannot find ‘that receipt’. And while that may be true, it does come with its own reward – namely, that sole traders can claim back allowable expenses and pay less tax on their earnings.

HMRC has a number of rules about record-keeping though. Mostly, they relate to the storage of receipts and other documentation after you’ve filed your Self Assessment tax return for that tax year. By not adhering to them, your client can run the risk of losing out on any tax relief – or worse, being penalised by HMRC.

So, to ensure you get the tax-saving benefit of expenses, we’ve asked Mike Parkes from GoSimpleTax to set the record straight on record-keeping and provide guidance on how to help your clients claim.

What expenses can sole traders claim for?

There’s a whole host of expenses your client can claim as a sole trader, and they can potentially net them big savings if you utilise all that are available to you. Generally, people are aware that equipment purchases qualify as expenses, but there are many others.

They include:

Travel and accommodation

If your client is a sole trader they may have to cross up and down the country for long stints at a time, basing themselves near a site far from home. Luckily, HMRC considers hotel stays viable expenditure. The accommodation records (how long you’ve booked) should be as close as possible to the proposed timescale of the project you’re there to oversee. 

You can also claim tax relief on mileage or travel bookings made over the year, as well as meals on overnight trips. To ensure you stay within the bounds of eligible allowances, it’s worth consulting the gov.uk website.

Legal and financial costs

Your services as an accountant to support their venture, you can claim on their behalf your total costs. This may also be the case for any other professional services they may need for business purposes. Likewise, you can claim against bank costs such as overdraft and credit card charges. Costs like professional indemnity insurance premiums and lease payments can be claimed back, although there are rules if you’re using cash basis accounting.

Marketing costs

As your client is using these services purely for the purpose of driving their business forward, HMRC will permit marketing exercises as eligible expenses. That’s great news for sole traders who use flyers to drum up work, for example, or need a website that advertises their services.

Clothing Expense

While your client operates as a self-employed individual, they may also represent certain authorities when they’re caring for patients or vulnerable people. As a result, it may be expected to purchase a uniform or your own PPE.

Fortunately, you’re able to claim for it as an allowable business expense. Provided that what you’re purchasing is either a uniform or necessary protective clothing needed for your work, you’ll qualify for tax relief.

What’s more, if you need to purchase any additional PPE for your role (say, gloves and face masks), this is also considered an allowable expense.

Rent for premises

If your client rents a space purely for business purposes, then that too can be classed as an allowable expense.

Utilities

If your client works from home, you’re entitled to claim a proportion of the gas, electric, water, broadband and telephone bills as allowable expenses. There’s no exact science to this, but generally you’d divide the bill by the number of rooms in your house and then divide that figure based on the amount of time you work from home. The GOV.UK website has a good example. If that sounds too complex, then you can claim simplified expenses.

Subscriptions

If your clients freelance work requires you to pay a membership fee or would benefit from the purchase of a trade publication, these costs can be claimed back on. However, this does not extend to political party subscriptions.

These are just some of the examples of expenditure that you can claim on, but they highlight the wealth of opportunities available to all sole traders – provided they keep the relevant records. Claiming these expenses through your clients Self Assessment tax return helps to further reduce their tax liability and maximise their take-home pay.

What records should be kept?

In order to qualify for tax relief, your clients need to be able to present receipts when asked by HMRC. But to be wholly compliant, expenses aren’t the only figures you’ll need to report. In fact, if you’re self-employed, you’re legally required to keep records of the following:

• All sales and income
• All business expenses
• VAT records if you’re registered for VAT
• Records about your personal income
• Your COVID-19 support grant

You won’t need to submit all of the above as part of the Self Assessment tax return. However, HMRC may ask you for them should they launch an investigation. Additionally, it helps you to work out your clients taxable income when filing.

If HMRC does launch an investigation, you’ll need to provide evidence of your clients finances. This will need to come in the form of:

• Receipts for goods and stock
• Bank statements and chequebook stubs
• Sales invoices, till rolls and bank slips

Only with all of the above will you be able to safely claim any relevant expenses and stay on the right side of the taxman.

How long should records be kept?

Where businesses have to store receipts for six years, sole traders are only required to store theirs for five. That’s at least five years after the 31st January submission deadline of the relevant tax year.

This allows HMRC to investigate your clients accounts over a long period of time should they believe it necessary. Obviously, if you have claimed relief but misplaced the evidence, you may be penalised by HMRC all the same. So it’s best to tell your clients to invest in more than a wallet or a desk drawer for your receipts.

Where should records be stored?

Ideally, electronically. Train tickets and similar paper receipts are near impossible to keep in good quality for that length of time – especially if your client is lugging them around for up to five years in their coat pocket. You could have a physical filing system, but the amount of admin that would be required to keep it in order could quickly get exhausting.

Tax software, on the other hand, allows your clients to store certain documentation online. Some allow users to take photos of receipts from their phone, for instance. They can then upload the image to the app, keeping it secure in case you ever find yourself under investigation.

However, it’s worth bearing in mind that there are documents that HMRC will expect you to hold on to in their original form. Such documents usually show that you’ve had tax deducted. For example, if you’ve been an employee in that tax year, your P60 will prove your exemption.

Are you conscious you will not be able to use the government gateway for MTD for income tax?

GoSimpleTax software submits directly to HMRC and is the solution for accountants and sole traders alike to log all their income and expenses. The software will provide you with hints and tips that could save you money on allowances and expenses you may have missed.

Trial the software today for free - add up to five income and expense transactions per month and see your tax liability in real time at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading.

AIA members receive a 25% discount – to get your discount code simply sign-up to try our software above and it will be emailed to you. Volume Discounts are available.

Further more, AIA members who sign up to try the software throughout September and October 2020 will be eligible for a free one to one session providing an insight to our software and answering any questions you may have – sign up now www.gosimpletax.com/tax-aia.

The paper return deadline is this month, 31^st October, therefore we thought it would be useful to invite Mike Parkes from GoSimpleTax to explain how best to prepare your clients for the Self-Assessment tax return submission and file with confidence.

If your clients are new comers to submitting Self-Assessment tax returns, they should understand it pays to know that there are three ways of filing. Firstly, you can submit via the HMRC site and receive instant acknowledgement post-submission. You can also use commercial software to do this for you. Or, you can send a paper tax return to HMRC in the post.

Whichever method they choose, it’s important to understand their exact responsibility. For those who are self-employed sole traders or Landlords letting out UK property, paper submissions can be complicated as they involve additional forms and documentation.

1. Be conscious of the deadline

Should your client choose to file a paper tax return, don’t forget to file before the 31^st October deadline. We would recommend sending their paper submission prior to the October deadline, either through recorded delivery or with some proof of posting in order to prove your compliancy.

If they miss the deadline for submitting their paper return, don’t be tempted to file it late – you have until 31^st January to complete one online. Just don’t submit both. You will be charged penalties from the 1^st February for any late submissions.

2. Organise supplementary pages

Remember, it isn’t enough to submit the main SA100 tax return. Your client needs to bundle it together with the rest of their documentation that references their property or self-employment income.

For any income as a landlord, all that’s required is to file an additional form (SA105) and submit it alongside their regular Self-Assessment tax return.

However, with self-employment, the additional sections required of your client could be either the SA103S or the SA103F. The difference between the two is that the former is for those who had an annual turnover below the VAT threshold for the tax year (£85,000 as of 2019/20), and the latter is for those who earn above the VAT threshold.

3. Be open to online and prepare for Making Tax Digital for Income Tax

While your client may have historically always submitted their tax return by paper, the vast majority of tax returns are now submitted online. Improvements in technology and the extra three months to file are the main incentives to submit an online tax return.

Having an online account with HMRC allows you to not only extend your filing deadline but also check your details at any time to see how much tax is due and act accordingly.

If your client is happy to tweak the way in which they keep their records and adopt digital record-keeping, this will help minimise admin further, as well as enable you to submit their tax returns and automatically calculate the tax.

Going forward as of April 2023 your client will have to file their self-assessment digitally to HMRC providing updates every quarter via a digital platform.

Preparation is key, adopt the right approach now it could save both time and money, make the move to digital ahead of the deadline for MTD for Income Tax.

About GoSimpleTax

Trial the software today for free - add up to five income and expense transactions per month and see your tax liability in real time at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading.

AIA members receive a 25% discount – to get your discount code simply sign-up to try our software above and it will be emailed to you. Volume Discounts are available.

Further more, AIA members who sign up to try the software throughout October 2020 will be eligible for a free one to one session providing an insight to our software and answering any questions you may have – sign up now www.gosimpletax.com/tax-aia or contact leeanne.ogden@gosimpletax.co.uk

Provided your clients are VAT-registered and have a taxable turnover above the threshold, you’ll be expected to assist in their MTD compliance. For the most part, you’ll need to help clients ensure that their VAT records are in a digital format. This will mean an end to any paper-based bookkeeping.

What VAT information must be stored digitally for MTD?

The VAT Notice 700/22 specifies that the following information must be kept, maintained and preserved in digital form:

1. Business name
2. Address of principle place of business
3. Supplies made by third party agents
4. VAT registration number
5. VAT accounting scheme used
6. Supplies made - including the time of supply (tax point), value of supply (net of VAT amount) and rate of VAT charged
7. Supplies received - including time of supply (tax point), value of supply (net of VAT amount) and value of input tax being claimed

The following information has more specific rules surrounding it:

1. Use of supplier statements 

HMRC will accept totals from supplier statements, rather than individual invoices - however their preference is the latter.

2. Petty cash transactions

Regarding petty cash transactions, businesses can record these as a total value and total VAT. This applies to individual purchases of less than £50 - subject to a maximum of £500 (including VAT) per entry.

3. Supplies received by third party agents

You only need to record the details once you receive the information from the agent. If this is sent as a summary, you can treat it as one invoice for record-keeping purposes.

4. Charity fundraising events

When it comes to charity fundraising events, record-keeping can be hard. HMRC will accept all supplies made recorded as a single transaction. The same applies to supplies received.

5. Reverse charge transactions

If your software records reverse charge transactions, you are not required to submit separate entries for supply and purchase. If your software does not record reverse charge transactions, you will need to record these twice - once as a supply made and once as a supply received.

6. Summary data

HMRC require the following summary data to be recorded:

• Output tax owed on sales
• Output owed on purchases from EU member states
• Tax required to pay as a result of reverse charge rules
• Input tax claimed on purchases
• Input tax allowable on purchases from EU member states
• Total VAT due, or refund claimed after all adjustments
• Any adjustments required or allowed by the VAT rules 

7. Adjustments

If your client adjusts their VAT amount in line with existing VAT rules, they must log that adjustment within their chosen compatible software. There’s no obligation to log the calculations behind each adjustment, simply the total change to the VAT amount – however, storing calculations somewhere will assist against any future audits. The calculations you make using the HMRC tool can be stored however your client prefers.

8. Correcting Errors

You can correct errors that are not deliberate, below the reporting threshold of £10,000 or for an accounting period that concluded less than four years ago. However, it’s important to ensure that the correcting adjustment is recorded in the compatible software.

Everything not covered above can be stored either digitally or on paper. These include:

9. Flat Rate– Under this scheme, businesses don’t need to keep a digital record of purchases unless classed as capital expenditure goods (where input tax can be claimed). 
10. Retail– If your client accounts for VAT using a retail scheme, they must keep a digital record of their Daily Gross Takings (DGT). They aren’t required to keep a separate digital record of supplies that make up DGT – just the DGT itself.

11.Margin Schemes - You are not required to keep the calculation of the marginal VAT charged digitally. However, you will need to keep a record of the adjustment made to the VAT calculation digitally. You are still required to keep the normal records associated with Margin Schemes.

What’s important is that your client has complete understanding that while not all of the above requires logging into their MTD compliance software, refusing to include certain calculations will harm them in the face of an investigation.

Recently, there has been a wave of interest in self-employment, as accountants you may have taken on some new clients. It makes sense, COVID-19 has proven that a large number of industries perhaps aren’t as resilient as once thought. And if you can achieve self-sustainability and climb your own ladder, why not try to do it now?

But while it’s exciting to build something of your own, you need to make sure you’re square with HMRC. To help, we’ve asked Mike Parkes from GoSimpleTax for his guidance. Here, he walks you through everything you will need to know about tax when working for yourself.

Register with HMRC

First things first, your client may need to set up as a sole trader. This involves the fun task of deciding on their business name.

Then, provided that they earned more than £1,000 in the last tax year, they need to register for Self Assessment with HMRC. It’s not an immediate legal requirement, although you will have to be registered by the 5^th October of your second tax year. If you aren’t, they risk being penalised by HMRC.

To register, there are one of three forms they will need to fill out depending on the circumstances in which they are entering self-employment:

• Going self-employed for the first time and have not previously filed a Self Assessment tax return
• Going self-employed for the first time and have previously filed a Self Assessment tax return
• Registered as self-employed previously

All three forms can be found on the GOV.UK site.

For those who have not submitted a Self Assessment tax return before, they will be sent a 10-digit Unique Taxpayer Reference (UTR) number following their initial registration. The UTR will subsequently be requested of you in almost all interactions you have with HMRC moving forwards. It takes up to 10 days to arrive in the post, so don’t leave their registration to the last minute or they will run the risk of missing the Self Assessment deadline.

Know your expenses

When it comes to your clients Self Assessment, trust me when I say that expenses can make all the difference between being profitable… and being less so.

Now, we all know that sole traders can claim for some of their tools, travel and home office equipment. But what you might not know is that you can also claim for pre-trade expenses – in other words, items you purchased before trading to get your business to a point where it could open successfully.

This includes expenditure like:

• Advertising – Your business won’t survive on word of mouth alone, so be sure to hold on to receipts of any offline or online media spend you invest in.
• Rent for premises – If you rent a space purely for business purposes, then that too can be classed as an allowable expense.
• Insurance – Whether it’s employers’ liability insurance or public liability insurance you’re after, both can equally be covered by expenses.

What’s more, these pre-trade expenses may include items your client own privately that they are now going to use within your business, like a laptop.

Claiming these expenses through the Self Assessment tax return helps to further reduce your clients tax liability and maximise their take-home pay.

Keep records

Of course, you can’t claim anything if you don’t have accurate and up-to-date information off your client. And this isn’t just for the purposes of  expenses either. As a sole trader, they are obliged to keep clear records of all business transactions.

That means receipts, invoices and bank statements all need to be available should the taxman require them to be presented when under enquiry or investigation. Yet there are added benefits of doing this: it makes filling in the Self Assessment tax return easier, and keeps you aware of any opportunities to reduce your clients tax exposure.

What’s more, tax software like GoSimpleTax makes record-keeping easy. With us, your client has the option to take a photo of their paper receipts and upload them to the platform so you as their accountant has all the paperwork when you need it.

About GoSimpleTax and Your AIA Member Discount

With GoSimpleTax software you can avoid being caught off guard in January by working out your clients tax liability ahead of time.

Their award-winning platform lets you log your income and expenditure in real time, and uses this information to automatically calculate your tax bill.

AIA members visit www.gosimpletax.com/tax-aia to claim your 25% discount or check out the new freemium version of the software.