GoSimpleTax

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).

If your clients are self-employed, the latest U-turn in government policy could well benefit them. Instead of ending on the 1st October 2020, the Self-Employment Income Support Scheme (SEISS) is extending to April 2021.

This extension is taking the form of two grants: one covering the period between November 2020 to January 2021, and the other from February 2021 to April 2021. By extending the support, the government is acknowledging the contribution that the self-employed and sole traders make to the UK economy and how important it is to keep them afloat.

So, to help your clients get the most out of SEISS and ensure the success of their business, we’ve asked Mike Parkes from GoSimpleTax to explain the extension and how you can help your clients claim it.

What is the SEISS?

As you will be fully aware the SEISS is a series of taxable government grants for self-employed individuals. It was set up to support self-employed workers whose earnings have been adversely affected by COVID-19.

The scheme opened to applications of its first grant on the 13th May 2020. Successful applicants could get either £7,500 or 80% of their average monthly profits over the 2016/17, 2017/18 and 2018/19 tax years (whichever was the lower amount). The second phase involved a grant worth 70% of average monthly trading profits. It was paid out in a single instalment covering three months’ worth of profits, and capped at £6,750.

What’s the value of the latest grant?

The third one (1st November 2020 to 31st January 2021) offers 80% of three months’ average monthly profits up to a total of £7,500. This is the same value as the first grant.

How will clients know if they are eligible?

The majority of the terms to the latest grant are the same as the first two. However, there’s one new requirement regarding reduced demand.

To make your clients application easier, I’ve listed each one below:

• You must declare that you’ve been impacted by reduced demand due to COVID-19 – This is the new term and it means that you can make a claim on the basis that you were previously trading but are temporarily unable to do so due to coronavirus.

• You must have filed a tax return for 2018/19 – In other words, you need to have been self-employed prior to 6th April 2019.

• You were eligible for the first and second SEISS grants – Although you do not have to have made a previous claim for these earlier grants.

• You must earn more than 50% of your total income from self-employment – HMRC will check this on your 2018/19 tax return. If you’re not eligible based on the 2018/19 tax year alone, they’ll review tax years 2016/17, 2017/18 and 2018/19 to see if your average profit across three years was more than 50% of your total income.

• You must be actively trading – You need to declare this to HMRC when you apply, and must intend to continue trading post-pandemic.

• Your average trading profit must be less than £50,000 – Any applicants earning more won’t be eligible.

Remember, your clients are still able to apply even if they didn’t apply for the previous two grants. Likewise, your clients may keep working after claiming the grant. You and your clients just need to prove that they were impacted by reduced demand during the pandemic.

How do my clients claim?

It’s simple, all your clients need to do is visit the official government claims portal. Applications for the third grant open on the 30th November, but it is possible to create a Government Gateway account in the meantime. This will streamline the process when applications open. 

This grant is arguably the best opportunity for sole traders to keep their businesses going through the uncertain times ahead. It’s unclear if the fourth grant will be as generous, especially if lockdown has eased by the time applications open.

Please note that these grants are subject to tax and national insurance and need to be included as part of the self-employed income on your clients 2020/21 tax return.

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.