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This guide provides basic information about completing Self Assessment tax returns if you’re a minister of religion. That could mean you’re a vicar, reverend, priest, rabbi, imam or other religious leader or person acting on behalf of a faith or church, mosque, synagogue, temple, etc.

You’ll be able to find out about:

  • the SA100 tax return and SA102M supplementary page
  • tax expenses that you can claim as a minister of religion
  • how to complete and file your minister of religion tax return
  • further sources of information and guidance.

Reporting taxable income as a minister of religion

When reporting taxable income to UK tax authority HMRC, ministers of religion must complete the SA100, the main Self-Assessment tax return, which is eight pages long.  The most relevant income sources that need to be given are likely to be investment and pension income, but there could be other taxable sources.

On page 4 of the SA100, reliefs can be claimed for pension contributions that are not deducted from stipend (ie fixed regular sum paid as a salary or expenses to ministers of religion) through PAYE, as well as Gift Aid payments and Blind Person’s Allowance (if relevant). 

Ministers of religion must also complete the SA102M supplementary page to report their income and expenses as a minister. Taxable income can include:

  • salary, fees, commissions, overtime, bonuses and other contractual payments, even if you’ve paid some of it to a charity
  • fees and offerings for performing your minister duties
  • gifts and grants you receive because you’re a minister
  • Statutory Sick, Maternity, Paternity or Adoption Pay paid by an employer.

HMRC uses the information you provide within your tax return to work out how much tax you owe. You’ll need to fill in separate SA102Ms for each ministerial post held in the tax year (ie 6 April until the following 5 April). 

Need to know! There is an alternative four-page short Self Assessment tax return (the SA200) for use in less complex cases, which may better suit retired ministers. However, you should only use it if told to do so by HMRC.

Paper or online Self Assessment tax return?

Very few Self Assessment taxpayers (about 4.4%) continue to complete and file paper Self Assessment tax returns. Even if you’re experienced, filling them in is a tedious, time-consuming task, where mistakes can be more likely, and there are no prompts to help you.

Filling in and filing your minister of religion tax return online can save you lots of time and effort, with mistakes less likely. However, you cannot file your tax return online via the HMRC website – you must use commercial software. That’s likely to only cost about £50 a tax year, which can be a price well worth paying for the benefits and added convenience  that it brings.

Need to know! Automatic prompts from the software tell you what information you need to enter and where it should go, which provides additional peace of mind, while helping to ensure that you don’t pay too much tax.

When must ministers of religion submit their tax return?

  • If you file your minister of religion tax return online, you must do so before midnight on the 31 January, following the end of the tax year to which the return refers. The UK tax year always ends on 5 April.
  • It can be filed any time after 5 April, you do not have to wait until 31 January. In fact, your life will probably be much less stressful if you complete and file your minister of religion tax return much sooner.
  • Another reason to not file a paper tax return is the filing deadline is earlier. Paper tax returns must be filed before midnight on 31 October following the end of the tax year (5 April) to which the tax return refers.
  • If you file your tax return after the deadline, immediately you’ll have to pay a £100 fine. After three months, another fine is payable.

How to work out your taxable income as a Minister of Religion

When completing your Self Assessment tax return, you can find out what you’ve earned and the tax you’ve paid from your P45 if you’ve left employment (eg if you’ve recently retired) or from your P60 if you’re still employed.

Other taxable income ministers receive that they will need to summarise in their SA100 if it is subject to tax can include casual fees, pension payments and investment income.

  • If a minister receives taxable income from rented out property or land, they will also need to file an SA105 supplementary page, summarising taxable income and expenses claimed.
  • If a minister receives taxable capital gains within a tax year, for example, after selling a property that is not their main home, they will also need to complete a SA108 form and submit it with their SA100 and SA102M.

Need to know! If you received any benefits or non-exempt expenses payments, you’ll need to include them in your SA102M. This can include rent and utilities you’re reimbursed. Your church/mosque/synagogue/temple will provide you with details via form P11D (ie a tax form filed by employers to report benefits provided and expense payments made to employees that are not put through the business/company payroll).

What allowable expenses can Ministers of Religion claim?

Allowable expenses you may be able to claim include:

  • private rent not paid by the church/mosque/synagogue/temple
    • private heating, lighting, repairs and maintenance costs
    • replacing robes worn for service
  • new ceremonial items
  • ceremonial food and drink
  • religious minister training
    • subscriptions that enable you provide a better service
    • journeys from one place of work to another
    • secretarial assistance for your duties
    • reasonable entertainment costs for visiting clergy members
    • postage and stationery.

Need to know! Separating expenses into a ‘self-paid’ and ‘reimbursed’ list will make completing your Self Assessment tax return much easier, which will be even quicker and simpler if you use tax return software.

How much rent can Ministers of Religion claim?

The maximum amount of rent you can claim as a minister is 25% of the total cost. You may work in a home office, for example, or perform other duties in your home, for which you can claim allowable expenses to reduce your tax bill.

You’ll need a reliable method of working out what proportion or percentage of your total rent you can claim, if not paid by a church/mosque/synagogue/temple. This should be based on the total number of rooms. So, for example, if you live in a house with six rooms and use one room for your ministerial work (ie admin, study, research, etc) eight hours a day, you charge for a sixth of your total rent divided by three.

Example:

Total yearly rent:                                      £1,500 x 12 = £18,000

Divided by number of rooms:                    £18,000 divided by 6 = £3,000

Used for eight hours a day:                       £3,000 divided by 3 = £1,000

Allowable expenses claim for rent =           £1,000 a year.

Other domestic costs for electricity and other things are allowable and can be added, claimed on the same proportional basis, which would further reduce your tax bill. But as stated, you cannot claim more than 25% of your total rental costs for rent as an allowable expense.

What is the service benefit cap?

If you receive payments, services or goods on which tax has not been charged, these are “benefits in kind”. If they relate specifically to your accommodation, they’re called service benefits. They can include tax-free reimbursement for heating, lighting, cleaning and gardening costs, or repairs, maintenance, decoration, furnishings or domestic appliances that were your responsibility, but which were paid for or provided by someone else.

If the income from the post where a service benefit came is less than £8,500 within the tax year, no tax is payable. This is the service benefit cap. If it is more than £8,500, tax is payable. It will be charged at the total value of the service benefit or 10% of your net earnings from the post, whichever is lowest. You’re responsible for doing this calculation when filling out your SA102M.

Do ministers need to pay someone to fill in their tax return?

Depends on how complex your tax affairs are – in most cases not. If your tax affairs are relatively straight-forward, you should be able to fill in your own tax return and supplementary pages (most people do it in a few hours, if all of the necessary figures are to hand).

Using Tax return filing software makes the job much simpler and quicker, with mistakes much less likely. If your tax affairs are more complex (or they are in a particular tax year), paying for tailored tax advice can be worthwhile. Not only can it prevent overpayment of tax, but it can also ensure that you comply with requirements.

 

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

It’s one of those scenarios that landlords dread: an unexpected phone call, email or text from a tenant to deliver news of unwanted guests. Sometimes they’re furry; some have wings; while others are creepy and crawly. They can be really unpleasant and affect people’s health and happiness.

Domestic, residential or household pests come in many shapes and sizes, but doing nothing isn’t an option, as they usually don’t go away without some encouragement. So, what are the UK’s most common household pests and how do you get rid of them? Who is responsible for sorting out domestic pest issues and who pays the bill?

Read on for answers to these key questions and to learn more essential facts about domestic pests and how to remove them. Those of a nervous disposition might want to look away…

The importance of pest control

According to the British Pest Control Association (BPCA): “Pests [can]: contaminate homes and workplaces and spread disease; damage possessions and get into your foodstuffs; damage property, cause fires and flooding.” If there’s a pest problem in your rental property or own home, the BPCA says taking action is essential.

Although many household pests are pretty harmless, others potentially threaten human health. The BPCA explains: “Insects, rodents and birds can easily contaminate food and work surfaces with their excreta, hairs or body parts. These are potential pathogens that spread disease. Parasites carried by pest species can also be passed on to humans, causing illness and stress.”

Need to know! It can be an offence in the UK to disturb, damage, destroy or prevent access to a place a bird, animal, bat or insect uses for shelter or protection or breeding. And you can be fined or even imprisoned if you cause unnecessary harm to any animal.

Responsibility for rental property pest control

As explained on the Citizens Advice website (which is aimed at tenants): “Your landlord will probably be responsible for dealing with an infestation if:

  • your tenancy agreement says they’re responsible – or it says they will keep your home in a ‘good and habitable state’
  • the infestation was caused by your landlord not making certain repairs to your home, for example, not fixing holes in walls.

“Your landlord might also be responsible for dealing with an infestation if it means your home isn’t safe for you to live in, for example, if it’s making you or your family ill.”

Landlords are legally obliged to make sure that their properties are fit for human habitation, which includes eliminating household pests. On hearing from your tenant, you must arrange a visit from a pest control company or the local council within a “reasonable” amount of time. It’s in no one’s interest to allow the matter to drag on. While it’s not fair on tenants, leaving problems to worsen can ultimately increase costs significantly.

If you don’t act in a reasonable amount of time, a tenant can report you to the local council’s environmental health department and tell them that their health is being affected, and environmental health people can order landlords to sort out household pest problems. Ultimately, a tenant can take legal action against a landlord for not carrying out a repair or addressing a serious household pest infestation.

Need to know! Tenants are responsible for making sure their actions do not attract pests, for example, by leaving food or rubbish exposed outside so that it attracts foxes, rats, flies, etc. Landlords are not responsible for pest problems caused by a neighbouring property. Neighbours should be contacted immediately and asked to sort out issues for which they’re responsible 

Common UK household pests – six of the worst

1 Rats

Rats are the least-welcome domestic pests. They can carry many horrible diseases and spread them through their urine or bodies coming into contact with food and food-preparation surfaces. Rats can cause significant damage by gnawing through breeze blocks, wood, metal and wiring. Their presence is given away by droppings or the sound of their scurrying feet (normally in autumn and winter after dark).

Traps and poisons are used to remove rats, although they’re clever, wary creatures, so professional assistance is usually required. Professionals will try to exclude and trap before using poison, while a wide range of humane pest traps and other non-lethal solutions are available.

2 Mice

Mice may be cuter than rats, but most of us still don’t want them in our homes. Mice do not hibernate, so they can be a problem throughout the year. Via their urine and droppings, mice can spread Salmonella and Listeria to humans, which is why you don’t want them anywhere near where you store or prepare your food.

They too like to gnaw through electric wires, which can cause fires. To prevent problems with mice, try to identify and seal up potential entry points. This is no easy job because mice only need a gap of 6mm to gain entry. Using mouse traps and over-the-counter poisons may bring some success, but, again, professionals are more likely to end your rodent nightmare.

3 Ants

Ant infestations can be a serious problem during summer. They’re normally attracted by food, so advise your tenants to not leave any around. Entry points should also be sealed up, while some experts recommend mixing boric acid, sugar/syrup and hot water and leaving it near to the entrance to nearby ant nests. Ants feed on it and then transfer the poisonous mixture to the queen and other ants. Over-the-counter solutions are available in shops, but caution is advised with all poisonous substances. Natural ant repellents are believed to include cinnamon sticks, coffee grinds, chili pepper, paprika, cloves, lemon juice or dried peppermint left near to entry points.

4 Wasps

Problems with wasps are common in the warmer months and they can be severe if they’ve made a nest inside your property. Wasp stings are obviously very painful, but some people can experience a potentially life-threatening allergic reaction. Using a professional pest controller is advised. They’ll treat the entry to the wasp nest with a pesticide, which will do the trick within a few days. The nest can then be removed.

5 Cockroaches

Cockroaches carry Salmonella, Dysentery and Gastroenteritis, which pose significant health risks to humans. Reportedly, increases in eczema and asthma have been linked to cockroach droppings. According to pest controller Rentokil: “Cockroaches are tough insects and their ability to breed rapidly makes professional treatment essential to control infestation. Only expert products and solutions are powerful enough to eliminate all stages of their lifecycle.”

6 Bed bugs

Bed bugs are flat, oval-shaped insects which are dark yellow, brown or red in colour. They feed on human and animal blood and adults are about 5 mm long. As explained on the NHS website: “Bed bugs hide on bed frames, mattresses, clothing, furniture, behind pictures and under loose wallpaper. Signs of bedbugs include: bites – often on skin exposed while sleeping, like the face, neck and arms; spots of blood on bedding – from the bites or from squashing a bedbug; small brown spots on bedding or furniture (bed bug poo).” Bed bug bites make skin feel itchy, but more serious health problems are uncommon. Because they’re hard to find and resistant to insecticides, getting rid of bed bugs really is a job for professionals.

Can your local council help?

It can be worth contacting the local council to find out about their pest-control services. They tend to have a call-out charge and an additional set price menu for various pest control solutions. Some councils don’t provide services for all household pests, in which case you’ll need to contact a pest-control company.   

Finding a pest controller

You can visit the BPCA website to search for BPCA-approved pest controllers in your area. To be a BPCA member, companies must be regularly audited to the British Standard for pest management and have fully-qualified technicians. “You’ll get detailed pest prevention advice and a proper survey before [you get] a final quote,” says the BPCA.

Claim tax expenses for household pest control

  • Tenants shouldn’t be charged for pest control treatments where it’s the landlord’s responsibility. Normally, tenancy agreements have a clause covering pest control, explaining tenant and landlord responsibilities.
  • Most tenancy agreements stipulate landlord responsibility for ensuring that the property remains habitable, but that the tenant is also responsible for keeping a property clean and for mitigating risk of pest infestation.
  • Thankfully, all pest control costs can be claimed as an allowable expense, they can be deducted from rental income. You claim via Self Assessment by including pest control as an allowable expense within supplementary page SA105, which you file together with the main tax return, the SA100 to report income and other tax expenses and allowances.
  • Retain proof of all pest control costs, because HMRC can ask to see proof after you’ve claimed them via your Self Assessment tax return.

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

More than 120,000 expat Brits are reported to live in Dubai, the UAE’s second-largest emirate (Abu Dhabi is the biggest). Many are attracted by Dubai’s sunny climate, as well as its family-centred, clean and safe environment (serious crime is almost non-existent).

The beaches are beautiful, and while its traditional Arabic heritage remains, Dubai is a multicultural metropolis with modern infrastructure and awesome architecture, including the world’s tallest building (the 830-metre-high Burj Khalifa) and the largest shopping mall on Earth (shopping is another reason why people love Dubai).

Dubai attracts about 14.3m international visitors each year and about 1.5m of them are from the UK. Many Brits continue to relocate to Dubai, attracted by excellent career opportunities, a tax-free salary and a higher standard of living. If you’re thinking about moving to Dubai, you’ll probably be wondering about visas and how much tax you’ll pay.

Which visa to live in Dubai?

  • Freelancers, the self-employed and skilled employees can apply for a UAE Green Visa, a residency visa that enables someone to sponsor themselves for five years, they don’t need sponsorship from a UAE national or employer. The Green Visa is renewable for five more years upon expiry.
  • Freelancers or self-employed people must get a permit from the Ministry of Human Resources and Emiratisation (MHRE). They also need proof of their degree or diploma, as well as evidence of self-employed income for the previous two years of at least 360,000 UAE Dirhams (about £77,000), or proof that they have enough money to sustain their stay in the UAE.
  • Skilled employees must have a valid employment contract, salary of at least 15,000 AED (£3,200) a month, a degree or equivalent and their occupation must be of a sufficiently high professional level according to the MHRE.
  • A two-year standard employment work visa is available to those coming to work in the UAE’s private sector. The employer applies for this.
  • Over-55s who wish to retire in the UAE can apply for a five-year Residence Visa, which is renewable, although they will need significant property assets or income.

Telling HMRC that you’re moving to Dubai

You must tell UK tax authority HMRC if you’re leaving the UK to live abroad permanently or going to work abroad full-time for at least one full tax year (6 April to 5 April). This applies to Dubai, of course.

If you don’t normally complete a Self Assessment tax return and you’ve already left the UK, you need to fill in form P85 online. If you’re still in the UK, fill in form P85 offline and include Parts 2 and 3 of your P45 form (get these from your employer).

If you usually complete a Self Assessment tax return (eg because you’re self-employed or a landlord), you’ll also need to complete the ‘resident’ supplementary page (form SA109) to report your residence and domicile status once you’re living in Dubai.

You must use commercial software to file all forms – you won’t be able to do it online via GOV.UK (it’s not available to people who live outside the UK). Alternatively, you can get a UK-based accountant to do it for you, but you’ll have to pay a fee. Doing it yourself is cheaper and reasonably easy. HMRC will let you know if you’re owed a refund for the tax year during which you left the UK.

If you don’t normally submit a tax return, you’ll first need to register for Self Assessment by 5 October following the tax year in which you had taxable UK income, otherwise you could be charged a penalty.

Need to know!

You also need to let your local council know if you’re leaving the UK to live in Dubai or anywhere else, so that you’re not charged Council Tax (if applicable). Your UK citizenship will not be affected by moving and you can usually vote in UK elections.

Paying tax if you’re non-resident

If you’re “non-resident” in the UK for tax purposes, no UK tax is payable on any income or gains that you earn or make in Dubai.

  • You’re usually non-resident for UK tax purposes if you: spent less than 16 days in the UK (or 46 days if you have not been a UK resident for the three previous tax years); worked abroad full-time (averaging at least 35 hours a week) and spent less than 91 days in the UK and no more than 30 of them were spent working.

Although there is no Income Tax in Dubai, you’ll need private medical cover – it’s a legal requirement. If applicable, your employer must provide basic health insurance, but that doesn’t extend to dependents (eg a spouse or children) and it comes from deductions from your salary. If you work for yourself or don’t work, you’ll need to sort out your own private medical cover.  

If you’re non-resident in the UK for tax purposes because you’ve moved to Dubai, UK tax may be payable on income earned in the UK. Taxable UK income can include:

  • pension payments
  • rental income
  • savings interest
  • wages from UK employment.

Need to know! If you don’t claim any tax expenses, you do not pay tax on the first £1,000 of UK property rental income or income from UK self-employment. 

How much UK Income Tax will you pay?

If you’re eligible for the tax-free Personal Allowance (you don’t get it if your taxable income is more than £125,140 a year), you won’t pay tax on your total UK taxable income until it is more than £12,570 (2023/24 figure) in a tax year.

You pay tax on your profit, which is the amount of UK income that remains once tax expenses or allowances have been deducted. If you rent out more than one UK property, the profits or losses from them all are added together to arrive at a total figure and you will be taxed on that basis.

The amount of UK Income Tax you pay is determined by the Income Tax band into which your total UK taxable income falls.

  • The basic rate (20%) is payable on annual UK taxable income between £12,571 and £50,270.
  • The higher rate (40%) is payable on annual UK taxable income of between £50,271 to £125,140.
  • The additional rate (45%) is payable on annual UK taxable income over £125,140.

You may be able to claim a range of tax reliefs and allowances to reduce your taxable UK income. Income Tax is no longer automatically taken from interest on savings and investments. Non-residents do not usually pay UK tax on the UK State Pension or interest from UK government securities (ie gilts).

How to report your taxable UK income from Dubai

If you live in Dubai (or elsewhere overseas) and receive taxable income from UK property or have other taxable UK income to report to HMRC, you must fill out and file a Self Assessment tax return (SA100), as well as the resident supplementary page (the SA109 form) to report your residence and domicile status.

  • If you have UK taxable rental income to report, you’ll also need to fill out and file the SA105 form.
  • If you have taxable UK income from self-employment, you’ll also need to fill out and file the SA103 form.
  • You may have to file other supplementary pages, depending on your income sources.

You can’t use HMRC’s online services to file your Self Assessment tax return and any supplementary pages if you’re living in Dubai (or anywhere else overseas). You can either fill out your forms by hand and send them by post, get a UK-based tax professional to do it for you or you can use commercial Self Assessment filing software, which is a cheaper option and it’s simple enough.

  • The filing deadline for a paper Self Assessment tax return is midnight on 31 October following the end of the tax year to which the tax return refers.
  • The UK tax year runs from 6 April until the following 5 April.
  • If you use filing software and choose to file online, the deadline is midnight on 31 January following the end of the tax year to which the tax return refers.
  • Another key advantage of using filing software is you get more time (ie three months) to complete your Self Assessment tax return.

More on paying UK tax on UK rental income

If you earn more than £1,000 from renting out property in the UK, it can be subject to Income Tax, once your taxable income goes over the Personal Allowance (£12,570 a year in 2023/24). Capital Gains Tax can also be payable if you make a “chargeable gain” (ie after selling you get more than the amount you paid for the property or land).

If you live outside of the UK for six months or more a year, HMRC classes you as a “non-resident landlord”, regardless of whether you’re a UK resident for tax purposes or not. You can choose to get the full amount of rent from your tenant(s) and pay tax on it via Self Assessment. If so, you need to apply by filling out the NRL1i form and sending it to HMRC.

The other option is for the tax to be deducted by your letting agent or tenant, who will pay it to HMRC on your behalf. They will deduct the basic rate tax from the monthly rent (minus any expenses if an agency) and give you a certificate at the end of the tax year detailing the tax they’ve deducted.

You’ll need to keep accurate records of your rental income and expenses, because HMRC can ask for proof of the Self Assessment figures you report. You must keep your records for at least five years after the filing deadline for each tax year.

Need to know! If you report your UK rental income via Self Assessment from Dubai, as a landlord, you can claim a range of “allowable expenses” to cover things you pay for to rent out your property. Claiming these can reduce your UK tax bill significantly. Visit GOV.UK for official guidance on paying UK tax on UK property rental income.

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

Register as a sole trader or set up a limited company? It’s a key question to answer when you decide to take the plunge and start your own business because your decision can have major implications.

And even after making a choice, with your business firmly established, every once in a while, you should crunch the numbers to work out whether the legal form you chose is still the right one for you and your business, whether that’s sole trader or limited company.

Sole trader v limited company: what’s more common?

  • When people “go self-employed” or start their own business in the UK, most become sole traders. It’s by far the most popular small business legal structure. Sole traders make up more than half (56%) of the UK’s 5.5m small-business population, which amounts to about 3.2m businesses.
  • In addition, there are some 384,000 (7%) ordinary/general business partnerships, which (tax-wise) is like being a sole trader, but you run a business and share responsibility with a partner or partners.
  • Others choose to “incorporate” (ie register) a private limited company and there are about two million (37%) of them in the UK.
  • Whether you become a sole trader, ordinary business partnership member or set up a limited company, it’s remarkably quick, easy and no cost or low cost. All can be done online via the government website GOV.UK.

Sole trader v limited company: personal financial risk

A major reason why people set up a limited company concerns personal financial risk. As the name suggests, your personal financial liability is limited, provided that you don’t trade recklessly or fraudulently or give personal guarantees for company loans. That’s because, in law, the limited company is a separate legal entity to its director(s).

The opposite is true for sole trader businesses. In law, there’s no distinction between you and your sole trader business, so you are personally liable for your business debts. That liability is unlimited, which can mean you’re forced to sell off things you own to pay off your business debts, including your car and home. This is less of a consideration if your business is unlikely to build up considerable debts.

Sole trader v limited company: customers and staff

Will potential or existing customers care if you run a sole trader business or limited company. Probably not, because being a limited company is no guarantee that your business is more stable, reliable or superior in any way. And being a sole trader is unlikely to prevent you from being able to tender for contracts, either.

Just because you set up your business on your own, doesn’t mean you’ll have to work on your own. Sole traders can employ others and many won’t care whether you’re a limited company or sole trader, because it has no bearing over how much you pay them or how you’ll treat them.

Sole trader v limited company: finance and tax admin

In many cases, accessing finance and funding won’t be any easier because you run a limited company rather than a sole trader business. Having a sound business plan can be much more important. 

Running a limited company involves much more tax admin when compared to running a sole trader business, which is far simpler. You may be able to do some yourself, although with limited company admin, there’s more of it and it’s much more complicated. 

You could pay an accountant to take care of your tax admin, of course, but if you’re operating a limited company, your fees are likely to be significantly higher, because an accountant will need to do more work for you. To save money, many sole traders do all of their own tax admin, including completing and filing their own tax returns, which is made much easier by technology.

How are sole traders and limited companies taxed?

As a sole trader, you’re taxed on your net profits (ie actual profit once all costs have been deducted). HMRC allows you to deduct many expenses and costs from your sole trader income and once any tax allowances have been accounted for and your other taxable income factored in, HMRC will tell you how much tax you owe.

You provide summaries of your sole trader income and expenses to HMRC via your SA100 tax return and SA103 supplementary page (hence “Self Assessment”).

You’re taxed according to the Income Tax band into which your total taxable income falls. You do not pay Income Tax on your first £12,570 of gross (ie total) taxable income, because this is your tax-free Personal Allowance. Thereafter: 

  • you’ll pay the basic rate of Income Tax (20%) if your total taxable income is between £12,571 and £50,270
  • the higher rate of Income Tax (40%) if your total taxable income is between £50,271 and £125,140 or
  • the additional rate of Income Tax (45%) if your total taxable income is more than £125,140.
  • 2023/24 tax year for all figures quoted above. Income Tax bands and rates are slightly different in Scotland.

The Personal Allowance decreases by £1 for every £2 of net income over £100,000 and if your net income is £125,140 or more, you don’t get any Personal Allowance. If you don’t claim any allowable expenses, you can claim the £1,000 tax-free Trading Allowance.

Limited companies pay Corporation Tax on their profits (19% for 2023/24 tax year), while Income Tax and National Insurance contributions (NICs) may be payable on salary the limited company pays you, with tax also payable on share dividend payments that you receive (8.75% if you’re a basic Income Tax payer; 33.75% if you’re a higher rate Income Tax payer; and 39.35% if you’re an additional rate Income Tax payer – all get a £1,000 tax-free Dividend Allowance).

Sole trader v limited company: which is more tax-efficient?

There’s a popular perception that operating as a limited company means you’ll pay less tax than if you were a sole trader. In some cases, with certain amounts of taxable profit, it’s true – but certainly not in all cases. And tax changes introduced in April 2023 mean the tax advantages of limited company structure are significantly less than they were.

Let’s look at some examples, to compare your take-home if you were a sole trader against your take-home as the sole director of a limited company.

  Sole Trader     Ltd Company     Outcome

Profit £20,000 £20,000
Total Tax & NIC £2,334 £2,452
Take-Home £17,666 £17,548

You take-home £118 more as a sole trader                 

Profit £40,000 £40,000
Total Tax & NIC £8,134 £7,670
Take-Home £31,866 £32,330

You take home £464 more as a Ltd Co Director   

Profit £50,000 £50,000
Total Tax & NIC £11,034 £10,278
Take-Home £38,966 £39,722

You take home £756 more as a Ltd Co Director

Profit £85,000 £85,000
Total Tax & NIC £25,699 £25,773
Take-Home £59,301 £59,227

You take home £174 more as a sole trader           

Profit £100,000 £100,00
Total Tax & NIC £31,999 £33,469
Take-Home £68,001 £66,531

You take home £1,470 more as a sole trader

Profit £150,000 £150,000
Total Tax & NIC £59,270 £62,424
Take-Home £90,730 £87,576

You take-home £3,154 more as a sole trader         

*All figures calculated by GoSimpleTax, based on 2023/24 tax year figures, and one limited company director taking £9,100 a year as salary and the rest as share dividends, to minimise their tax liability.

At the lower and higher end of the profit scale, operating a sole trader could give you a greater take-home, while you could also save money by doing your own tax admin.

However, even where your take-home as a company director is higher, much if not all of that can be wiped out if you have to pay an accountant to take care of your company and personal tax admin. Your monthly fee to an accountant could be, say, between £60 and £120 or more a month (ie £720 up to £1,440 or more a year), so operating as a limited company could in fact be less tax-efficient, not more.    

How to switch from limited company to sole trader

It’s reasonably simple to change from a limited company to sole trader. You can either close down the limited company completely or make it dormant (ie the company still exists but doesn’t trade or receive income from other sources).

  • To close a limited company, usually you need the agreement of its directors and shareholders (easy if it’s just you).
  • If your company is “solvent” (ie has enough cash to pay its bills/debts), you fill out the DS01 form to apply to Companies House to get the company struck off the Register of Companies (£8 fee for online filing) or you can action a members’ voluntary liquidation. Your company accounts and tax returns must be up to date.
  • When you liquidate a company, its assets are used to pay any debts. Any money left goes to shareholders.
  • If the company is insolvent (ie can’t pay its bills/debts), you’ll need to liquidate it or apply for a company voluntary arrangement, so you can pay creditors over an agreed fixed period. Visit government website GOV.UK for more information about closing a limited company.
  • With the company now closed down or dormant, all you’ll need to do is to register as a sole trader for Self Assessment.

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

There are reported to be about half a million “HMOs” (ie houses in multiple occupation) in the UK. A rented property is considered an HMO if at least three tenants live in it and they make up more than one household, with shared toilet, bathroom and/or kitchen facilities.

Typically, HMOs provide a home for a broad church of people, ranging from students, unemployed people and those on low-incomes to recent graduates, young professionals, non-professionals and people working away from home during the week. HMOs offer accommodation that is normally cheaper than other private rental options, which is a key reason for their continued popularity.

If you’re interested in becoming an HMO landlord, this guide provides key facts about how your income would be taxed. Maybe you’re already an HMO landlord and want to make sure that you’re paying the right amount of tax? Before we move onto tax, let’s briefly look at your key legal responsibilities as an HMO landlord.

HMO landlord legal responsibilities

  • If five or more people live in an HMO, it’s known as a “large HMO” and must have a licence from the local council (see government website GOV.uk for more on HMO licenses).
  • Some local councils require smaller HMOs to be licensed, so, be sure to check.
  • The council must carry out a risk assessment on your HMO within five years of receiving your licence application. If any unacceptable risks are evident, you must sort them out.
  • Tenants can contact the local council to report hazards in your HMO and the council can take action against you to ensure that you sort out any problems.
  • You must inform the council if you or your tenant(s) plan to make changes to an HMO.
  • You must also tell the council if your tenants’ circumstances change (eg they have a baby or adopt a child).

Need to know! There are different rules for HMOs in Scotland and HMOs in Northern Ireland

Is HMO rental income taxable?

Rent you receive from your HMO tenants is taxable income once it goes over certain thresholds. Before you’re taxed, you can deduct expenses you pay to rent out your HMO (explained in more detail further on), with any tax allowances also taken into consideration. You pay tax on the profit you make from your HMO, with any other taxable income you receive also taxed as appropriate.

If you rent out more than one HMO or other rental property, the taxable profits from all are added together, as well as all costs and allowable expenses, before HMRC (the UK tax authority) tells you how much tax you owe. If applicable, any income you earn from overseas properties must be reported separately to HMRC.

Register as an HMO landlord for Self Assessment

You don’t pay any tax on the first £1,000 you earn from your rental income. This is your “property allowance”. If you earn £1,000-£2,500 from annual rental property income, you need to contact HMRC to find out how to report it.

If you earn between £2,500 and £9,999 a year from rental income after your “allowable expenses” have been deducted (or £10,000 before they’re deducted), you must report your HMO rental income via Self Assessment (the system HMRC uses to collect Income Tax from landlords and others).

If you don’t already file a Self Assessment tax return, you must register by 5 October following the tax year in which you earned rental income. The UK tax year runs from 6 April until the following 5 April.

How much tax will you pay on HMO rental income?

The amount of tax you pay is determined by the tax expenses and allowances you claim and how much HMO rental income you receive, as well as how much taxable income you receive from all other taxable sources (eg wages from employment or self-employment, share dividends, etc).

You're taxed based on the Income Tax band into which you fall once your total taxable income has been calculated. The Income Tax band tax rates for the 2023/24 tax year are:

Band

Taxable income

Tax rate

Personal Allowance

Up to £12,570

0%

Basic rate

£12,571 to £50,270

20%

Higher rate

£50,271 to £125,140

40%

Additional rate

More than £125,140

45%

No tax is payable until your income goes over the Personal Allowance threshold (£12,570), but it decreases by £1 for every £2 of net income you receive over £100,000 and if your net income is £125,140 or more – you don’t get the Personal Allowance. Income Tax bands and rates are different in Scotland.

No National Insurance is payable on your rental income unless being a landlord is your main job, you rent out multiple properties and you buy new properties to rent out (in other words, you run a professional property rental business).  

If you own the HMO rental property with others, your tax bill will be determined by your share. If it’s 50%, you’ll be taxed on half of the taxable rental income from the property. If you own a third, you’ll be taxed on 33.33% of the taxable rental income, etc.

What HMO tax expenses can you claim?

You can deduct many allowable expenses from your HMO rental income if generated wholly and exclusively from renting out your property. If you use something for personal and rental purposes (eg your mobile phone), you can claim part expenses, as long as you reliably work out how much of the total cost resulted from your activity as an HMO landlord.

Landlords who own HMOs often pay water rates, Council Tax, and sometimes gas and electricity for the whole property. These can be claimed as an allowable expense, which reduces your taxable profit and tax bill. If your HMO tenants themselves pay these or pay you for them, obviously, you cannot claim them as an allowable expense.   

Allowable expenses for HMO landlords can also include:

  • property maintenance and repair cost (eg replacing roof tiles or a door)
  • ground rents and service charges (if applicable)
  • redecorating between tenancies
  • building, contents and public liability insurance
  • gardening and cleaning costs
  • agent fees/management fees
  • legal fees for lets of a year or less (eg for legal advice about pursuing unpaid rent, etc)
  • accountancy/bookkeeping fees
  • direct costs (eg phone calls, stationery and advertising for new tenants, etc)
  • vehicle/fuel costs (only the proportion used for your rental business)
  • costs for disposing of old items of furniture or electrical appliances, etc.

Need to know! You can’t claim mortgage capital repayments as an allowable expense. Before 2017 you could deduct mortgage interest and other finance costs (eg mortgage arrangement fees) from your HMO rental income to reduce your Income Tax liability, but now you receive a 20% tax credit.

Replacing furnishings and equipment in HMOs

If you rent out a furnished or part-furnished HMO, replacing furnishings or equipment cannot be claimed as an allowable expense. But, you can claim Replacement Domestic Items relief for replacing a sofa, bed, carpets, curtains, white goods, crockery, cutlery, etc. The quality should be similar, because you can only claim the value of like-for-like replacements.

Need to know! Building an extension, converting a loft and making other structural improvements cannot be claimed as an allowable expense, because you’re increasing the property’s value (ie making a “capital improvement”). However, if you later sell the property, you may be able to claim capital expenses against Capital Gains Tax.

How to report your HMO rental income

You report your HMO rental income by filling out and filing a SA105 tax form, summarising your total HMO rental income and any allowable expenses you want to claim. You must also complete and file the main Self Assessment tax return, the SA100.

That will give HMRC the information it needs to calculate your tax bill.

The Self Assessment tax return online filing deadline is midnight on 31 January (it’s the same every year). A £100 fine is payable immediately if you miss it. If HMRC asks you to file a Self Assessment tax return you must give details of your rental income and expenses for the tax year – even if you believe there is no tax to pay.

The deadlines for paying your tax bill are:

31 January for any tax you owe for the previous tax year (known as a “balancing payment”) and your first “payment on account” (ie advance payments towards your tax bill)

31 July for your second payment on account to pay the balance for any tax you owe. To enable you to better budget for paying your pay bill, you can make weekly or monthly payments towards your tax bill.

Find out more

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

You’re probably reading this because you’ve recently become self-employed or it’s something that you’re considering. Self-employment can provide greater flexibility, more control over your work, a higher income and greater satisfaction. But a key consideration is what taxes you must pay.

In this guide you’ll learn:

  • What taxes sole traders pay.
  • What expenses you can claim to reduce your tax bill.
  • What taxes are payable if you set up a limited company.
  • Whether you must register for VAT.
  • When Capital Gains Tax is payable.

Self-employment: a popular choice 

Self-employment remains hugely popular. Sole proprietorships (ie sole trader businesses) are the UK’s most common legal business structure. According to government figures, at the start of 2022, out of the UK’s 5.5m total business population, 3.1m were sole proprietorships (56%), 2.1m were limited companies (37%) and 353,000 were ordinary partnerships (6%).

Did you know? Whether a sole trader or working for a limited company that they set up, there are 4.1m “solo self-employed workers” in the UK and they contribute £278bn a year to the UK economy.

Sole trader v limited company

When people decide to become self-employed, usually they either register as a sole trader (most people’s choice) or register a private limited company, for which they work. There are pros and cons to both, but personal financial liability is a key consideration.

  • When you’re a sole trader, you and your business are the same thing in law, so, you’re liable for your businesss debts.
  • With a limited company, you’re not normally liable for the company’s debts, as it’s a separate legal entity. If it fails, all you stand to lose is the value of your shares and any money you’ve invested, because you have “limited liability”.

If you’ve just gone self-employed or you’re considering it, you’ll want to know how much tax you’ll pay. Before we move to working for a limited company that you set up, let’s look at sole trader taxes.

  • Need to know! The UK tax year runs from 6 April until 5 April in the following year.

What taxes do sole traders pay? 

Sole traders pay Income Tax on their taxable business profits – which is turnover (ie total sales or income) less “allowable expenses” (explained further on). Your Income Tax liability is determined by how much you earn above the Personal Allowance and what Income Tax band your taxable income falls into.

  • The standard Personal Allowance is £12,570 a year (2022-23 tax year), and you don’t pay any tax until your taxable income is higher.
  • The Personal Allowance decreases by £1 for every £2 of net income over income of £100,000. If your net income is £125,140 or more – you don’t get the Personal Allowance.

Now, let’s look at Income Tax bands for 2022-23:

  • If your taxable income for the year is between £12,571 and £50,270, it’s taxed at the basic rate of 20%.
  • If your taxable income for the year is between £50,271 and £150,000, it’s taxed at the higher rate of 40%.
  • If your taxable income for the year is more than £150,000 a year, it’s taxed at the additional rate of 45%.

Need to know! The additional rate Income Tax threshold will decrease from £150,000 to £125,140 from 6 April 2023, affecting some 250,000 UK taxpayers.    

Sole Trader National Insurance contributions

  • Paying National Insurance contributions (NICs) entitles you to certain benefits and the State Pension.
  • You need a National Insurance number before you can start paying your NICs. You’ll find it on old pay slips and your P60.
  • As a sole trader, you can pay two types of NIC – Class 2 and Class 4.
  • For the 2022/23 tax year, the Class 2 NIC rate is £3.15 a week, payable if your annual profits are more than £6,725.
  • For the 2022/23 tax year, Class 4 NICs are payable if your annual profits are more than £11,908. You’ll pay Class 4 NICs of 9.73% until your profits reach £50,270, then you pay a reduced rate of 2.73% on profits above this threshold.

Need to know! If your sole trader profits are less than £6,725 a year, you can pay voluntary Class 2 NICs so that there aren’t any gaps in your National Insurance record and your benefits entitlement isn’t affected.

Income Tax allowances

The first £1,000 of income you earn from self-employment can be claimed as your tax-free ‘trading allowance’, in addition to your personal allowance, to reduce your tax bill.

If you claim the trading allowance, you can’t claim “allowable expenses” (see below). So, don’t claim the trading allowance if your sole trader business tax expenses are more than £1,000 a year. If you’re a sole trader and rent out land or property, you can also claim the £1,000 tax-free property allowance (as can others with whom you own land or property).

If you’re blind, you can claim the Blind Person’s Allowance (BPA), which is an additional tax-free allowance worth £2,600 a year (2022/23 tax year). If you and your spouse/civil partner are both blind, you can both claim BPA. The Blind Person’s Allowance can be transferred between spouses and civil partners if either does not pay tax or earn enough to use all of their allowance.

  • Top tip! If you’re married or in a civil partnership and your spouse or partner earns less than the Personal Allowance a year (ie £12,570), via the Marriage Allowance, they can transfer £1,260 of their Personal Allowance to you, which could reduce your tax bill by up to £252 in the tax year (6 April to 5 April). Visit the government website UK for more information.

What sole trader allowable expenses can you claim?

Allowable expenses” are costs that HMRC allows sole traders to claim as tax expenses to reduce their tax bill. Allowable expenses must be generated wholly and exclusively” for business reasons – personal expenses are not allowable and trying to claim for them can have serious consequences.

  • Need to know! If you use something for business and personal reasons, your mobile phone, for example, you must reliably work out the business-cost proportion and claim only for that amount.

The cost of buying stock or materials are allowable expenses, as are payments to subcontractors, agencies, freelancers, etc, if you employ others (sole traders can employ others).

If you run your freelancer business from home, allowable expenses can include a proportion of your rent or mortgage interest if you’re buying, as well as some of your council tax, water rates, electricity, gas and insurance. You can also claim for business telephone, mobile and broadband costs, as well as postage, stationery, printing, small office equipment and computer software/ink cartridges.

  • Need to know! If you use cash basis accounting, where you only record income or expenses when you receive money or pay a bill, the cost of equipment and tools can be claimed as an allowable expense. If you use traditional accounting, where you record income and expenses by the date you invoiced or billed, you should claim capital allowances for such costs.

If you work from commercial premises you can claim for all business costs, including insurance and security, as well as equipment repairs and maintenance. Advertising and marketing costs can also be claimed as an allowable expense, as well as trade or professional journals, trade body or professional organisation membership. Accountancy fees and other professional fees can be claimed as long as they relate to the business. Allowable business expenses can also be claimed for staff uniforms and protective clothing.

What about vehicles, travel and accommodation?

If you buy a vehicle for business, you claim it as a capital allowance, but allowable expenses can include vehicle insurance, repairs and servicing, fuel (business use only), vehicle-hire charges, vehicle licence fees and breakdown cover. You can also claim for parking, train, bus, air and taxi fares, hotel room costs and meals for overnight business trips.

  • Need to know! Any parking or speeding fines must come out of your own pocket, as they’re not allowable. And you cannot claim allowable expenses for fuel or mileage for travel between your home and your normal place of work. Youll also need to buy your own lunch each day, as this isnt allowable.

How sole traders pay Income Tax and NICs

  • Need to know! Sole traders must maintain accurate financial records, detailing all sums entering and leaving their business. HMRC can ask to see your financial records and proof of your business expenses (ie receipts and invoices). You must keep both for at least five years after the 31 January online-submission deadline of the relevant tax year.

You pay your Income Tax and NICs via Self Assessment, the system UK tax authority HMRC uses to collect both taxes. Each year you’ll need to submit a Self Assessment tax return (SA100 form) and the SA103 supplementary pages, summarising your income and business costs, so that HMRC can work out how much Income Tax and National Insurance you owe (HMRC will write to you to let you know). Every year, the annual online-filing deadline for Self Assessment tax returns is midnight on the 31 January. There are financial penalties for filing your tax return late and not paying your tax bill when due (see GOV.UK for more).  

To file your tax return, you’ll need to register for Self Assessment. It’s quick and easy and you can do it online via GOV.UK. You’ll need to register again if you did not send a tax return last tax year, even if you’ve sent one previously.

  • Need to know! Although it’s better to do it sooner rather than later, you must register for Self Assessment by 5 October in your sole trader business’s second tax year. You may be fined if you don’t.

What taxes do limited companies pay?

  • Limited companies must maintain detailed accounting records and each year they must file company accounts, summarising all sums received and paid out.
  • After their running costs are deducted and any tax allowances and tax reliefs accounted for, they must pay Corporation Tax on their profits.
  • From April 2023, the main rate of Corporation Tax will rise from 19% to 25%. The current 19% rate will still apply where company profits are less than £50,000. The full 25% rate applies to limited companies with annual profits of £250,000 or more. Between these two rates, marginal tax relief will apply; the higher the profit, the greater the Corporation Tax payable.

How would your income be taxed?

If you set up a limited company, you become an employee of that company, which means youre liable for Income Tax on your salary (as per the bands stated previously) via the companys Pay As You Earn Scheme (you must register as an employer, even if youre the only employee, and set up your payroll).

You could pay yourself all of your income that way, but it’s not the most tax-efficient option. What many self-employed people who work for a limited company they’ve registered do is:

  • Pay themselves a salary of at least £6,396 (the Lower Earnings Limit for the 2022/23 tax year), so that they pay NICs that entitle them to the state pension and other benefits.
  • You can pay yourself a salary of up to £12,570 a year, which means you don’t go over your Personal Allowance, which means no Income Tax is payable, although you will need to pay NICs.
  • The rest of their take-home comes from regular company share dividend payments, which are subject to tax, once you earn more than your Personal Allowance, while you also get a dividend allowance, but from 6 April 2023, this will decrease from £2,000 to £1,000 a year.
  • The amount of tax you pay on dividends above the dividend allowance depends on your Income Tax band. If you’re in the basic rate band you pay 8.75%. If you’re in the higher rate band, you pay 33.75%. If you’re in the additional rate band, you’ll pay 39.35%.

Need to know! Being self-employed by working for a limited company that you register is far less tax-efficient than it used to be, which is something to consider when starting your business. If your company profit is, say, £25,000 a year, running a limited company rather than sole trader business may offer a tax saving of £360 a year. But you might pay out more to have an accountant take care of your Limited Company tax admin and payroll. Crunch the numbers before deciding your legal business structure. 

What about VAT?

Whether you’re a sole trader or run a limited company, you must register for VAT (Value Added Tax) if your VAT-taxable turnover is more than £85,000 a year (2022-23 tax year). Then you can charge VAT to your customers and reclaim any VAT you pay for things your business buys. The VAT you pay to HMRC is the difference between any VAT you’ve paid and the VAT you’ve charged. If you’ve paid more VAT than you’ve charged, HMRC repays you the difference.

Top Tip! You can register for VAT if your turnover is less than £85,000 a year. This can be a tax-efficient option if many of the things your business or company buys is subject to VAT. That said, it involves additional tax admin, especially now it’s subject to Making Tax Digital for VAT requirements.

What about Capital Gains Tax?

Sole traders may need to pay Capital Gains Tax (CGT) if their business make a gain (ie profit) when they “dispose of” (ie sell) all or some of a business asset, which can include land, buildings, fixtures and fittings, plant and machinery, shares, registered trademarks and even goodwill (ie your business’s reputation).

You pay tax on the gain, not the sale price. As well as the CGT tax-free allowance (currently £12,300 for 2022/23 tax year, reducing to £6,000 for 2023/24), Capital Gains Tax reliefs can be claimed to reduce your tax liability. More CGT is payable on gains from residential property when compared to other assets. Your Income Tax band will also determine the amount of CGT that you pay (it ranges from 10%-28%). Visit GOV.UK for more information about CGT.  

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

The term “side hustle” was first used in 1950s America. Although “hustle” suggests something illegal (originally hustle meant to swindle someone), it referred to ordinary people doing legal things to earn a few extra bucks.

Its meaning remains the same and side hustle has become a much more common term in the UK in recent years. Indeed, at times it seemed everyone was supplementing their main income by selling homemade greetings cards, cuddly toys, cakes and other things face to face or via  their own website, Facebook, eBay, Amazon or Etsy. Many people have successfully turned their hobby or passion into a money-spinning side hustle.

Important side hustle tax questions answered

Running a side hustle (or “side gig”) has become much easier and cheaper thanks to technology. Many people now run “dropshipping” side hustles, selling various products online to customers near and far without them having to store any stock. Side hustles can also provide the perfect opportunity to limit risk by trying out a business idea before you pack in your job and do it full time.

If you’re running your own side hustle or you’re thinking about it, tax is a key consideration. Whether innocently or otherwise, not paying tax on your side-hustle income can land you in hot water with HMRC (the UK tax authority). Although tailored tax advice from a trusted source is advised, this guide provides answers to key questions about paying tax on side hustle income.

Is your side hustle income taxable?

If you’ve simply sold off unwanted possessions online or via a local car boot sale, you won’t have to pay tax. They were personal possessions, it’s an occasional thing and you’re making relatively little profit. The same is true if, for example, you sell off your kids’ old toys on Facebook or your own pre-loved clothes via Vinted.

However, if you’re buying raw materials to make things to sell regularly or you’re buying stock to sell to customers, you’re trading and earning money from self-employment. This can be subject to Income Tax if your gross income (ie the total amount you make in sales) is more than £1,000. The “trading allowance” allows you to earn up to £1,000 of trading income tax-free.

If you’re trading, whether you’re making money from your hobby, selling things face to face or online – or selling services, such as babysitting, dog-walking, cleaning gutters, providing guitar lessons or you’re a paid tour guide at weekends – once your gross annual income is more than £1,000 it can be subject to Income Tax, dependent on how much other taxable income you earn. Some people rent out their driveways for parking near to football stadia, which can also be taxable if it’s more than £1,000 a year.

Need to know! Government website GOV.uk features an online tool that enables you to enter details to find out whether you need to tell HMRC about additional income.

What about freelancing or a second part-time job?

  • If you freelance to supplement your main wage and earn more than £1,000 in gross income a year, you must report it to HMRC and pay tax on it, if your total taxable income goes over the Personal Allowance (£12,570 for the 2023/24 tax year).
  • As regards second jobs, for example, if you work in a pub at weekends, as a part-time employee, youll likely be paid through the staff payroll and taxed accordingly, after supplying your tax code. You personally wont need to submit a tax return to HMRC. However, youll need to report any tips you receive, because they can also be taxable income.

Do I need to register my side hustle?

If your gross trading income is more than £1,000 a year and youve never registered before, you must register for Self Assessment (unless you register and run your side hustle as a limited company, which is less popular and brings different rules and responsibilities). 

After registering for Self Assessment, youll be sent your Unique Taxpayer Reference (UTR). And to submit your Self Assessment tax return online, youll need to set up a Government Gateway account (the letter from HMRC stating your UTR will tell you how). Once youve set up the account, youll get an activation code in the post.

When you register for Self Assessment, youre letting HMRC know that youre earning additional taxable income. If you havent registered for Self Assessment previously, you must do so before 5 October in your businesss second tax year, otherwise HMRC could fine you. The UK tax year runs from 6 April until the following 5 April.   

Need to know! If youve submitted Self Assessment tax returns previously, youll need your old UTR to register and set up your new account.

How much tax is payable on my side hustle?

You pay tax based on your net profits, which is lower than your gross income (ie total sales revenue). Tax expenses that you claim are deducted from your side hustle income and once any tax allowances have been accounted for and your other taxable income factored in (which can include wages from employment), HMRC will work out your tax bill. You must provide all of these figures to HMRC via your tax return (which is why its called Self Assessment”).

Youre taxed according to the Income Tax band into which you fall once your total taxable income has been worked out. The Income Tax band tax rates for the 2023/24 tax year are as follows:

Band

Taxable income

Tax rate

Personal Allowance

Up to £12,570

0%

Basic rate

£12,571 to £50,270

20%

Higher rate

£50,271 to £125,140

40%

Additional rate

More than £125,140

45%

The Personal Allowance decreases by £1 for every £2 of net income over £100,000 and if your net income is £125,140 or more, you dont get the Personal Allowance. Income Tax bands and rates are different in Scotland.

Need to know! Side hustlers earning more than £12,570 a year must also pay Class 2 National Insurance contributions (NICs) of £3.45 a week (if over £6,725 and below £12,570 you don’t need to pay, but you’ll still receive the benefits that come from paying Class 2 NICs. Class 4 NICs of 9% are payable on profits between £12,570 and £50,270, with 2% payable on profits over £50,270 (*2023/24 tax year for all figures).

Can I claim any side hustle tax expenses?

To help lower your tax bill, potentially, you can claim for a wide range of tax expenses, which are legitimate costs that you pay to start and run your side hustle. You summarise these within your annual Self Assessment tax return. Depending on what side hustle youre running and providing they are for legitimate business use, allowable expenses can include:

  • raw materials or stock
  • printing and packaging
  • phone use and broadband
  • fuel, parking, train or bus fares
  • premises costs (eg rent, heating, lighting, business rates, etc)
  • office stationery and postage
  • advertising and marketing costs
  • insurance and bank charges
  • accounting and solicitor fees
  • training and professional membership fees
  • wages paid to others who work for you.

If you use something for your side hustle and personal reasons (eg a mobile phone), you can only claim allowable expenses for the business-cost proportion. You must use a reliable method to work out such costs and HMRC can ask you for proof of any allowable expense that you claim.

If you run a home-based side hustle, you may be able to claim for a proportion of your heating, electricity and water costs, Council Tax, mortgage interest or rent, broadband and telephone use.

  • If you use traditional accounting (ie you record income and expenses by the date you invoiced or were billed), you claim capital allowances when you buy equipment, machinery or a car, van or lorry for your side hustle.
  • If you use cash basis accounting (ie you only record income and costs in your accounts when you are paid or pay money out) and buy a car for your business, you can claim this as a capital allowance, but everything else must be claimed as an allowable expense.

Rather than working out your business expenses, you can claim flat-rate simplified expenses for vehicle use and working from home. You cant claim any tax expenses or capital allowances if you claim the £1,000 tax-free Trading Allowance.

Need to know! Many expenses are not allowable for tax purposes, including entertaining customers, travel costs to and from your normal place of work, parking and speeding fines, a business suit, daily meal deal, etc.

What side hustle tax records must I keep?

Because youre running a business, you must keep accurate, up-to-date records of your sales and expenses, detailing amounts and dates. If you grant credit, you should retain copies of all invoices you send out, as well as receipts and invoices for things you claim as tax expenses. Keep a detailed mileage log if you plan to claim for fuel costs.

Need to know! If your records are not accurate, complete and legible, HMRC can charge you a penalty, which can also apply if your Self Assessment tax return isnt accurate. You must keep your records for at least five years after the 31 January online tax return deadline for each tax year.

Do I need to register for VAT?

  • You must register for VAT if your total VAT-taxable turnover (ie sales or income that is subject to VAT) for the past 12 months was more than £85,000 (the VAT threshold for 2023/24) or you expect your VAT-taxable turnover to go over £85,000 in the next 30 days.
  • You can choose to register voluntarily for VAT if your turnover is less than £85,000, which can be worthwhile if youre paying a lot of VAT on the things you buy for your business.
  • If youre registered for VAT you must add the right amount of VAT to the price of all goods or services you sell; keep records of how much VAT you pay for things you buy; account for VAT for goods you import; digitally report the amount of VAT you charged and paid each quarter; pay any VAT you owe to HMRC.
  • You cannot charge VAT unless you are VAT registered.

How do I report my taxable side hustle income?

You must complete and file a Self Assessment tax return (the SA100) each year, summarising your other taxable income, expenses, allowances, pension payments and benefits (if applicable). You must also complete and file the supplementary tax return page SA103, summarising your side-hustle income, tax expenses and any allowances.

After youve registered, you can file your tax return any time after the tax year finishes on 5 April, although the annual deadline for filing your Self Assessment tax return online, which is what most people do, is midnight on 31 January. If you miss the filing deadline, a £100 fine is payable immediately. Once HMRC receives your tax return, theyll work out your tax bill and let you know how much you owe.

The deadlines for paying your tax bill are:

  • 31 January for any tax you owe for the previous tax year (this is called a balancing payment”) and your first payment on account” (an advance payment towards your tax bill) and
  • 31 July for your second payment on account.
  • Should you prefer, by arrangement with HMRC, you can make weekly or monthly payments towards your bill.

Need to know! If you dont pay income tax on your taxable side hustle income and HMRC finds out, you could be faced with a hefty fine. Late tax payments can also result in fines and interest, so the longer you delay paying your tax bill, the more youll owe HMRC.

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

One of the most important dates for UK self-employed is April 6, because it signals the start of the new UK tax year.

It’s the day when most UK tax rule changes come into force – and that can make a big difference to your self-employed sole trader clients’ take-home. The start of a new tax year can also be the perfect time to get into better tax-admin habits with your clients and try to find ways to reduce their tax bills.

So, what key tax changes are planned from 6 April 2023 and how could they impact your clients if they’re self-employed sole traders?

Income Tax

Although this will only impact higher-earning sole traders and ordinary partnership members, on 6 April 2023 the Income Tax additional rate threshold (ART) will be reduced from £150,000 to £125,140 a year.

Why that figure? Well, when you earn £125,140 or more a year, you don’t get the £12,570 standard Personal Allowance (PA), because £1 of the PA is taken away for every £2 of your income that’s above £100,000.

According to HMRC, about 232,000 more taxpayers will now have to pay the additional rate of Income Tax, which would not have been the case had the threshold remained at £150,000. For sole traders with income between £125,140 and £150,000, the average cash loss will be £621 in 2023/24, says HMRC. Sole traders with income above £150,000, on average, will be £1,256 worse off in 2023/24.

The additional rate of Income Tax will remain at 45% in England, Wales and Northern Ireland, but it will rise from 46% to 47% in Scotland from April 2023. The higher rate of Income Tax in Scotland will also go up from 41% to 42%, which will impact the take-home of higher-earning sole traders in Scotland.

 

National Insurance contributions

Self-employed sole traders usually pay two types of National Insurance contributions: Class 2 and Class 4.

  • From 6 April, the Class 2 NIC threshold remains the same; they’re payable on income of more than £6,725 a year, but they are to rise by 30p to £3.45 per week.
  • The Class 4 NIC threshold (“Lower Profits Limit”) will increase from 6 April 2023 from £11,908 to £12,570. However, the Class 4 NIC rate will decrease from 9.73% to 9%, which is payable on income of ​​£12,570 to £50,270, with 2% Class 4s payable on income above £50,270.   

 

Capital Gains Tax

If you sell a “chargeable asset” such as land, property, plant, machinery, shares, registered trademarks or “goodwill” (ie your business’s reputation) etc, after 6 April 2023, you could end up paying thousands of pounds more in Capital Gains Tax (CGT).

That’s because the annual exempt amount (AEA – how much gain you can make after disposing of an asset before CGT is due) will decrease from £12,300 to £6,000 in 2023/24. From 6 April 2024, the AEA will again be reduced to just £3,000 for sole traders and others.

After the AEA is accounted for, basic rate Income Tax payers pay 18% CGT on gains made from selling residential property (10% on gains from other chargeable assets). Higher-rate Income Tax payers pay 28% CGT on gains made from selling residential property and 20% on gains from disposal of other chargeable assets.  

 

Dividend Allowance

Many sole traders earn additional income from share dividend payments. They won’t welcome the news that from 6 April 2023, the Dividend Allowance will be reduced from £2,000 to £1,000. This is the amount that you can earn in dividend payments before tax is payable. In April 2024, the Dividend Allowance will again be halved to just £500.

The amount of tax you pay on dividend income above the Dividend Allowance, after the Personal Allowance, depends on your Income Tax band;

  • Basic rate (£12,571 to £50,270 taxable income) = 8.75%.
  • Higher rate (£50,271 to £125,140 taxable income after 6 April) = 33.75%.
  • Additional rate (over £125,140 taxable income from 6 April) = 39.35%.

 

Making Tax Digital

In late 2022, HMRC announced its decision to delay introducing Making Tax Digital for Income Tax (MTD for ITSA). It was supposed to be introduced from April 2024, for sole traders and landlords with a taxable income of more than £10,000. Many sole traders may have decided to voluntarily start complying with MTD requirements from April 2023.

However, the first phase of MTD for ITSA won’t now be introduced until April 2026 and it will only apply to sole traders and landlords with taxable income of more than £50,000 a year, so it will impact far fewer people in the first phase. Further phases of introduction are planned after April 2026, although it’s not yet clear when sole traders earning below £30,000 a year will be affected.

 

Could your clients pay less tax?

As you know you can file your clients2022-23 Self Assessment tax return any time from 6 April 2023.

According to HMRC, 66,465 2021/22 Self Assessment tax returns were filed on 6 April 2022 (almost twice the 36,939 Self Assessment tax returns filed on 6 April 2018). You don’t have to do it so early, but the sooner you do it, the better. Tempt your clients to file early with the possibility of a tax rebate.

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

HMRC has advised that for the 21/22 tax year, 385,000 taxpayers filed paper Self Assessment tax returns. If your clients were one of them, this could affect them, as HMRC is currently writing to taxpayers to inform them they will not automatically receive a tax return form for 22/23. Letters are currently being sent out between 23rd March and 4th April 2023.

This is a step in pushing taxpayers to file online as part of the government’s objective to have everyone interacting digitally with HMRC and other government bodies.

Who will receive a letter?

135,000 taxpayers who normally file their Self Assessment tax return on paper will receive a letter from HMRC, which will advise them they won’t receive a tax return form automatically this year. Instead, they will be asked to file their return online via gov.uk or by using commercial software.

The digital future

HMRC has a target over the next two years to reduce the volume of letters and forms it sends out via paper. It will continue to persuade taxpayers to use its digital channels where possible which is usually quicker and easier than communicating via post or over the phone.

What if you cannot file online?

Should you not have internet access you are advised to contact HMRC on 0300 200 3610 where you can request a paper form to be sent to you.

Taxpayers aged over 70, who are not already filing digitally and who do not have a tax agent appointed will continue to automatically receive a paper tax return form. Likewise, those who are not digitally capable, such as disabled employers who may employ personal assistants and carers – in these circumstances they will be able to choose to communicate with HMRC non-digitally.

There are other exclusions and special cases from online filing, listed on gov.uk, in which the taxpayer can use digital software to print the form in a format acceptable to HMRC.

Ready to step into the digital era? GoSimpleTax are here to help on your way.

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.

In December 2022, the government announced its decision to delay introducing Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) for two more years until April 2026.

The government says it has done so because it understands that the UK’s 3.1m sole traders (aka the “self-employed”) and its 2.66m private residential landlords are “currently facing a challenging economic environment, and the transition to Making Tax Digital for Income Tax Self Assessment [MTD for ITSA] represents a significant change [for] taxpayers and HMRC for how self-employment and property income is reported.”

The delay has been welcomed by business groups and professional tax and accountancy bodies, reportedly with both voluntary sign up to the Making Tax Digital for Income Tax Self Assessment pilot scheme and awareness of MTD for ITSA among UK sole traders and landlords very low. 

 

Latest MTD for ITSA changes

As well as the two-year delay in introducing the first phase of Making Tax Digital for Income Tax Self Assessment, the government has also increased the MTD for ITSA taxable income threshold. This means MTD for ITSA will impact far fewer Income Tax payers when first introduced, while many others won’t have to comply with Making Tax Digital for Income Tax Self Assessment requirements for some years yet.

Making Tax Digital for Income Tax Self Assessment changes that were planned for introduction in April 2024 would previously have affected sole traders and landlords with taxable income of more than £10,000 a year.

However, from April 2026, only sole traders and UK landlords with taxable income of more than £50,000 in a tax year will be mandated to maintain digital records of their income and costs and provide quarterly summary updates to HMRC using MTD-compatible software (or MTD bridging software that enables them to carry on using their existing accounting software).

Sole traders and landlords with a taxable income of £30,000-£50,000 will need to comply with Making Tax Digital for Income Tax Self Assessment requirements from April 2027 (unless more changes are made).

 

What if your taxable income is below £30,000 a year?

In December the government also announced plans to conduct a review into the recording and reporting needs of smaller businesses with taxable income of less than £30,000 a year, which will include a large proportion of UK sole traders.

The government says it wants to find out how MTD for ITSA can be made more suitable for smaller businesses and enable them to more easily manage their Income Tax obligations. The government says this review will inform further stages of MTD for ITSA’s introduction after April 2027.

Whether private residential landlords with taxable income below £30,000 a year will need to comply with MTD for ITSA rules before sole traders isn’t clear. However, the planned extension of MTD for ITSA to include members of ordinary business partnerships in 2025 has been scrapped, although no new date has yet been announced.

 

MTD for ITSA recording and reporting requirements

  • Under MTD for ITSA requirements, sole traders and landlords must maintain digital records of their income and costs and digitally send a quarterly summary to HMRC using MTD-compatible software. They can use bridging software that enables them to comply with MTD reporting requirements while using their existing accounting software (including basic spreadsheets).
  • They’ll then get an estimated tax bill, based on the information they’ve provided. HMRC believes this will enable sole traders and landlords to better budget to pay their Income Tax tax bills when required.
  • At the end of the year, sole traders and landlords must digitally submit a statement to HMRC, confirming the figures they’ve submitted, with any accounting adjustments made.
  • They must also make a final declaration, confirming any other income received. They won’t need to file a Self Assessment tax return if they don’t have any other taxable income to report. HMRC will then tell the sole trader or landlord how much tax they owe, which they must pay by 31 January in the following tax year.

 

Pilot paused for newcomers

In addition to the delay HMRC has now paused access to the pilot scheme for anyone wishing to try MTD for ITSA ahead of the compulsory date whilst they refresh their testing strategy. They will, of course, release updates in the future of any changes to the pilot and how to get involved.

 

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

Complete your landlord clients Self Assessment tax return in four easy steps.

Your client probably hates having to do their tax return each year with you. Let’s be honest, who does enjoy it? If your client is a UK landlord and you would like to make completing their Self Assessment tax return easier, then follow our four simple steps…

Step #1 – Use Self Assessment tax return filing software

Using third party software – like GoSimpleTax - will help make filing the Self Assessment tax return much quicker and easier. After choosing the software it will direct you to filling out sections of the tax return that are relevant to your client, in this case filing out the SA105. Should mistakes be made warnings will come up, and you might save money by finding out what tax allowances and reliefs your client can claim.

The time software can save you makes the small investment valuable.

Step #2 – Know which forms you need to complete

As you know UK landlords will need to fill out the main Self Assessment tax return, known as the SA100, plus a supplementary page, the SA105 where you’ll detail their taxable rental income and expenses you wish to claim on their behalf.

Step #3 – Report all of your taxable income

In order for HMRC to work out how much tax is owed, your client must report all sources of taxable income within their tax return. That includes income from employment, which is something that some landlords completing Self Assessment tax returns for the first time can miss out.

Taxable income can come from self-employment, savings interest, share dividend payments, capital gains from selling assets, state or private pension payments and even some state benefits. If your clients income from such sources is relatively low, even after modest rental income is added, there might be no tax to pay once their tax allowances and reliefs are taken into account.

Step #4 – Claim all your tax expenses

Renting out property usually involves having to pay many costs. Luckily, to help reduce your tax bill, there are lots of “allowable expenses” that can be claimed against your gross rental income. These include property maintenance, repair and redecorating costs, gardening and cleaning, insurance, service charges, lettings agent and management fees to name a few. You detail your clients rental allowable expenses within your supplementary SA105 form.    

If the rental property is furnished or part-furnished, your client may be able to claim Replacement Domestic Items relief for replacing sofas, beds, carpets, curtains, white goods, sofas, crockery, cutlery, etc.

Our top tips for completing your clients Self Assessment tax return

Don’t leave completing the Self Assessment tax return until the last minute. Who needs the stress? Don’t leave it until the online filing deadline (midnight on 31 January) which is only a few days away.

Take your time when filling out your clients Self Assessment tax return. It can take as little as 30 minutes, if you have all of the necessary information to hand...hopefully, your client has provided everything in advance!

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 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

You may be wishing that you had completed and filed your client's 2021/22 Self Assessment tax return weeks if not months ago.

But January is here and for whatever reason, you didn’t get it done. Life’s very busy for accountants, but don’t worry – you’re not alone. Each year, about four million people leave filing their tax return until after Christmas, despite the looming online-filing deadline of midnight on 31 January.

So, if you’re a busy accountant with many other things to do and little time to spare, how do you get your client's 2021/22 tax return done and dusted as quickly as possible with minimum fuss?

 

Is your client registered for Self Assessment?

To pay Income Tax and National Insurance contributions (NICs), if your client didn’t file a tax return in the previous tax year, accountants must register their client for Self Assessment. It’s quick, easy and free!

Need to know! Your client must register for Self Assessment by 5 October latest in their second tax year (UK tax years run from 6 April to 5 April). If they havent done so by now – they'll have to pay a fine.

  • After registering online, within 10 days (21 if they live overseas), they'll receive their Unique Taxpayer Reference (UTR) number through the post, which you’ll need to file their Self Assessment return. This could mean you miss the online filing deadline, which will result in a further £100 fine.
  • You’ll also need a Government Gateway user ID and password to sign into your client's business tax account to file their Self Assessment tax return. If they don’t have one, getting a user ID via GOV.uk is simple.

 

The SA100 Self Assessment tax return and supplementary pages

Within the Self Assessment tax return (the “SA100”, which is eight pages long), you provide details of your client's taxable income and any capital gains, as well as (if applicable) student loan repayments, taxable bank or building society interest, pension payments, annuities, donations to charity and tax reliefs and allowances that they wish to claim.

If your client is a sole trader, you complete the main Self Assessment tax return (SA100) as well as a supplementary page (SA103S or SA103F), summarising their taxable self-employed income and any business costs they wish to claim.

Need to know! You use the SA103S if their annual business turnover (i.e. total sales) was below the VAT threshold (£85k for 2022/23) and SA103F if above. If they run various sole trader businesses, you’ll need to complete an SA103S/F for each one.

If they earn taxable income from other sources, you’ll need to complete and file other supplementary pages, for example, the SA105 if they also earn taxable income from renting out UK property and/or the SA102 if they also earn income from employment or as a company director (see GOV.uk for the full list of Self Assessment tax return supplementary pages).

 

Self Assessment tax return allowable expenses for sole traders

Sole traders can claim for many business costs. Called “allowable expenses”, these can include: business premises heating, lighting, water; rates; stock and raw materials; travel (ie fuel, parking, train/bus/taxi fares); staff/subcontractor wages; office costs (stationery, phone and broadband); insurance or bank charges; uniforms or safety clothing; marketing/advertising; training; professional fees.

Sole traders who work from home all or some of the time can claim a proportion of their domestic costs for electricity, gas, water, Council Tax, mortgage interest or rent, broadband and telephone use, repairs and maintenance, etc.

If your client uses something for business and personal reasons, they can only claim allowable expenses for the business-cost proportion. You’ll need to use a reliable method to work out how much to claim. They cant claim allowable expenses if they claim the £1,000 tax-free trading allowance, which is advised if their expenses are below £1,000 a year.

Need to know! Rather than working out their actual business expenses, HMRC allows them to claim flat-rate “simplified expenses” for running their business from home and business mileage. Visit GOV.uk to find out more about simplified expenses and general information about claiming sole trader allowable expenses.

 

Self Assessment tax return allowable expenses for landlords

Landlords can claim for many costs arising from renting out their property. Such “allowable expenses” can include: property maintenance, repair and redecorating costs, gardening and cleaning, insurance, service charges, lettings agent and management fees, etc. You summarise their rental allowable expenses within their supplementary SA105 form.   

If their rental property is furnished or part-furnished, they may be able to claim Replacement of Domestic Items Relief for replacing sofas, beds, carpets, curtains, white goods, sofas, crockery, cutlery, etc. See GOV.uk for more information on Replacement of Domestic Items Relief.

If they use something for rental income and personal reasons, for example, their mobile phone, they can only claim allowable expenses for the rental income-cost proportion. You’ll need to use a reliable method to work out how much to claim. You’ll also need to retain proof of such costs (HMRC can request this).

“Capital expenses” created by, for example, adding an extension, upgrading kitchen or bathroom, installing a burglar alarm if there wasn’t one previously, etc, are not allowable expenses. However, keep records of such costs because they may be able to offset them against Capital Gains Tax if they one day sell the property.

Need to know! They can’t claim allowable expenses if they claim the £1,000 tax-free property allowance, which is advised if their expenses are below £1,000 a year.

  • Visit Gov.uk for government guidance on how to work out their rental income when they let property, which includes information about allowable expenses.

 

Completing your client's Self Assessment tax return

Complete your client's Self Assessment tax return as soon as you can in January. The later you leave it, the closer the deadline will get, which could cause you to rush. This makes mistakes more likely.

Take your time when completing your client's Self Assessment tax return. Give yourself enough time to get it done, in as few sessions as possible. Do it in a place where there are no distractions, so you can concentrate fully on completing the Self Assessment tax return.

 

Top tip! Before you start to fill in your client's Self Assessment tax return, to help you get the job done quicker, have the following to hand:

  • your client's ten-digit UTR
  • your client's National Insurance number
  • details of all your client's income from the tax year (eg income from self-employment, dividend payments, interest, rental income, etc)
  • your client's P60 if they've also earned income from part-time or full-time employment (youll also need to report their taxed income)
  • summaries of costs your client wishes to claim as allowable expenses
  • contributions to charity or pensions that qualify for tax relief (if applicable).

Having all of your client's income and costs already neatly summarised in accounting software really will save you a lot of time when it comes to filling in their Self Assessment tax return. Figures from accounting software can easily be imported into Self Assessment filing software. Alternatively, manually summarise all of their sales and costs before you start to fill out their Self Assessment tax return.

Need to know! If you file online but realise that youve made a mistake in the Self Assessment tax return, youll have to wait 72 hours, but youll then have up to 12 months to correct any errors.

 

What if you still miss the online filing deadline?

If you miss the midnight 31 January online filing deadline and dont have a reasonable excuse, your client will be charged a £100 penalty. Their fine will increase if they still havent filed after three months. 

 

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

So, your clients gone self-employed in the past year or so and needs to report taxable  income via Self Assessment? Great. Only problem is – they haven’t completed a Self Assessment tax return before. Gulp.

In truth, with a bit of knowledge, completing a Self Assessment tax return is nothing to worry about. Each year, more than 12.2m Self Assessment tax returns are filed by people from a wide range of backgrounds – people just like your clients.

However, passing some basic knowledge to them about how completing their Self Assessment tax return is simple enough and certainly nothing to worry about really (as long as you don’t leave it too late) will help. Here are 21 things your client may need to know, that will ease the strain for you as you work together to complete their return…

Register for Self Assessment

1 To pay Income Tax and National Insurance contributions (NICs), self-employed people (AKA sole traders) must register for Self Assessment. Self Assessment is the system that the government and the UK tax authority HMRC use to collect Income Tax

2 You can register for Self Assessment via government website GOV.uk You must register for Self Assessment by 5 October in your second trading tax year (the tax year runs from 6 April to 5 April), you could be fined if you dont. Do it sooner rather than later.

3 Youll need a Government Gateway user ID and password to sign into your business tax account to complete your Self Assessment tax return. If you dont have one, getting a user ID via GOV.uk is simple enough.

Need to know! After registering online, within 10 days (21 if you live overseas), youll get a letter through the post with your Unique Taxpayer Reference (UTR) number. You need your UTR to file your Self Assessment return.

Filing your Self Assessment tax return

4 You can complete and file your Self assessment tax return as soon as the tax year ends on 5 April. Its best to get it done and dusted long before the online filing deadline, which is midnight on the 31 January.

Need to know! Should you choose to download and fill out a paper tax return – something that only about 4% of people still do – the filing deadline is 31 October. Filing online is much quicker, easier and more convenient, with mistakes much less likely, too, if you use reliable third-party software.

5 Youll probably have to pay a penalty and interest if you do not file your Self Assessment tax return and pay any tax you owe when required.

6 Once registered, if you choose to file online (as more than 95% of people do) you can file directly with HMRC via Government Gateway or you can use third-party commercial software (which can save you time and money).

7 Using Self Assessment software can ensure that you enter all of the necessary information in the right places. Automatic prompts prevent mistakes and can minimise your tax bill by helping you to claim all of the tax allowances and reliefs to which youre entitled.

Need to know! If you decide to file online but miss the midnight 31 January deadline and dont have a reasonable excuse, youll be charged a £100 penalty. Your fine will increase if you still havent filed after three months. 

The Self Assessment tax return

8 Self-employed individuals need to complete the main Self Assessment tax return (SA100) as well as a supplementary page (SA103S or SA103F), summarising their taxable self-employed income and costs.

9 You use the SA103S if your annual business turnover was below the VAT threshold in the tax year (£85k for the 2022/23) and you use SA103F if your turnover was higher.

10 You may need to complete and file other supplementary pages if you have other taxable income to report, for example, SA105 if you also earn taxable income from renting out UK property.

11 Within the SA100, you provide details of taxable income and any capital gains, as well as student loan repayments (if applicable), taxable bank or building society interest, pension payments, annuities, donations to charity and tax reliefs and allowances that you wish to claim.

Self Assessment allowable expenses

12 Self-employed people can claim for many business costs. Such allowable expenses” can include: business premises heating, lighting, water; rates; stock and raw materials; travel (ie fuel, parking, train/bus/taxi fares); staff/subcontractor wages; office costs (stationery, phone and broadband); insurance or bank charges; uniforms or safety clothing; marketing/advertising; training; professional fees.

  • Visit government website GOV.uk for more information about claiming sole trader allowable expenses.

13 Sole traders who work from home all or some of the time can claim a proportion of their domestic costs for electricity, gas, water, Council Tax, mortgage interest or rent, broadband and telephone use, repairs and maintenance, etc.

14 If you use something for both business and personal reasons, you can only claim allowable expenses for the business cost proportion. Youll need to use a reliable method to work out how much to claim.

15 Rather than working out your actual business expenses, HMRC allows you to claim flat-rate simplified expenses” for running your business from home and business travel. Visit GOV.uk to find out more about simplified expenses.

Need to know! If youre not sure whether a business cost is allowable, contact the Self Assessment helpline. You cant claim allowable expenses if you claim the £1,000 tax-free trading allowance, which is advised if your expenses are below £1,000.

Completing your Self Assessment tax return

16 According to Which?, on average, it takes about two and a half hours to complete a Self Assessment tax return. And while more experienced people (about 20%) can get it done in less than an hour, it takes as long as five hours for 10% of Self Assessment taxpayers. Some people do it in one session, others do it in two or three.

Top Tip! Before starting, read HMRCs guidance and help sheets on the SA100 and supplementary pages so that you better understand what information you need to enter.

17 Before you start to fill in your Self Assessment tax return, to help you to complete the task much sooner, have all of the following to hand:

  • your ten-digit Unique Taxpayer Reference (UTR)
  • your National Insurance number
  • details of your income from the tax year (eg income from self-employment, dividend payments, interest, rental income, etc)
  • categorised summaries of costs you wish to claim as allowable expenses
  • contributions to charity or pensions that might be eligible for tax relief.

Having all of your income and costs neatly summarised already in accounting software really will save you a lot of time when it comes to filling in your Self Assessment tax return.

Top Tip! If you also receive income from part-time or full-time employment, have your P60 to hand. Even though youve already paid tax on it, you need to include employed incomes in your SA100, so that your overall tax liability can be calculated.

18 Dont rush when filling out your Self Assessment tax return, otherwise youre more likely to make mistakes. Pick a time and a place where youll be free from distractions, so you can concentrate fully on the job in hand.

19 You can file your Self Assessment tax return any time after 6 April, so dont leave it until the week before the online filing deadline (midnight on 31 January). You dont need that additional stress, right?

20 If you file online but suddenly realise that youve made a mistake in your Self Assessment tax return, you’ll have to wait three days (72 hours) to correct it. But you can amend figures up to 12 months after the filing deadline.

How much tax will you pay?

21 Your tax bill will be based on the figures youve reported in your Self Assessment tax return and the Income Tax into which your taxable income falls.

  • Thanks to the Personal Allowance, you dont pay any Income Tax on the first £12,570 of your income (providing you dont earn more than £125,140 in a tax year). This is in addition to other tax reliefs and allowances that you can claim.
  • The 20% Basic Rate of Income tax is payable on income between £12,571 and £50,270. The 40% Higher Rate of Income Tax is payable on income between £50,271 and £150,000. The 45% Additional Rate of Income Tax is payable on earnings of more than £150,000 a year (*Income Tax bands are different in Scotland).
  • Self-employed sole traders normally pay two types of National Insurance contributions (NICS): Class 2 (£3.15 a week) if your profits are £6,725 or more a year; and Class 4 if your profits are £11,909 or more a year (9.73% on profits between £11,909 and £50,270; 2.73% on profits over £50,270: *2022/23 tax year for all figures quoted).

Need to know! The deadlines for paying your tax bill are 31 January for any tax you owe for the previous tax year (its called a balancing payment”) and your first payment on account” (advance payments towards your tax bill, including Class 4 NICs if youre self-employed), then 31 July for your second payment on account.

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

So, your client has recently joined the ranks of the UK’s 2.6m private residential landlords and need to report taxable rental income via Self Assessment?

They might be slightly worried about having to complete their first Self Assessment tax return. As the online filing deadline (midnight 31 January) moves closer, they may soon start to dread the thought of it.

However, passing some basic knowledge to them about how completing their Self Assessment tax return is simple enough and certainly nothing to worry about really (as long as you don’t leave it too late) will help. Each year, more than 12.2m Self Assessment tax returns are filed and many are completed by landlords like your clients.

Here are 21 things your client may need to know, that will ease the strain for you as you work together to complete their return…

Register for Self Assessment

1 To pay Income Tax on rental income, most landlords register for Self Assessment. Self Assessment is the system that UK tax authority HMRC uses to collect Income Tax.

2 You can register for Self Assessment via government website GOV.uk  After registering online, within 10 days (21 if you live overseas), youll get a letter through the post with your Unique Taxpayer Reference (UTR) number. You need it to file your Self Assessment return.  

3 Youll need a Government Gateway user ID and password to sign into your business tax account to complete your Self Assessment tax return. If you dont have one, getting a user ID via GOV.uk is straightforward.

Need to know! You should contact HMRC if your property rental income is between £1,000 and £2,500 a year. You must report your rental income via Self Assessment if its between £2,500 and £9,999 after allowable expenses (see below) or £10,000 or more before allowable expenses.

Filing your Self Assessment tax return

4 You can complete and file your Self assessment tax return as soon as the tax year ends on 5 April. Its best to get it done long before the online filing deadline (midnight on 31 January).

Need to know! If you choose to download and fill out a paper tax return – something that only about 4% of people still do – the filing deadline is 31 October. Filing online is much quicker, easier and more convenient, with mistakes much less likely.

5 Youll probably have to pay a penalty and interest if you do not file your Self Assessment tax return and pay any tax you owe when required.

6 Once registered, if you choose to file online (as more than 95% of people do) you can file directly with HMRC via Government Gateway or you can use third-party commercial software.

7 Using Self Assessment software can save you lots of time and money. It can ensure that you enter all of the necessary information in the right places within your tax return. Automatic prompts prevent mistakes and the support you receive can ensure that you claim all of the tax allowances and reliefs to which youre entitled (see below).

Need to know! If you miss the midnight 31 January online filing deadline and dont have a reasonable excuse, youll be charged a £100 penalty. Your fine will increase if you still havent filed after three months. 

The Self Assessment tax return

8 Landlords must complete the main Self Assessment tax return (SA100), as well as a supplementary page (SA105) that summarises their taxable rental income and costs.

9 The SA105 form is just two pages long. You can download it from government website GOV.uk  HMRC also publishes guidance for landlords on how to fill out the SA105 supplementary page.

10 You may need to complete and file other supplementary pages if you have other taxable income to report, for example, SA103S or SA103F if you also earn taxable income from self-employment.

11 Within the SA100, you provide details of taxable income, as well as student loan repayments (if applicable), taxable bank or building society interest, pension payments, annuities, donations to charity and tax reliefs and allowances that you wish to claim.

Self Assessment allowable expenses

12 Landlords can claim for many costs they incur to be able to rent out their property. Such “allowable expenses” can include: letting agents’ fees; legal fees (for lets of a year or less) or for renewing a lease for less than 50 years; accountancy fees; buildings and contents insurance; property maintenance and repairs (but not improvements); utility bills if you pay them; ground rent and service charges; Council Tax; cleaning or gardening; other direct costs relating to renting out your property, such as phone calls, stationery, advertising, travel, etc.

  • Visit government website GOV.uk for more information on landlord allowable expenses.

13 If you use something for personal and rental reasons, for example, your mobile phone, you can only claim allowable expenses for the rental cost proportion. Youll need to use a reliable method to work out how much to claim.

14 You may be able to claim tax relief when you spend money replacing a domestic item, for example, a bed, sofa, curtains, cushions, carpets, fridge, crockery, cutlery, etc. This is called replacement of domestic items relief. You must have bought the item for use by tenants in your residential property to replace something thats no longer usable.

15 If youre not sure whether a cost is allowable, contact the Self Assessment helpline. You cant claim allowable expenses if you claim the £1,000 tax-free property allowance, which is advised if your expenses are below £1,000.

Completing your Self Assessment tax return

16 According to Which?, on average, it takes about two and a half hours to complete a Self Assessment tax return. And while more experienced people (about 20%) can get it done in less than an hour, it takes as long as five hours for 10% of Self Assessment taxpayers. Some people do it in one session, others do it in two or three.

Top Tip! Before starting, read HMRCs guidance on the SA100 and SA105 so that you better understand what information you need to enter.

17 Before you start to fill in your Self Assessment tax return, to complete the task much sooner, have the following to hand:

  • your ten-digit Unique Taxpayer Reference (UTR)
  • your National Insurance number
  • details of your income from the tax year (eg rental income, as well as any from self-employment, dividend payments, interest, rental income, etc)
  • categorised summaries of rental costs you wish to claim as allowable expenses
  • contributions to charity or pensions that might be eligible for tax relief.

Having all of your rental income and costs neatly summarised already in accounting software really will save you a lot of time when it comes to filling in your Self Assessment tax return.

Top Tip! If you also receive income from part-time or full-time employment, have your P60 to hand. Even though youve already paid tax on it, you need to include your employed income in your SA100, so that your overall tax liability can be calculated.

18 Dont rush when filling out your Self Assessment tax return, otherwise youre more likely to make mistakes. Pick a time and a place where youll be free from distractions, so you can concentrate fully on the job in hand.

19 You can file your Self Assessment tax return any time after 6 April, so dont leave it until the week before the online filing deadline (midnight on 31 January).

20 If you file online but suddenly realise that youve made a mistake in your Self Assessment tax return, you’ll have to wait three days (72 hours) to correct it. But you can amend figures up to 12 months after the filing deadline.

How much tax will you pay?

21 Your tax bill will be based on the figures youve reported in your Self Assessment tax return and the Income Tax into which your total taxable income falls.

  • Thanks to the Personal Allowance, you dont pay any Income Tax on the first £12,570 of your income, provided that you dont earn more than £125,140 in a tax year. This is in addition to other tax reliefs and allowances that you can claim.
  • The 20% Basic Rate of Income tax is payable on income between £12,571 and £50,270. The 40% Higher Rate of Income Tax is payable on income between £50,271 and £150,000. The 45% Additional Rate of Income Tax is payable on earnings of more than £150,000 a year (*Income Tax bands are different in Scotland).
  • Because youre not running a professional property business, merely renting out property that you own, no National Insurance contributions are payable.

The deadlines for paying your tax bill are 31 January for any tax you owe for the previous tax year (its called a balancing payment”) and your first payment on account” (advance payments towards your tax bill), then 31 July for your second payment on account.

  • Visit government website GOV.uk for more guidance on your responsibilities as a landlord.

 

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

GoSimpleTax: Recording income, expenses, and full self-assessment tax submission all in one. Taking control of your finances and allowing you to always know your tax owed.  Our software provides you with tips that can save you money on allowances and expenses.

Our software submits directly to HMRC and is the digital solution for the self-employed, freelancers and anyone with income outside of PAYE to record income, expenses and file your self-assessment giving hints on savings along the way. GoSimpleTax does all the calculations for you saving you ££’s on accountancy fees.  
 
GoSimpleTax are offering you the chance to win a £50 Amazon gift voucher that will be sent to you before 25th December. That’s right, a £50 voucher for you, to use before the festive season on anything you like!
 
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About 20% of UK adults are reported to own cryptocurrency, with almost 45% of them having invested in the past year or two. Buying crypto accelerated during the pandemic, with UK ownership levels now similar to Germany, Ireland and other European countries.

Most UK crypto investors live in London. Research suggests that almost a quarter live in the capital, with 12% living in England’s North West and 11% in both the South of England and East Anglia. The average crypto investor is in their mid-30s and most people buy cryptocurrency as a medium- to long-term investment, not as a way to try to make quick returns.

If you’re a recent crypto investor or you’re considering becoming one soon, read on to find out:

  • When Capital Gains Tax is payable on crypto.
  • When Income Tax is payable on cryptocurrency.
  • What cryptocurrency records investors must keep.
  • How HMRC can investigate your crypto assets.

When is Capital Gains Tax payable on crypto currency?

In most cases, Capital Gains Tax is payable on cryptocurrency, not Income Tax. Obviously, people invest in cryptocurrency hoping its value as an asset will increase over time. So, like other assets, Capital Gains Tax can be payable if you sell your cryptocurrency tokens, exchange them for other crypto assets, use them to pay for goods or services or give them away (unless you give them to your spouse or partner).

The taxable gain is the difference between how much the cryptocurrency was worth when you bought it and its value on disposal. If your total taxable gains are above the Capital Gains Tax tax-free allowance threshold (£12,300 for the 2022/23 tax year), you’re taxed according to your Income Tax band.

  • If you’re a basic rate Income Tax payer (ie with yearly taxable earnings of £12,571-£50,270) you’ll pay Capital Gains Tax of 10% on crypto gains over the CGT allowance.
  • Higher or additional rate Income Tax payers (ie with taxable earnings of more than £50,270 a year) pay 20% CGT on their crypto gains, once over the CGT allowance (£12,300).

Need to know! To check if you need to pay Capital Gains Tax, you must calculate your gain for each transaction (the rules are different if you sell crypto tokens within 30 days of buying them).

Crypto CGT allowable expenses

Some crypto expenses can be deducted for Capital Gains Tax. According to HMRC, such allowable expenses include:

  • transaction fees paid before the transaction is added to a blockchain
  • advertising for a cryptocurrency buyer or seller
  • drawing up a crypto transaction contract
  • valuations so that you can work out your gain for a transaction.

According to HMRC, deductible allowable expenses can also include “a proportion of the pooled cost of your tokens when working out your gain”.

What about crypto losses and CGT?

You can report losses on cryptocurrency to HMRC to reduce your total taxable gains. When you report these “allowable losses”, they can be deducted from gains made in the same tax year. Unused losses from previous tax years can be carried forward to reduce current or future CGT liability.

You claim your loss via your Self Assessment tax return. You’re not required to report losses straight away; you have up to four years after the end of the tax year within which you disposed of the asset.

Need to know! You report and pay Capital Gains Tax on cryptocurrency by completing a Self Assessment tax return at the end of the tax year or by using HMRC’s real-time Capital Gains Tax service to report it straight away.

When is Income Tax payable on crypto?

  • Income Tax and National Insurance contributions (NICs) can be payable on cryptocurrency if gifted to you as a non-cash bonus/benefit/payment by an employer.
  • If HMRC believes you’re engaged in cryptocurrency trading rather than simply being an occasional investor, Income Tax rather than Capital Gains Tax may be payable (both via Self Assessment).
  • There can also be Stamp Duty, Inheritance Tax and pension contribution implications.
  • You don’t pay Capital Gains Tax on the value of the cryptocurrency if you’ve already paid Income Tax, but you will still need to pay CGT on the gain made after you’ve received the asset if you later dispose of it.

What crypto records might HMRC ask for?

HMRC requires you to keep separate records for each cryptocurrency transaction detailing: token type; date of your disposal; number of tokens disposed of; tokens remaining; value of the tokens in pound sterling; bank statements and wallet addresses; pooled costs before and after you disposed of them.

If it decides to carry out a compliance check, HMRC can ask to see your cryptocurrency records. If you don’t disclose cryptocurrency gains to HMRC it may result in you having to pay tax, interest and penalties.

Need to know! If you’re found guilty of deliberately trying to conceal cryptocurrency income/gains you’re guilty of tax evasion, which can lead to criminal charges.

Does HMRC track crypto?

HMRC can make information requests to crypto exchanges. It has powers to collect data from third parties for use in its compliance activities. Cryptocurrency platforms are obliged to share account information with HMRC and they’re open about doing so. If crypto data is held outside the UK, it might still be accessible via international treaties to which the UK is a party.

“KYC” (“Know Your Customer”) is the term given to a financial institution's obligation to undertake identity and background checks on potential clients before allowing them to use their product or platform. It’s part of a wider set of measures designed to help combat money laundering. The government believes that “hundreds of millions of pounds are likely laundered via over-the-counter crypto brokers”.

Reportedly, HMRC works with large crypto exchanges to share customer information provided from Know Your Customer (KYC) identification records. In recent years, HMRC is reported to have used this information to send “nudge letters” to crypto investors to remind them of their obligation to report their crypto assets and pay their taxes.

Need to know! If you hold cryptocurrency assets, seek professional advice so that you understand your tax position and ensure that you’re reporting cryptocurrency income/gains as required. HMRC remains determined to identify and punish non-compliance.

 

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

There are about 2.6m private landlords in the UK, and although some have large, lucrative property portfolios, 43% of private residential landlords in England rent out just one property. About 39% rent out two to four properties, while 18% rent out five or more. It’s a similar story elsewhere in the UK.

Sometimes people become “accidental landlords”, for example, after inheriting a property which they rent out rather than sell. In other cases, people move to another UK or overseas location and rent out their former home, which provides welcome additional income, as well as a sound retirement investment.

If you’ve just become a residential landlord or you’re interested in becoming one, naturally you’ll want to know the answer to one key question – “how much UK tax will I pay on my rental income?”

How much tax will you pay on your rental income?

  • Most UK residential landlords pay tax on their rental income via Self Assessment, the system UK tax authority HMRC uses to collect Income Tax.
  • You don’t pay tax on the first £1,000 of property rental income. This is called your Property Allowance. However, you can't claim your Property Allowance if you claim allowable expenses (see below).
  • If your annual property income is between £1,000 and £2,500 a year, contact HMRC for advice on reporting your rental income.
  • You must report your rental income via a Self Assessment tax return if it’s £2,500-£9,999 after allowable expenses or £10,000-plus before allowable expenses.
  • Allowable expenses are costs that HMRC allows you to deduct from your rental income. The higher your total allowable expense claim, the lower your tax bill.

Need to know!

To pay tax via Self Assessment you must first register with HMRC. If you don’t normally file a tax return, you must register for Self Assessment by 5 October following the end of the tax year (5 April) within which you had rental income to report.

Your rental income will be added to your other taxable income and once allowances and reliefs have been claimed, you’ll be taxed on what’s left. The Income Tax band into which you fall will determine the size of your tax bill.

  • No tax is payable on annual taxable income of up to £12,570. This is your tax-free Personal Allowance.
  • The basic rate of 20% is payable on taxable income of £12,571-£50,270.
  • The higher rate of 40% is payable on taxable income of £50,271-£150,000.
  • The additional rate of 45% is payable on taxable income of more than £150,000 (*all figures 2022/23 tax year).

Claiming allowable expenses

For an expense to be allowable/deductible, it must result “wholly and exclusively” from renting out your property. If you use something for personal and landlord reasons, such as a mobile phone, you can only claim allowable expenses for calls you make for renting out and managing your property.

You claim allowable expenses by summarising them within your Self Assessment tax return, as well as your rental income and other sources of taxable income. Then HMRC will tell you how much Income Tax you owe.

Need to know! The online filing deadline for your Self Assessment tax return is midnight on 31 January following the end of the tax year in which you had taxable income. The UK tax year runs from 6 April until 5 April.

What allowable expenses can landlords claim?

Allowable expenses that landlords can claim can include:

  • property maintenance and repairs
  • ground rents and service charges
  • redecorating between tenancies
  • insurance
  • water rates, council tax, gas and electricity (if you pay them for the property)
  • gardening and cleaning costs
  • letting agent fees/management fees
  • legal fees for lets of a year or less
  • accountancy/bookkeeping fees
  • direct costs (eg phone calls, stationery and advertising for new tenants)
  • vehicle/fuel costs (only those relating to renting out your property)
  • costs for disposing of old items of furniture or electrical appliances, etc.

What expenses can’t landlords claim?

You cannot claim mortgage capital repayments as an allowable expense. Neither can you claim for mortgage interest payments or other finance-related costs (eg mortgage-arrangement fees). Instead, you get a 20% tax credit to cover such outgoings.

When replacing things, for example, a toilet or burglar alarm, you cannot claim a full allowable expense if the replacement is of superior value. You can only claim for a “like for like” amount as an allowable expense. 

Improving a property, for example, by adding an extension, cannot be claimed as an allowable expense, because you’re making a “capital improvement”. Later, if you sell the property, you may be able to claim capital expenses against Capital Gains Tax.

Need to know! You can’t claim an allowable expense for replacing sofas, beds, carpets, curtains, furnishings, white goods, etc in a furnished or part-furnished rental property. But you might be able to claim Replacement Domestic Items relief, which will also reduce your Income Tax bill. Once again, you cannot claim for something of superior value.

What about undeclared rental income?

If, for whatever reason, you’ve earned rental income that you haven’t reported via Self Assessment, you can tell HMRC about it by means of a “voluntary disclosure”. There may be a penalty to pay, but it will be lower than it would be if HMRC finds that you’ve failed to report taxable rental income. Visit government website GOV.UK to find out more.

 

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

Being self-employed doesn’t usually mean getting an easier ride. Days can be long and tiring, because you must take care of many tasks and shoulder all of the responsibility. Many self-employed people become so deeply entrenched in running their business that they rarely step back, take a breath and carefully consider some key factors.

Although you should probably do it more often, once a year you should take time to take stock. January can be ideal for this, after you’ve filed your Self Assessment tax return and had some time off to rest, relax and take a break from your normal day to day. So, what key factors should you consider, at least once a year, if you’re self-employed? 

1. Business performance

Sounds obvious, right? But, even when armed with figures from their bookkeeping software or Self Assessment tax return, many sole traders don’t take the opportunity to assess their business performance, which is risky. You should know how your sales, costs and profit compare with the previous years. Are they increasing or decreasing? What are the key reasons for any changes? Are things getting better or worse for your business? Assessing your business performance could enable you to learn valuable lessons and perform better in the next 12 months.

2. Accounting procedures

You can’t run and grow a successful business unless you keep a close eye on your sales, costs and cash flow. That’s only possible if you have a reliable financial record-keeping system, one that you regularly update with accurate figures that reveals, at the touch of a button, your business’s true financial health. Is your accounting system up to the job or is it time to update and upgrade? Do you need to up your game when it comes to keeping your financial records current? Could better technology make accounting easier for you?

3. Business systems

The same applies to your other key business systems, so, ask yourself whether they’re still fit for purpose or do you need to improve or upgrade them. All of your systems should function well, save you time, effort and money, while enabling you to take care of things that are critical to your success, such as managing customer relationships, communication, controlling your costs, generating new sales and organising your work and time. Again, could better technology be a game-changer for you going forward?   

4. Tax admin

Do you struggle when it comes to managing tax? Many people do. Does Self Assessment continue to cause you a major headache each January as you battle to file your Self Assessment tax return before the online-filing deadline? Technology can take away much of the pain of managing tax, while you can reach out for support. Crucially, you should ensure that your business is as tax-efficient as possible, of course, which means you’re claiming all of your available allowances and reliefs. The same applies to your own earnings, of course. Seeking tailored tax advice could save you a lot of money. 

5. Business banking

How much do you pay in bank charges every month/year? How could you reduce any interest payments and business banking fees/charges? Although changing to another bank is not as easy as it used to be, you might be able to get a cheaper deal from another bank. Once a year, at least, you should compare your current banking deal with others. You should also arrange to speak to someone at your bank (preferably at your local branch) to find out how you could save money and get more from your relationship. And if you’re still using your personal bank account, setting up a separate business bank account is advised.  

6. Business plan

Many people produce a business plan when starting up, but most fail to ever update it, which renders it useless. If your business plan is to continue to prove a useful tool that helps you to take your business forward, you must update it every year. Your business and its market may have changed massively as a result of the pandemic or other key factors. Take time to consider whether your business plan goals and strategy need updating or rethinking. Once updated, dig out your business plan, at least every six months, to remind yourself of what you’re aiming to achieve and how. It could help to keep you on the right path. Remember: planning without action is futile, while action without planning can be fatal.

And finally…

Also think about yourself. Does your work still stimulate and satisfy you? Are you happy with your take-home or should you be earning more? Would you like to learn new skills and make your working life more varied? What about your work-life balance – does that need improving? Also consider those close to you and the effect your work has on them. Sometimes small changes can make a big difference. 

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

SA800 Partnership Tax Returns – Key Facts You Should Know

Going into business with a partner or partners can offer many benefits. You can gain from other people’s talent, ideas, knowledge, skill, contacts and cash, just as they can gain from yours. You can also share the workload, risk and responsibilities, while avoiding feelings of isolation that can happen when running a business on your own.

The UK has some 384,000 ordinary business partnerships, which is about 7% of the total business population. And whether it’s friends, family, partners, spouses or colleagues, many people continue to start and run a business with partners.

Moreover, in recent years, more people are forming partnerships with others to buy and rent out properties they own as private landlords. There can certainly be many advantages to this, whether that’s linked to tax or simply sharing responsibility and risk.

Members of ordinary business partnerships and those who rent out property through a partnership report taxable income via the SA800 Partnerships Tax Return.

In this guide we explain:

  • What the SA800 is.
  • Who is responsible for completing and filing it.
  • Supplementary pages you may have to submit with your SA800.
  • SA800 Partnership Tax Return filing deadlines and late-filing penalties.
  • When and how you must pay your tax bill.

What is an SA800”?

An SA800 Partnership Tax Return (usually shortened to “Partnership Tax Return”) is the tax return that members of ordinary partnerships must complete and file to tell HMRC about the partnership’s income and “disposals of chargeable assets” (ie selling an asset).

As explained by HMRC in its guidance notes: Every partnership gets the first eight pages of the Partnership Tax Return covering income from trades and professions, and interest or alternative finance receipts from banks, building societies or deposit takers. There are other supplementarypages covering the less common types of income and disposals of chargeable assets.”

  • On pages 6 and 7, the SA800 Partnership Tax Return includes a Partnership Statement, which is where profits, losses or income allocated to the partners are summarised. There are two types of Partnership Statement:
  • A short version for partnerships with trading or professional income only, or interest or alternative finance receipts from banks, building societies or other deposit takers.
  • A full version SA800(PS) covering all types of partnership income.
  • The short Partnership Statement caters for up to three partners, while the full Partnership Statement caters for up to six.
  • You must also fill in the Partnership Trading pages (pages 2 to 5 of the SA800 Partnership Tax Return) if, at any time in the tax year, the partnership carried out a trade or profession. Some partnerships may need to fill in more than one set of Partnership Trading pages.

Need to know! In addition to the main SA800 tax return, each partner must also file a personal tax return (SA100) and the SA104 supplementary pages to declare their share of any profit or loss. Submitting the SA100 and the SA104 determines how much tax, if any, individual partners must pay. Often this gets missed and results in partners being fined by HMRC. A separate page must be completed for each partnership someone belongs to.

How to register a business partnership

You must register your partnership for Self Assessment with HMRC if youre the nominated partner(the partner responsible for tax and filing the partnership tax return).

You must register before 5 October in your business partnerships second tax year, otherwise there could be a penalty to pay. The other partners must register themselves separately as a partner. You wont be able to file an SA800 Partnership Tax Return or a tax return for yourself unless youre registered.

  • Visit government website GOV.uk to register your new partnership.
  • If you cant register online, you can also register using form SA400 (form SA401 to register as a partner), which can be posted to HMRC.

SA800 Partnership Tax Return supplementary pages

Some types of income are taxed differently when earned through a partnership, for example, rental income or income earned from outside of the UK. You must tell HMRC about these in the SA800 and then provide details in supplementary pages. Such sources of income and the supplementary pages used to report them include:

  • Self Assessment: Partnership Statement (full) (SA800(PS))

You use supplementary pages SA800(PS) to declare earnings from sources that arent trading/professional income.

  • Self Assessment: Partnership Trading and Professional Income (SA800)(TP)

You use supplementary pages SA800(TP) to record income from more than one trade or profession on your SA800 Partnership Tax Return.

  • Self Assessment: Partnership UK property (SA801)

You use supplementary pages SA801 to record UK property income on your SA800 Partnership Tax Return.

  • Self Assessment: Partnership Foreign (SA802)

You use supplementary pages SA802 to complete your SA800 Partnership Tax Return if your partnership generated income from outside of the UK.

  • Self Assessment: Partnership disposal of chargeable assets (SA803)

You use supplementary pages SA803 to complete your SA800 Partnership Tax Return if your partnership disposed of any chargeable assets” (eg stocks, shares, land and buildings, business assets such as goodwill, etc).

  • Self Assessment: Partnership savings and investments and other income (SA804)

You use supplementary pages SA804 to record savings, investments and other income on your SA800 Partnership Tax Return.

Responsibility for filling out and filing an SA80

By law, the partner nominated by the other partnership members must complete the SA800 Partnership Tax Return and either send it by post to HMRC or file it online using commercial filing software.

The nominated partner is usually chosen when the partnership is set up, but HMRC can choose someone if no one has been selected. If an SA800 Partnership Tax Return has been issued by HMRC in the name of a specific partner, theyre required by law to complete and file it.

Need to know! When reporting profit or loss, the split must accord with the terms of the partnership agreement. In most cases the share is the same for each partner, although its not always the case.

How to file your SA800 Partnership Tax Return

  • You can send your completed SA800 Partnership Tax Return and any supplementary pages by post to HMRC.
  • Alternatively, most people file their completed SA800 Partnership Tax Return and any supplementary pages online, but you need to buy commercial software to do this. Government website GOV.uk lists commercial tax return software suppliers.

SA800 Partnership Tax Return filing deadlines

  • If you file a paper SA800 Partnership Tax Return, you have until midnight 31 October following the end of tax year (5 April) to which the information refers.
  • If you file your SA800 Partnership Tax Return online, you have until midnight on 31 January following the end of tax year (5 April) to which the information refers.

SA800 Partnership Tax Return late-filing penalties

If you dont file your SA800 Partnership Tax Return before the paper or online deadline, whichever one you choose, each member of the partnership during the tax return period must pay a £100 penalty, unless you have a valid reason for being late.

If the partners still fail to file their SA800, each partner will be charged:

  • More than three months late – a penalty of £10 per additional day the SA800 Partnership Tax Return is late up to a maximum of 90 days (£900).
  • More than six months late – a fixed penalty of £300.
  • More than 12 months late – a further fixed penalty of £300.

Need to know! You must complete the Partnership Tax Return in full. If you have a disability that makes filling in the return difficult HMRC can help you complete the form.

What happens after HMRC receives your SA800?

After receiving it, HMRC will process your Partnership Tax Return using the figures you have entered. If there are any obvious mistakes, HMRC will correct them and let you know. HMRC may also contact you if it has any queries over the figures youve entered.

HMRC has 12 months from the date of filing to check your SA800 Partnership Tax Return and any supplementary pages. It can ask you to provide accounting figures from which you took the figures you entered in the tax return. These can also be checked against your bank account figures.

All partnership members are responsible for the accuracy of their SA800 Partnership Tax Return. The partnership should retain records of all its business transactions. You must keep these for at least six years and show them to HMRC on request.

SA800: tax payment deadlines

The deadlines for paying your tax bill are:

  • 31 January for tax you owe for the previous tax year (called a balancing payment”) and your first payment on account (ie advance payments towards your tax bill) then
  • 31 July for your second payment on account.

 

Keeping your costs to a minimum is advised when starting a business, because it means you can pay off your start-up costs sooner and then start to make a profit. You also risk losing less money if the business doesn’t get off the ground.

Some sole trader businesses can be launched with little or no money, but in many other cases, starting a new business means having to buy many products and services, and those costs can soon mount up.

Whether it costs a lot or relatively little to start your sole trader business, thankfully, you can claim tax relief for “pre-trading” expenses (AKA “pre-trade” expenses), which can lower your tax bill significantly. Read on to find out:

  • What pre-trading expenses are.
  • Which pre-trading expenses you can claim.
  • How to claim pre-trading expenses.

What are pre-trading expenses?

As the name suggests, pre-trading expenses are costs that result from buying products and services to get your sole trader business ready to start trading. Sole traders usually cover these expenses out of their own pocket when starting their business and it can be easy to forget some of them, so keep a detailed record of all your start-up purchases and expenses, so you can claim them all back.

As long as things are bought “wholly and exclusively” for “the purposes of a trade, profession or vocation” before you start your business then HMRC would class them as “allowable” (ie a legitimate business expense that is subject to tax relief) had your business started trading, you can claim them as if they were an expense incurred on your first day of trading.

Need to know! Tax relief for pre-trading expenses is only available to the person who bought the products or services and who starts the sole trader business.

Which pre-trading expenses can be claimed?

Sole traders can claim a wide range of allowable expenses, including stock/raw materials, rent, mortgage interest repayments, rates, utilities, business insurance, phone and broadband costs, printing, stationery/office costs, bank, loans and credit card charges. Other allowable expenses include advertising, marketing, accountancy/professional fees, vehicle, travel and accommodation costs, as well as safety wear and business-branded clothing.

You may well have needed to pay some of these before registering as self-employed and/or starting your sole trader business, creating pre-trading/trade expenses in the process. For example, you might have bought raw materials to create products to show to potential customers, or you may have had leaflets, brochures or business cards designed and printed. You could have made many phone calls.

Maybe you paid a designer to create a logo for you or you needed to buy a website domain or website subscription. You may have needed to make business-related journeys, using your own vehicle or by public transport, to visit potential customers or suppliers. Potentially, these and many others could be claimed as pre-trading/trade expenses.

Need to know! Visit government website GOV.uk for more information about allowable expenses when running a sole trader business.

When should you claim costs as capital allowances?

  • If you use “traditional accounting” methods (ie where you record income and expenses by the date you invoiced or were billed), you claim capital allowances when you buy assets you keep to use in your business, such as equipment, machinery, tools and business vehicles (cars, vans, and lorries).
  • If you use “cash basis accounting” methods (ie you only record income or expenses in your accounts after you receive money or pay a bill) and buy a car for your business, you claim this as a capital allowance, but all other assets you buy and keep in your business should be claimed as an allowable expense.

Top tip! If you’re registered for VAT, you may be able to claim back the VAT you’ve paid on pre-trade products and services you’ve bought.

How to claim pre-trade/trading expenses

As with allowable expenses when running a business, you must have proof to support your claim for pre-trading expenses. This usually means an invoice or detailed sales receipt showing what you’ve bought, when and how much you’ve paid. You don’t have to submit these with your Self Assessment tax return, but HMRC can later request evidence of any expense you claim. Fraudulent claims can lead to serious penalties.

Detailing all of your start-up purchases and costs in accounting software or even a simple spreadsheet will make later claiming pre-trading costs much simpler and quicker. 

Basically, you claim Income Tax relief for your pre-trade/trading expenses as if they were allowable expenses in your Self Assessment tax return for your first year of trading.

These are deducted, together with any tax allowances to which you’re entitled, before your tax bill for your first year in business is calculated. HMRC will contact you to tell you how much tax you owe.

Need to know! If you complete and file your first Self Assessment tax return when required, but later remember a pre-trade expense that you failed to claim for, you have up to 12 months to amend your tax return.

With prices across the board rising faster than they have for decades, many of us are watching the pennies more carefully, tightening our belts and looking for ways to cut costs.

That includes the UK’s 2.6m private landlords, many of whom can’t put up the rent they charge because tenants’ wages aren’t increasing anywhere near in line with inflation. For many UK private landlords, finding ways to reduce costs is the only way to protect their rental incomes.  

If you’re one of the UK’s private landlords, don’t rule out anything when seeking to reduce your costs – and that includes tax. It could well be possible to reduce your tax costs, possibly in ways you hadn’t yet considered. So, how might you be able to reduce your tax costs?

1 Claim all of your allowable expenses

An obvious place to start. Fortunately, many products and services you need to buy to rent out your property can be claimed as “allowable expenses”, which you deduct from your profits to help minimise your yearly tax bills.

Allowable expenses for landlords include general property maintenance and repairs (but not improvements), water rates, council tax, possibly gas and electricity, insurance, gardening and cleaning services, letting agent/management fees, legal fees for lets of a year or less, accountancy fees, rent (if you’re sub-letting), ground rents and service charges, advertising when looking for new tenants, stationery, property rental-related phone calls and mileage.

You’re probably already claiming for many allowable expenses, but you may not be claiming for all of them. Visit government website GOV.uk to find out more about allowable expenses you can claim.

Poor expense management can also mean you’re not claiming for all of your deductible expenses. Be sure to record all of your expenses and retain receipts and invoices, so that you don’t forget to claim any. Many apps and software allow you to use your smartphone to photograph, store and record receipts, which ensure that you never miss any out.

2 Claim for home office expenses

You can claim allowable expenses for operating a small office in your home to take care of business admin relating to renting out your property. Many private landlords do it. Based on how much time you use your home office, you claim for a share of total costs for your rent or mortgage interest payments, water rates, domestic heating and lighting, broadband and phone calls. Stationery and office furniture can also be claimed as an allowable expense.

3 Claim for other allowances and reliefs

You can claim the property allowance, which is a tax allowance worth £1,000 a year. If you claim the property allowance, you can’t claim for allowable expenses, but if you have few allowable expenses and the mortgage is paid, the property allowance can be worth claiming. If you own the property with your partner or spouse and split the profits, you can both claim the property allowance.

Landlords can’t claim the costs of replacing furnishings or equipment in a furnished or part-furnished rental property as an allowable expense, but they may qualify for full Replacement Domestic Items relief for replacing sofas, beds, carpets, curtains, fridges, washing machines, sofas, crockery, cutlery, etc, as long as the quality is comparable, not superior. Such replacements should not come out of your own home or pocket.

4 Claim for void periods

The extreme disruption caused by the pandemic meant that some landlords were left with empty rental properties for many months. If you were among them and you still had to pay expenses such as electricity, gas, water and council tax, make sure you claim for these expenses if you haven’t already. 

And like many other UK landlords, you may have made significant losses in recent years as a result of the pandemic. These losses can, of course, be carried forward and claimed against subsequent years when you have made a profit. If you own more than one property, expenses for one property can be offset against income from another.

5 Transfer ownership into a limited company

You need to carefully crunch the numbers to find out which option is best for you. Transferring ownership of your property into a limited company can be more tax-efficient, but you need to factor in all other costs, such as accountancy fees, which can be higher because more tax admin is required. More importantly, you also need to consider stamp duty and capital gains tax if you sell property to a limited company that you set up.

If the company needs to take out a commercial mortgage, it’s likely to be more expensive, too. You also need to consider the tax implications if you later sell the property. If you own one or two rental properties, transferring ownership to a limited company probably isn’t worthwhile. But if you have a portfolio of more rental properties, transferring ownership to a limited company could prove much more tax-efficient.

6  Do your own Self Assessment tax returns

For a variety of reasons, you may be paying an accountant to do your bookkeeping and/or take care of your annual Self Assessment tax return. This can cost between £200 and £400 a year, plus VAT. Cheaper deals are available, but you get a very basic service, normally with no tax advice.

If things are really tight, you could save that money by maintaining your own accounts and completing your own Self Assessment tax return. If you’ve not done it before, it will involve some research and learning, but it may be possible to complete your Self Assessment tax return in less time than you think. Reportedly, it takes just 2.5 hours on average.

More than 7.25m UK families receive Child Benefit, which helps to cover some of the living costs of about 12.66m children and young adults. Child Benefit is payable to those who bring up children below the age of 16 or young adults below the age of 20 in approved education or training.

Only one parent or guardian can get Child Benefit, which is paid each month, but there is no limit to how many children you can claim for. For the 2022/23 tax year, you get £21.80 a week for your first child/young adult and £14.45 for each additional child/young adult. 

The number of people receiving Child Benefit has fallen since the early 2000s. And according to HMRC, the introduction of the High Income Child Benefit Charge (HICBC) in January 2013 led to a decrease in the number of families claiming Child Benefit, with many opting out because of the tax implications.

In this guide you’ll learn:

  • Who must pay the High Income Benefit Charge.
  • How the High Income Benefit Charge is paid.
  • How to opt out of paying the High Income Benefit Charge.
  • What to do if your circumstances change.
  • How to reclaim overpaid High Income Benefit Charge.

Who pays the High Income Benefit Charge?

The High Income Child Benefit Charge is payable when you or your spouse/partner’s taxable annual income is more than £50,000 and you receive Child Benefit. It can also be payable if someone else (eg your ex-spouse) receives Child Benefit for a child/young adult living with you and they contribute at least an equal amount towards their living costs.

You don’t need to be the biological parent for High Income Benefit Charge rules to apply. For High Income Benefit Charge purposes, income is your total taxable income before your or your partner’s Personal Allowance or any other allowances (eg Married Couple’s Allowance) are taken into account.

If your income and your partner’s income are each more than £50,000 a year, the person with the higher personal income is responsible for paying the High Income Benefit Charge. “Partner” means someone you’re married to or in a civil partnership with or living with them as if a civil partner.

Do you claim Child Benefit or opt out?

If you or your partner’s taxable, pre-allowance income is more £50,000 a year, you must report Child Benefit you receive and pay tax on it via Self Assessment (the system HMRC uses to collect Income Tax).

Because of the tax implications, you can decide not to claim Child Benefit, in which case you won’t need to report it or pay tax on it. You do this by stating on the Child Benefit claim form that you do not want to receive Child Benefit. You’ll still get National Insurance credits towards your State Pension entitlement, while your child/children will automatically be sent their National Insurance number before they’re 16, which, obviously, they’ll need.

You can decide to claim Child Benefit and later opt out; or opt out and later opt in. You’re not required by law to claim Child Benefit.

How much High Income Child Benefit Charge is payable?

  • The High Income Child Benefit Charge is 1% of the amount of child benefit for each £100 of your income, on a sliding scale between £50,000 and £60,000.
  • So, for those earning more than £60,000 the charge is 100%, which means they’re no better off by claiming Child Benefit, so they’d be better opting out to save themselves the trouble of having to complete a Self Assessment tax return.

Need to know! Government website GOV.UK features a handy online calculator so you can work out how much Child Benefit you’ll receive in a tax year and how much High Income Child Benefit Charge will be payable.

Paying the High Income Child Benefit Charge 

To pay the High Income Child Benefit Charge, first you’ll need to register for Self Assessment. Then you’ll need to fill in and file a Self Assessment tax return each year. Government website GOV.UK explains how to register for Self Assessment if you’re not self-employed.

If you don’t already send a Self Assessment tax return, you must register by 5 October latest following the end of tax year for which you need to pay the High Income Child Benefit Charge (the UK tax year ends on 5 April). You may be fined if you fail to register when required, while not declaring taxable income from Child Benefit can also lead to financial penalties.

Stopping and starting Child Benefit

Because of the tax implications (eg you receive a significant wage rise), you may decide to stop claiming Child Benefit. To do this, you can fill in an online form (you’ll need your Government Gateway user ID and password when you sign in) or write to or call the Child Benefit Office. You must pay any High Income Child Benefit Charge you owe for the tax year up to the date your Child Benefit stopped.

If your circumstances change and you want to start claiming Child Benefit again (eg your income drops), you do in the same way as detailed above. Payments usually start again within days and you’ll be told whether you’re due any backdated Child Benefit.

If your taxable income changes and it falls below £50,000 for the year, you won’t have to pay the High Income Child Benefit Charge. You can stop or restart your Child Benefit whenever you like. Your High Income Child Benefit Charge liability can change should a former partner move out or a new partner move in (they may be claiming Child Benefit), which is something to bear in mind. To find out about the tax implications you can use the High Income Child Benefit Charge online tool on GOV.UK, before perhaps seeking tailored advice. 

Preventing mistakes and limiting your tax liabilities

As already explained, failure to report taxable Child Benefit via Self Assessment, which you may need to register for, can lead to financial penalties. These can be significant if made over a number of years. As well as a fine, expect to pay outstanding tax and interest. Ignorance is no defence.

Not getting your self Assessment tax return in by the filing date can also lead to penalties, although (for a fee) you can get help with yours, while third-party Self Assessment software can make the task much quicker and easier, with mistakes also less likely.

You also need to ensure that tax doesn’t continue to be deducted from your income when you stop claiming Child Benefit, for example, when your son or daughter is above the age of 16 or 20 if in training or education, or they suddenly leave education or training. This is more likely if deductions for the High Income Benefits Charge are made via the payroll of a company you work for. If you suspect that you’ve been paying tax on Child Benefit that you didn’t receive, seek a refund from HMRC.

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 - 20 client submissions just £137.99 inc VAT and using discount.

RRP = £173.99 for 10 submissions and £1 thereafter for additional returns.

The UK is facing a serious cost-of-living crisis. Its being driven by eye-watering utility bill increases, rocketing fuel pump prices and record inflation thats making the weekly supermarket shop and other purchases far more expensive. Moreover, interest rates are increasing, with more hikes expected, while take-home pay isnt increasing anywhere near in line with inflation.

Many people are already having to cut back to get by, and that includes the nations 3.5m sole traders, the unsung heroes of the economy who make up 59% of the total UK business population (5.9m), as well as the 405,000 people (7%) who run ordinary business partnerships.

Caution is advised when cutting costs, because if you cut them too much or in the wrong places, it can damage your sole trader business. But sole traders can potentially make savings in most if not all areas – and that includes tax. That doesnt mean doing anything illegal, of course, but just finding ways to minimise your tax bill and limit your tax-management costs. So, how might you save money on tax when youre self employed?

1 Claim all of your allowable expenses

If youve been running your sole trader business for some years, youve probably already claimed allowable expenses via your Self Assessment tax returns. These are costs generated wholly and exclusively” to operate your sole trader business. You deduct these from your income so that youre taxed solely on your profits.

Do some research to find out whether youre claiming all of your allowable expenses. Government website GOV.UK is a great starting point to find out more about allowable expenses.

How might you be missing out? If you run your sole trader business from commercial premises or supply services at your customers’ homes, you can claim allowable expenses for operating a small home office for after-hours admin work. Make sure you also claim for all eligible business mileage costs. You might be paying for things which could be claimed as an allowable business expense. Even small expenses such as postage stamps or a daily pint of milk mount up over the year.

2 Make Marriage Allowance work for you

You’re probably already claiming your Personal Allowance of £12,570 a year, which is tax-free income you can earn if your net income is below £100,000. But if you’re married or in a civil partnership, find out about Marriage Allowance. It could reduce how much tax you or your partner pays if you or they are a basic rate Income Tax payer (ie income of £12,571-£50,270 – 2022/23 tax year).

The Marriage Allowance enables a partner who is earning below £12,570 a year to transfer 10% of their Personal Allowance to their higher-earning partner, which equals £1,260 and offers a potential tax saving of up to £252 a year

3 Lower your “payments on account”

Most self-employed people pay their Income Tax in two advance payments, one in January and the other in July, with payments based on the previous year's tax bill. However, if your earnings for this tax year will be lower, you can reduce your payments via your Government Gateway online account or by sending a completed SA303 form to HMRC. Otherwise, you’ll pay more and have to wait for a refund from HMRC.

4 Get tax relief on your pension contributions

Private pension contributions paid into HMRC-registered private pension schemes are tax-free up to set limits. You’ll only pay tax if the value of your pension pot goes above 100% of your earnings in a year or is more than £40,000 a year. 

As explained on the government’s Money Helper website: “If you’re a basic-rate taxpayer, the government will add an extra £25 for every £100 you pay into your pension. If you pay enough tax at the higher rate of 40% in England, Wales or Northern Ireland, you can claim back a further £25 through your tax return for every £100 you pay into your pension. In Scotland, you can claim an extra £1.58 for every £100 paid if you pay enough tax at the Scottish Intermediate Rate of 21% [and] a further £26.58 if you pay enough tax at the Scottish Higher Rate of 41%.”

5 Donate to a charity

They’re not only a great way to make a positive difference, but donations to charities or community amateur sports clubs are also subject to tax relief. Donations made through Gift Aid enable charities to claim an extra 25p for every £1 you give, as long as you make a declaration vis a Gift Aid form. Donations will qualify and long as theyre not more than four times what you’ve paid in Income Tax or Capital Gains in that tax year. If you pay tax above the basic rate of Income Tax, via Self Assessment, you can claim the difference between the rate you pay and basic rate on your donation.

6 Claim for previous tax return mistakes or trade losses

If you’ve made mistakes in tax returns in the past four years, for example, by not claiming for all of your allowable expenses, you may be able to claim a refund for overpaid tax. You write to HMRC to tell them you want to claim overpayment relief. You must include proof that you’ve overpaid tax through Self Assessment and sign a declaration confirming the accuracy of the new details you’ve provided. Obviously, you must not wilfully make invalid claims.

Covid meant that many sole traders made a loss in recent years, with some unable to claim government support. If you’re among them and you haven’t already done so, you may be able to offset a loss against profits made in subsequent years, which will reduce your next tax bill.

7 Do your own Self Assessment tax return

If you’re currently paying an accountant to complete your Self Assessment tax return, doing it yourself could save you a few quid. For a lower price (£50 or so), software can make completing your own Self Assessment tax return cheaper, quicker and easier, with the software providing prompts to help you enter the right figures in the right place. Such software also comes with customer support. 

Other ways to save money and pay less tax

Transferring ownership of assets to your spouse or civil partner can shield you from Capital Gains Tax. You do not pay Capital Gains Tax on assets you give or sell to your spouse or civil partner, providing you live together and their business doesn’t sell them. They may have to pay tax on any gain if they later dispose of the asset.

You may also benefit on savings and investments. The Starting Rate for Savings supports savers on the lowest incomes, as you don’t pay tax on up to £5,000 of interest from savings. The Personal Savings Allowance also enables tax-free earnings. Basic rate taxpayers get a £1,000 tax-free allowance, while higher rate taxpayers get £500 (additional rate taxpayers get nothing). Tax-free ISAs (Individual Savings Accounts) could be another option.

If you rent out a spare, furnished room in your home, the Rent-a-Room Scheme enables you to earn up to £7,500 a year in tax-free rent. And under the Tax-Free Childcare scheme, parents can claim back 25% of their childcare costs up to £500 every three months, as long as they earn less than £100,000 a year and the child is under 11. You’ll need to set up an online childcare account, then for every £8 you pay in, the government will pay in £2 that you can use to pay your childcare provider. You can get Tax-Free Childcare and 30 hours free childcare if you’re eligible for both.

A penny saved…

Finding ways to save on tax can take effort, but the results make it worthwhile, with every penny saved a penny earned. Lowering your costs wherever possible increases the chances that you and your sole trader business will weather the current financial storm and come out stronger on the other side.

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 - 20 client submissions just £137.99 inc VAT and using discount.

RRP = £173.99 for 10 submissions and £1 thereafter for additional returns.

It's a dream that many people have. Move to another country, somewhere sunnier, to work or retire. For those who choose to live their dream, living overseas is often made possible to a greater or lesser extent by rental income they earn from UK property, one or more, which may include the former family home.

Rental income from UK residential property when you live overseas is subject to UK Income Tax rules, while making a profit (a “gain”) from selling UK property or land can also mean you owe Capital Gains Tax.

Read on to:

  • Find out about the Non-Resident Landlord Scheme.
  • Learn how much UK rental income is tax-free if you’re an ex-pat landlord living overseas.
  • Find out how much tax you’ll pay on UK rental income.
  • Discover what allowances and reliefs you can claim to reduce your tax bill.

The Non-Resident Landlord Scheme

People from the UK who live abroad for six or more months a year and rent out UK property may be considered “non-resident landlords” by HMRC, regardless of whether they’re a UK resident or not for tax purposes. Introduced to ensure that UK Income Tax is paid on UK rental income, the Non-Resident Landlord Scheme (NRLS) requires landlords, tenants and letting agents to obey strict rules if they’re to avoid being fined.

Under the NRLS, the tenant or letting agent is legally obliged each month to deduct any tax due before the landlord living overseas is paid any rent. All of this deducted tax must be paid in full to HMRC every three months.

When the ex-pat landlord completes their UK Self Assessment tax return, the tax their tenant or letting agent has paid to HMRC can be claimed as a deduction against the landlord’s UK tax liability. Non-resident landlords can apply to have rent paid to them directly in full, so that they can pay the tax themselves via their Self Assessment tax return. To do this, you apply by filling in form NRL1, which you then send to HMRC.

How much UK rental income is tax-free?

  • You don’t pay tax on the first £1,000 of income you earn from UK property rent, it’s your tax-free Property Allowance, whether you live in the UK or overseas.
  • If you own a UK rental property with others, both or each of you can claim the £1,000 Property Allowance and deduct it from your share of the gross rental income to help reduce your tax bill. This is instead of claiming actual allowable expenses related to the rental property, you cannot claim both.
  • Income Tax payers also get a tax-free Personal Allowance of £12,570 a year (2022-23 tax year). You don’t pay tax on your income – from all taxable sources – until it goes over the Personal Allowance threshold.
  • If you’re not a UK resident, you may be able to claim the Personal Allowance at the end of each tax year in which you earn UK taxable income, this depends on your country or residence and the terms of any double taxation treaty in place with the UK. You do this by sending the R43 form to HMRC.
  • If you’re a high-earner, the Personal Allowance decreases by £1 for every £2 above £100,000 net income and if your income is £125,140 or more, you don’t get any Personal Allowance.
  • Claiming for “allowable expenses” for costs you incur to maintain and rent out your property can reduce your tax bill. Allowable expenses can include fees you pay to a letting agent, lawyer or accountant, insurance, maintenance, repairs, cleaning and gardening costs, etc.
  • If your rental property is furnished or part-furnished, you may be able to claim Replacement Domestic Items relief for replacing sofas, beds, carpets, curtains, white goods, sofas, crockery, cutlery, etc, as long as the quality is the same or similar. If the quality is higher, you can only claim for the amount you would pay for a like-for-like replacement.

Need to know! You cannot claim for allowable expenses if you claim the Property Allowance. If you have a lot of allowable expenses, it would be better to claim for them, rather than the Property Allowance.

How much tax is due on rental income?

If your property rental income is only £1,000-£2,500 a year, contact HMRC, because you may be told to not bother reporting it. If your total property income is £2,500 to £9,999 after “allowable expenses” (see above) or £10,000 or more before allowable expenses, you must report it via a Self Assessment tax return (SA100).

  • The Basic Rate of Income Tax (20%) is payable on total taxable income between £12,571 and £50,270.
  • The Higher Rate of Income Tax (40%) is payable on income between £50,271 and £150,000.
  • The Additional Rate of Income Tax (45%) is payable on income of more than £150,000 (2022-23 for all figures).

Taxable income from all sources must be detailed when completing your Self Assessment tax return, because this will determine how much Income Tax you pay (not just your rental income). Private residential landlords who aren’t running property rental businesses don’t pay National Insurance on their rental income. If you were running a professional property rental business, letting out numerous properties, National Insurance may be payable. 

Need to know! If a letting agent or tenant already deducts tax before paying the remainder of the rent to you, you do not have to pay HMRC any more tax on your UK rental income.

How to report UK rental income

In most cases, you must complete and file a Self Assessment tax return if you earn taxable income from renting out UK property. However, you can’t do this via HMRC’s online portal if you’re non-resident in the UK.

Instead, you must download and fill in a Self Assessment tax return (and the SA109 and SA105 forms) and send them to HMRC by post or use commercial Self Assessment software that supports online reporting.

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 - 20 client submissions just £137.99 inc VAT and using discount.

RRP = £173.99 for 10 submissions and £1 thereafter for additional returns.

All VAT-registered businesses in the UK must now meet new reporting requirements introduced as a consequence of Making Tax Digital. If you don’t run a VAT-registered business, Making Tax Digital won’t have affected you so far. You may not have even heard of Making Tax Digital.

However, if you report income and pay tax via Self Assessment, come April 2024, Making Tax Digital is likely to impact you. And the changes that Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) will bring are significant, so finding out more about MTD for ITSA now is recommended, so you’re better prepared and avoid having to pay a non-compliance penalty.

In this guide you can:

  • Find out what Making Tax Digital for Income Tax Self Assessment is.
  • Discover whether you’ll be affected by MTD for ITSA.
  • Learn how MTD for ITSA will change the reporting of taxable income.

What is Making Tax Digital?

Making Tax Digital is an important government digital initiative that is already transforming the UK tax system. Its introduction got underway in 2019 and it will continue in stages until complete. The VAT reporting system has already been digitised and Income Tax Self Assessment is next, before Corporation Tax gets the MTD treatment. Full introduction of MTD across the entire UK tax system remains some years off. 

Why is Making Tax Digital being introduced? The government says it wants to make it easier for people and businesses to more easily and efficiently manage their tax responsibilities, while it hopes MTD will prevent basic tax reporting errors that cost the UK many billions a year in lost tax revenue.

Introduction of MTD for ITSA was to start on 6 April 2023, but it’s been delayed for a year until 6 April 2024 in response to COVID-19 and stakeholder groups asking for more time so that businesses and individual taxpayers could better prepare themselves for MTD for ITSA.

Put in very basic terms, Making Tax Digital for Income Tax is simply a new way of using digital solutions to report income and expenses to HMRC every quarter rather than once a year.

Who will be affected by Making Tax Digital for ITSA?

  • If you’re a self-employed sole trader or landlord who is registered for Income Tax Self Assessment and you have a gross income of more than £10,000, you’ll need to comply with Making Tax Digital for Income Tax requirements from 6 April 2024.
  • Members of ordinary business partnerships who earn more than £10,000 a year must sign up for MTD for ITSA by 6 April 2025.
  • You can apply for a MTD for ITSA exemption if it’s not practical for you to use software to keep digital records or submit them to HMRC digitally, for example, because of your age, disability, location (ie poor broadband connection) or another justifiable reason. MTD exemption can also be granted on religious grounds. You’ll need to explain your reasons to HMRC and an alternative solution will be sought.

How will reporting change under MTD for ITSA?

Sole traders, landlords and other Self Assessment taxpayers with taxable income won’t need to submit a Self Assessment tax return each year (unless they choose to report other income from shares, interest, etc, via Self Assessment, although HMRC would prefer you to report all taxable income via MTD for ITSA).

MTD for ITSA requires you to maintain digital records of your taxable income and expenses/costs, update them regularly and send summary figures to HMRC digitally within a month of the end of every quarter.

If you’ll need to report via MTD for ITSA you must use:

  • MTD for ITSA-compatible third-party software or
  • “bridging software” that allows you to send the necessary information digitally in the right format to HMRC from non-MTD-compatible software, spreadsheets, etc.

At the end of the tax year (5 April), you must submit your “end of period statement” (EOPS) and a final declaration (MTD version of the current self assessment tax return), confirming the accuracy of the figures you’ve submitted, with any accounting adjustments made and any additional earnings reported. HMRC will then send you your tax bill, which you must pay before 31 January in the following tax year. Unjustifiable late submissions or payments will continue to result in penalties.

Should you sign up for MTD for ITSA now?

For some time, some businesses, landlords and accountants have been taking part in a live Making Tax Digital for Income Tax Self Assessment pilot scheme.

You don’t have to sign up for MTD for ITSA. However, you can sign up voluntarily now for MTD for ITSA and start using the service if you’re:

  • a UK resident
  • registered for Self Assessment and your returns and payments are up to date a sole trader with income from one business or a landlord who rents out UK property.
  • You can’t currently sign up if you also need to report income from other sources (eg share dividends).

Need to know! At this stage, it’s probably best to delay signing up for MTD for ITSA, until at least April 2023.The new system is very much in its infancy, with HMRC taking steps to refine it to iron out any issues and provide a better user experience.

Conclusion

Preparation is key, starting to use digital software now to record income and expenses on a regular basis will get you into the routine before MTD for ITSA comes into effect.

As April 2023 approaches you will then be in a better place to decide what software or bridging software will be best for your circumstance/business.

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 - 20 client submissions just £137.99 inc VAT and using discount.

RRP = £173.99 for 10 submissions and £1 thereafter for additional returns.

As the new tax year for 2022 gets under way there are increasing living costs, hikes in NIC and the uncertainty of future increases. That’s why it is more important than ever to encourage your clients to complete their 21/22 tax return now! Knowing their tax owed will allow you both to better plan and budget for the year ahead.

You may need to remind your client that filing now does not mean you pay early, your tax owed will still be due on 31st January 2023.

Using digital software to check and file your tax owed is quick and simple, let’s have a look at that along with why else filing digitally in 2022 is a great idea.

Enhance security

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

Record income more easily

You can use digital tools to understand when to schedule sending invoices as well as the follow-up emails to ensure that customers pay on time. Integrations with online payment solutions like SumUp and PayPal can additionally help your customers pay you 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 tax returns, making the 31st January tax return deadline much easier.

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

Real-time answers and advice

Paper, by nature, is chaotic. You’ll need to file and accurately record your accounts – up to six years of your accounts, in fact, to ensure that you are covered if HMRC launch an investigation into your 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 you owe the taxman.

Digital files, on the other hand, are much easier to read. Plus, as some tax return software providers also highlight any opportunities to claim tax relief, there’s an extra incentive for you to stay on top of your record-keeping.

Be MTD-ready

The self-employed and Landlords with annual business or property income of more than £10,000 must follow MTD for Income Tax rules from their next accounting period – starting on or after 6 April 2024.

You’ll still need to send HMRC a Self Assessment tax return for the tax year before you signed up for MTD for Income Tax. But after that, you can wave goodbye to completing an annual Self Assessment tax return and all the hassle and panic that can go with it. Having to record your expenses every quarter might also prevent you from forgetting and not claiming some.

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 - 20 client submissions just £145.49 inc VAT and using discount.

RRP = £173.99 for 10 submissions and £1 thereafter for additional returns.

April marks the start of the 2022/23 UK tax year, while also being the month when HMRC introduces some important tax changes.

These can affect landlords just as much as other taxpayers and in some cases they can have a significant impact on their tax bills. With prices rising sharply seemingly across the board, you and your clients should be aware of how much more tax they will have to pay as a landlord, so that you can better budget and plan with them for the year ahead. The April 2022 tax changes could also affect income received from other sources.

So, what key tax changes are being introduced for the 2022/23 tax year and how could they affect you and your landlord clients?

National Insurance contributions

As widely reported when announced in the government’s October 2021 Budget, from 6 April 2022, National Insurance contributions (NICs) will increase by 1.25 percentage points (which is much higher than a 1.25% increase). The government says the additional tax revenue will be spent on the NHS and social care.

Rental income is not subject to NICs unless you’re a professional landlord running a property rental business (ie being a landlord is your main job, you rent out more than one property and buy new properties to rent out, etc). If you are a professional landlord running a property rental business, currently you must pay NICs if your earnings exceed the Class 2 and Class 4 NIC thresholds.

Obviously, if you’re not a professional landlord but you earn income from other sources upon which you currently pay NICs, for example, if you’re an employee, sole trader or member of an ordinary partnership, your NICs will increase by 1.25 percentage points. If you employ people, your share of their Class 1 NICs will also increase, while any Class 1A and 1B payments employers pay on employee expenses and benefits will also increase. 

What about Income Tax?

Not much will change when it comes to Income Tax. The personal allowance (ie the amount upon which no Income Tax is payable) remains at £12,570 a year (ie £1,048 a month or £242 a week). Beyond this figure, in England, Wales and Northern Ireland, 20% Income Tax (ie the basic rate) is payable on taxable earnings between £12,571 and £50,270 a year, then 40% (the higher rate) on £50,271 to £150,000 and 45% on annual earnings over £150,000. The tax rates in Scotland are different, but the personal allowance is the same.

Other tax-related changes for landlords

Tax on dividend income will also increase by 1.25% from 6 April. If you earn any income from dividend payments, after your £2,000 annual allowance, if you’re a basic rate Income Tax payer you’ll pay 8.75% tax on dividend payments (7.5% was the previous percentage). If you’re a higher rate Income Tax payer, from 6 April you’ll pay 33.75% (up from 32.5%) and additional rate Income Tax payers will pay 39.35% (up from 38.1%) on their dividend income.

A reminder that Capital Gains Tax rules changed in October 2021 in a way that could benefit you if you choose to sell property this year. Previously, you would have had just 30 days to report any taxable gains made from the sale of property and pay the CGT you owed to HMRC, but you now have up to 60 days. The same amount of Capital Gains Tax is payable, it’s just that have twice as much time to report and pay tax on any taxable gains.

Making Tax Digital for landlords

From April 1 2022, landlords with a VAT-registered business with a taxable turnover below the VAT threshold of £85,000 will need to comply with Making Tax Digital for VAT requirements. These mean you must maintain digital records using MTD-compatible software and report figures online to HMRC each quarter. More information about Making Tax Digital for VAT is available from HMRC via government website gov.uk.

It’s still some way off, but all current Self Assessment taxpayers will need to comply with Making Tax Digital for Income Tax requirements when they are introduced. Beginning in April 2024, this will also require you to use MTD-compatible software to maintain digital records of your income and outgoings. You’ll need to send quarterly updates to HMRC online and submit an end-of-period statement and final declaration, so that your tax liability can be calculated. You’ll no longer need to complete a Self Assessment tax return once MTD for Income Tax Self Assessment is introduced. 

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 - 20 client submissions just £145.49 inc VAT and using discount.

RRP = £173.99 for 10 submissions and £1 thereafter for additional returns.

In October 2021, HMRC was reportedly planning to send out “nudge letters” to holders of cryptocurrency (also called cryptoassets or just crypto), reminding them to check that they were reporting correctly and paying the required amount of tax.

Obviously, HMRC wants to prevent tax underpayment by the 2.3m people in the UK now believed to have crypto holdings. You may be among them and want to be sure that you’re reporting properly and paying the right amount of tax. Or you could be thinking about investing in cryptocurrency and want to know what your obligations would be regarding reporting and paying tax.

This guide explains:

  • What cryptoassets and cryptocurrency are
  • When cryptocurrency is subject to Capital Gains Tax
  • When cryptocurrency is subject to Income Tax
  • What records you need to keep for tax purposes
  • How to report crypto gains or income

What are cryptoassets/cryptocurrency?

HMRC defines cryptocurrency/cryptoassets as: “Cryptographically secured digital representations of value or contractual rights that can be transferred, stored and traded electronically.”

Chances are you’ve heard of Bitcoin, the world’s best-known and most widely held cryptocurrency. More than 60% of UK cryptocurrency investors have Bitcoin holdings, but other examples include Ether, Litecoin and Ripple.

Cryptocurrencies are digital assets, they’re not physical currency. You can’t buy things in the shops with them and they have no inherent value, they’re worth whatever someone is willing to pay for them. A cryptotoken is a denomination of a particular cryptocurrency and they each have different values. As with other assets, cryptocurrency value can go up or down.

Cryptocurrency is bought and sold via secure peer-to-peer online networks or exchanges. According to HMRC, the tax treatment of cryptocurrency depends on its nature and use. Basically, if you’re given crypto or earn income from crypto trading, it can be subject to Income Tax. If you dispose of crypto by selling, exchanging or giving it away, it can be subject to Capital Gains Tax.

When is cryptocurrency subject to Capital Gains Tax?

Obviously, people invest in cryptocurrency hoping that its value will increase over time. If it does, you make a gain, that’s why Capital Gains Tax can be payable if you dispose of cryptocurrency tokens by:

  • selling them
  • exchanging them for other cryptoassets
  • using them to pay for good or services
  • giving them away (unless it’s to your spouse or partner) or
  • donating them to charity.

Your gain is the difference between how much you bought the crypto for (including any transaction fees) and sold it for. If someone gives you cryptocurrency tokens upon which you later need to pay tax, to work out your gain, you must find out their market value when they became yours.

How much Capital Gains Tax is payable on cryptocurrency?

After your total taxable gains go over the Capital Gains Tax tax-free allowance threshold – £12,300 for the 2021-22 tax year – you’ll be taxed as follows:

  • If you’re a basic rate Income Tax payer (ie with taxable earnings of £12,571-£50,270 a year) you’ll pay Capital Gains Tax of 10%, then  20% on gains that take you above £50,270 in taxable earnings.
  • If you’re a higher or additional rate Income Tax payer (ie with taxable earnings of more than £50,270 a year) you’ll pay 20% CGT on your crypto gains over and above the CGT threshold.

To find out whether Capital Gains Tax is payable after selling cryptocurrency, you need to calculate your gain for each transaction.

Some allowable expenses are deductable for Capital Gains Tax, including (according to HMRC):

  • “transaction fees paid before the transaction is added to a blockchain”
  • “advertising for a buyer or seller”
  • “drawing up a contract for the transaction”
  • “making a valuation so you can work out your gain for that transaction”
  • “a proportion of the pooled cost of your tokens when working out your gain”

Need to know!

  • Capital Gains Tax is obviously not due on crypto losses, but you can use these to reduce other crypto gains and any tax liability, providing you first report them to HMRC. Losses aren’t capped.

How to report and pay Capital Gains Tax on cryptocurrency

To report and pay Capital Gains Tax on cryptocurrency you can either complete a Self Assessment tax return following the end of the tax year or use the real-time Capital Gains Tax service to report and pay straight away.

You must keep separate records for each cryptocurrency transaction detailing:

  • token type
  • disposal date
  • number of tokens disposed of
  • tokens remaining
  • value of the tokens in pound sterling
  • bank statements and wallet addresses
  • pooled costs before and after you disposed of them.

Need to know!

  • HMRC can ask to inspect your cryptocurrency records if it decides to carry out a compliance

When is Income Tax rather than CGT payable on cryptocurrency?

Income Tax and National Insurance contributions (NICs) can be payable on cryptocurrency if your employer gives you them as a non-cash bonus or benefit (this could apply to those who mix employment with self-employment). If you need to pay Income Tax on income from crypto for this or other reasons, you’ll need to register for Self Assessment, if you’re not already registered.

If you occasionally dabble in crypto, you’ll probably only have to pay Capital Gains Tax on disposal. However, if you trade regularly, HMRC will consider you to be a crypto trader and you’ll need to report your income via Self Assessment and pay any Income Tax and National Insurance that’s due.

If you’ve paid Income Tax on crypto, Capital Gains Tax isn’t payable unless you later dispose of your tokens, when CGT will be due on the gain made since you reported for Income Tax.

Many cryptoassets are traded on exchanges that don’t use pounds sterling. If so, the value of any gain or loss must be converted into pounds sterling when you’re completing your Self-Assessment tax return. You’ll need to use supplementary page SA108 to detail crypto capital gains/income and losses claimed within your SA100 tax return.

Need to know!

  • Fail to report cryptocurrency gains or income to HMRC and it can lead to penalties, while you’ll still have to pay tax you owe plus interest.

More information

Visit government website GOV.uk to download HMRC’s Cryptoassets Manual. It sets out the tax rules for both individuals and businesses that invest in cryptocurrency.

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 50 client submissions £150.00 inc VAT and using discount).

All VAT-registered businesses – regardless of their turnover – must comply with Making Tax Digital (MTD) for VAT rules from 1 April 2022. If you haven’t already done so and you’re VAT-registered, you need to take steps to comply with MTD for VAT requirements.

Ahead of the April deadline, you’ll also need to ensure compliance if you look after your clients’ VAT record keeping and reporting, of course. You might not look after their VAT affairs, but want to ensure that they know about the deadline, so that they can get ready and ensure a smooth transition. This guide is intended to help you achieve all of the above.

Here’s what we’ll cover

  • What is MTD and why is it being introduced.
  • The main changes that MTD for VAT will bring.
  • How agents can help their clients with MTD for VAT.
  • Where you can find out more about MTD and VAT.

What is MTD and why is it being introduced?

Already underway, as you may already know, Making Tax Digital (MTD) is a huge government initiative that seeks to make it easier for people and businesses to “get their tax right” and “stay on top of their tax affairs”, according to HMRC. MTD is being phased in over several years.

HMRC believes that using digital record-keeping software and apps can help to prevent businesses from making avoidable tax mistakes, which are estimated to cost the Exchequer almost £10bn a year in lost revenue. MTD is bringing great changes to the way people and businesses keep financial records and report tax data to HMRC, which will apply to VAT, Corporation Tax and Income Tax when MTD is introduced completely.

The first phase of Making Tax Digital for VAT began on 1 April 2019, but it applied only to VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000).

Which businesses will be affected?

From 1 April 2022, all VAT-registered businesses, regardless of their turnover, must comply with Making Tax Digital for VAT rules, which includes many sole traders (ie self-employed people), members of ordinary partnerships, landlords and limited companies.

Many with a taxable turnover below the VAT threshold (£85k) register voluntarily, so that they can reclaim VAT on purchases. Up until now, they haven’t been required to comply with MTD requirements for their VAT record-keeping and reporting. Soon they’ll have to and that will affect some 1.1m VAT-registered businesses with a taxable turnover below the VAT threshold.

According to HMRC, about a quarter of VAT-registered businesses with taxable turnover below the VAT threshold have already voluntarily chosen to join MTD for VAT.

Need to know!

  • Introduction of Making Tax Digital for Income Tax has been put back until April 2024, with the government citing the pandemic as a key reason.

MTD for VAT: what changes will it bring?

Under Making Tax Digital for VAT, businesses must keep digital VAT records and use third-party software to submit their VAT returns to HMRC. That means those that don’t already keep their records digitally will need to start doing so from 1 April 2022.

According to HMRC: “The process of then sending returns to HMRC will become more straightforward, with returns generated and sent directly from the software they are using to keep their records.”

The software businesses choose to use must be capable of receiving information from HMRC digitally via HMRC’s Application Programming Interface (API) platform.

Need to know!

  • Those affected by the 1 April 2022 MTD for VAT changes are advised to take steps to become compliant as soon as possible, so they can iron out any issues and get everything up and running smoothly before the April deadline.

How agents should get ready for MTD for VAT

If you’re an accountant, financial adviser or wealth management consultant with clients affected by the Making Tax Digital for VAT changes from 1 April 2022, here’s how to get ready, if you haven’t already done so. 

1 Make sure you use MTD-compliant software

  • Visit government website GOV.uk to search for softwarethat is Making Tax Digital for VAT compliant.

2 Create an agent services account

  • Once again, you visit GOV.uk to create an agent services account, which is different to your HMRC online services for agents account. You can use your agent services account to copy across your existing VAT client authorisations from your HMRC online services account. You’ll need to input your Government Gateway user ID.

3 Sign up your VAT clients for Making Tax Digital

4 Get all new clients to sign up to Making Tax Digital

  • If you want to act for a new client, ones you haven’t copied across in step 3, they must sign up to Making Tax Digital so they can authorise you (you can’t do this for them). First you must sign into your agent services account then select “Ask a client to authorise you”. You then create an authorisation request, which appears as a link that you can send to your prospective new client. They must have signed up to MTD for VAT and use the link to reply to your request before it expires.

5 Authorise your software

  • You can only send VAT returns digitally if you’ve authorised your software. If you don’t know how to authorise your software, contact your software supplier for guidance.

More information

Government website GOV.uk features a wealth of information for both agents and businesses on Making Tax Digital for VAT. You can watch videos and register for free webinars to learn more about Making Income Tax and VAT, whether you’re an agent or business.

About GoSimpleTax

GoSimpleVAT is a bridging software product launched by GoSimpleTax, designed to assist businesses through MTD for VAT.

Recognised by HMRC and guaranteed to lead you to compliance. You can take advantage of their free 14-day trial to see just how simple VAT filing through bridging software can be.

Reportedly, there are more than 5m leased vehicles being driven on UK roads, such has been the growth in the popularity of vehicle leasing in recent years.

Historically, businesses and fleet customers dominated the UK vehicle leasing market, but personal vehicle leasing now has the biggest market share, partly fuelled by increased taxation on company cars, while many are now simply choosing vehicle “usership” over ownership.

If you’re a self-employed contractor, freelancer or other sole trader considering leasing a vehicle, either wholly or partly for work, you should know the tax implications, chiefly, whether leasing costs can be offset against your profits to reduce your tax bill. This guide answers key questions regarding reporting and paying tax when you lease a vehicle for work if you’re a self-employed contractor, freelancer or sole trader.    

Here’s what we’ll cover

  • The pros and cons of vehicle leasing.
  • How vehicle leasing works.
  • Whether you can claim vehicle leasing as an allowable expense.
  • How to report vehicle leasing costs to HMRC.

Key vehicle leasing advantages

Many contractors, freelancers and sole traders continue to be attracted to the advantages of vehicle leasing. Leasing enables you to drive a newer, perhaps higher-spec vehicle more often than you may otherwise could afford. Newer cars are less likely to cause you hassle by breaking down. And you may only have to stump up a relatively small amount upfront to lease a vehicle (although monthly repayments are cheaper the more you put down).

You needn’t worry about value depreciation when you lease, because you’re essentially just renting the vehicle. You don’t have to buy at the end of the contract; you can lease a new vehicle, either from the same “lessor” or one that offers a better deal. 

Leasing can keep your cash flow healthier, because leasing works out cheaper than buying the same vehicle. And growing numbers are leasing as an affordable way to drive more environmentally friendly vehicles, with high-emission vehicle drivers now having to pay additional charges to enter some UK cities. Free breakdown recovery and Vehicle Excise Duty (aka vehicle tax) are usually included in the deal, too.

Key vehicle leasing disadvantages

What about the disadvantages? Well, the vehicle won’t ever be an asset that you own (that said, according to the AA, new vehicle value depreciates by up to 40% at the end of the first year of ownership anyway). When you lease, you must give the vehicle back at the end of the contract term, unless you have a Personal Contract Purchase deal and make a final payment, which can be many thousands of pounds.

And if you go over the agreed mileage limit (eg 36,000 miles over three years), you’ll face additional mileage payments at the end of the contract, when you could also have to pay wear-and-tear or repair costs. Moreover, the cost can also be quite high if you want to hand the vehicle back before the contract is up, which isn’t always allowed anyway.

Leasing a vehicle still means having to pay for maintenance and servicing, as well as your own vehicle insurance, of course. A credit check may be carried out when you make your leasing application, which means approval isn’t a given.

Need to know! Leasing may not be the best solution for you. Carefully weigh up the pros and cons and crunch the numbers before deciding whether to lease or buy a vehicle.

How does vehicle leasing work?

Think of leasing as taking out a rental contract or agreement. You (the “lessee”) make a down payment and then make the same monthly payment to the vehicle provider (the “lessor”).

Contract terms can range from two years (24 months) to five years (60 months), with three-year contracts common. The three main car-leasing contract options are:

  • Personal Contract Hire – where you make an initial payment followed by monthly payments for a car you hand back at the end of the contract.
  • Personal Contract Purchase – where you pay a deposit followed by monthly payments and can choose to make a final “balloon payment” to buy the car at the end of your lease contract (only 20% do this).
  • Business Contract Hire – a popular choice for sole traders, partnerships and limited companies. Essentially, it’s a version of Personal Contract Hire that’s tailored to the needs of businesses.

Is leasing a vehicle tax deductable?

Leasing (or hiring) a car is an allowable expense (ie tax deductable), but CO2 emissions should be carefully considered when you’re choosing a vehicle to lease. As explained by HMRC: “In some cases, if you lease or hire a car you cannot claim all of the hire charges or rental payments. For example, if you leased a car on or after 6 April 2020 and the CO2 emissions are more than 110g/km, you must disallow 15% of the hire charge or rental cost.”

Need to know! In fact, the rules have changed; from April 2021, you must disallow 15% of hire charges or rental costs if your vehicle’s CO2 emissions are more 50g/km. For cars leased/hired before 1 April 2021, 110g/km still applies (visit government website GOV.uk for HMRC guidance).

When speaking to vehicle lessors, ask about the tax implications of the vehicle’s CO2 emissions. If you use a lease or hire vehicle for personal use, you cannot claim this proportion as an allowable expense, you must calculate and deduct it.

As a sole trader or self-employed contractor or freelancer, each year, you report your vehicle-leasing costs (as well as any other allowable vehicle- and non-vehicle-related expenses) via your Self Assessment tax return (SA100). These will be deducted from your earnings, with other reliefs and allowances accounted for. You then pay Income Tax and any National Insurance contributions that are due.

Need to know! If you’re VAT-registered and lease a car, you can usually claim 50% of the VAT – or all of it if the car is used only for business. VAT-registered businesses can claim all of the VAT charged for maintenance on leased vehicles.

What about “simplified expenses”?

Rather than claim for leasing and other car-related costs (eg insurance, vehicle repairs, servicing, fuel, parking, etc), you could claim simplified expenses, which is a flat-rate scheme that can offer a far simpler way to claim for business-related vehicle use.

If you’re self-employed, each year you can claim a mileage allowance of 45p per business mile for the first 10,000 miles each year and 25p per business mile thereafter. You cannot claim mileage allowance for vans. Leasing costs can be significant, that’s before factoring in other costs, which could mean claiming mileage allowance leaves you worse off.

Need to know! Crunch the numbers before deciding whether to claim simplified expenses, because although it could save you time, it can leave you out of pocket, as leasing costs can be substantial. You cannot claim both simplified expenses and leasing and other actual vehicle costs. For guidance, seek advice from a qualified tax professional.  

Move information

  • Government website GOV.uk provides official guidance on expenses you can claim when you’re self-employed, including car, van and travel expenses.

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 50 client submissions £150.00 inc VAT and using discount).

More than 12m people file a Self Assessment tax return each year, which is almost a fifth of the UK population. They include sole-trader bricklayers, plumbers and plasterers, as well as hairdressers, cake makers and chefs, and self-employed tutors, translators and tattoo artists. People of all occupations, trades and backgrounds work for themselves.

Sole traders are key to the UK economy. They’re the unsung heroes who make up about 59% (3.5m) of the total UK business population of 5.9m and they of course include many freelancers, contractors and agency workers.  

Many other people also need to fill out and file a Self Assessment tax return to report taxable income and in recent years, many UK sole traders have received taxable COVID-19 grants and support payments from government and other sources that must also be reported via Self Assessment. This guide provides an overview of who must sign up to Self Assessment and how they should report COVID-19 grants and support payments.

Here’s what we’ll cover

  • Who must file a Self Assessment tax return?
  • How to register for Self Assessment.
  • How to report taxable COVID-19 grants and support payments.
  • Sources of advice and support.

Who must file a Self Assessment tax return?

Self Assessment is the system the UK tax authority HMRC uses to collect Income Tax. You need to register for Self Assessment and file an SA100 tax return if you:

  • have earned more than £2,500 from renting out property
  • or your partner have received Child Benefit and either of you has an annual income of more than £50,000
  • have received more than £2,500 in other untaxed income (eg tips or commission)
  • are self-employed (ie a sole trader) with an annual turnover of more than £1,000
  • are a partner in an ordinary business partnership
  • are an employee claiming expenses worth more than £2,500 a year
  • have earned taxable income from savings, investments or dividends
  • have earned income from abroad that is subject to UK tax (eg renting out a property overseas while domicile in the UK).
  • If you’re still not sure, HMRC provides an online tool that you can use to check whether you need to file a Self Assessment tax return.

Need to know!

  • If you need to file a Self Assessment tax return, you do so after the relevant tax year ends on 5 April and you have until the following 31 January to file it online (although it’s best to do it sooner). First you must register for Self Assessment.

How to register for Self Assessment

It’s simple and relatively quick to register online for Self Assessment. When registering you’ll need to give your:

  • National Insurance number
  • full name (and any previous names)
  • current address (and when you moved in)
  • date of birth
  • gender
  • phone number
  • email address and
  • whether you’ve registered previously for Self Assessment.

You’ll also be asked for basic information about your new sole trader business, if that what you’re doing. After you’ve completed the questions, HMRC will create an account for you. You’ll then receive a letter with your Unique Taxpayer Reference (UTR) number within 10 days (21 if you’re based overseas). You’ll need your UTR to file your Self Assessment tax return. You’ll also then receive another letter with an account activation code. Once activated, you can file your tax return online at any time before the deadline.

Need to know!

 

Reporting COVID-19 grants and support payments

To help some self-employed people to stay afloat during the COVID-19 pandemic when they couldn’t work, the government introduced a range of business-support measures, including SEISS (the Self-Employment Income Support Scheme), which began in May 2020. Five rounds of SEISS grants were awarded and the application deadline date for the last one was 30 September 2021.

Other COVID-19 grants and support payments included:

As a sole trader or member of an ordinary business partnership, you may have received COVID-19 grant funding and/or support payments, which you now need to tell HMRC about if it is taxable. Thankfully, it’s straightforward.

  • Detail any SEISS payments received in the Self-Employment Income Support Scheme Grant box on your Self Assessment tax return (SA100).
  • Record all other taxable COVID-19 payments in the box for any other business income.

If you’re self-employed, HMRC has published guidance on reporting COVID-19 grants and support payments (choose from short or full notes). Short and full guidance is also available online for members of ordinary partnerships who need to report COVID-19 grants and support payments via Self Assessment.

Sources 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 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).

To help some self-employed people to stay afloat during the COVID-19 pandemic when they couldn’t work, the government introduced a range of business-support measures, including SEISS (the Self-Employment Income Support Scheme), which began in May 2020. Five rounds of SEISS grants were awarded and the application deadline date for the last one was 30 September 2021.

Other COVID-19 grants and support payments included:

As a sole trader or member of an ordinary business partnership, you may have received COVID-19 grant funding and/or support payments, which you now need to tell HMRC about if it is taxable. Thankfully, it’s straightforward.

  • Detail any SEISS payments received in the Self-Employment Income Support Scheme Grant box on your Self Assessment tax return (SA100).
  • Record all other taxable COVID-19 payments in the box for any other business income.

If you’re self-employed, HMRC has published guidance on reporting COVID-19 grants and support payments (choose from short or full notes). Short and full guidance is also available online for members of ordinary partnerships who need to report COVID-19 grants and support payments via Self Assessment.

Sources 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 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).

The end of a year is when many of us reflect on the 12 months that have just gone: the highs and lows; the things we got right and the things we could have done better.

If you’re a sole trader or freelancer, naturally, you’ll think about how well your business has performed in the past year. So, where do you begin? We asked AIA strategic partner, GoSimpleTax to help point you in the right direction.

How to judge your performance

You may not know how well your business performed in 2021. You may think you have an idea, but you could be overly optimistic or pessimistic to a greater or lesser degree. Accuracy matters. You need a more reliable way to judge performance, which is where KPIs can really help.

You may or may not be familiar with the term KPI; it stands for Key Performance Indicator. Admittedly, “KPI” sounds like something that’s more relevant to large corporations, but it simply means important numbers that enable you to judge how well your business is doing.

You can compare them to figures from previous years or to other times in the same year, so you can more reliably assess whether you’re performing well, and if so, where and when, if not, where and when you need to up your game, so that your business can improve and grow.

Choose and use the right indicators

It’s better to pick fewer of the right indicators (maybe three or four to start). Whether weekly or monthly, gross profit (ie turnover/total sales minus cost of sales and direct costs) and net profit (ie gross profit minus indirect costs and expenses) are frequent choices. Others include sales growth, customers, new customers, unit or product sales – there are many others.  

Other common indicators relate to costs and failure to manage these also impacts financial performance. Some indicators are more common in certain sectors, but you have to pick the right ones for your business type and size, so that you’re measuring and monitoring the right things. Keeping it simple is advised when deciding your key indicators.

Go back over your 2021 financial records. What were your average monthly sales and costs? How do these compare month-to-month, quarter-to-quarter, year-on-year? Did your sales increase or decrease in 2021? Did you attract more or fewer customers? Did your costs increase or fall and if so, when? Crucially, consider why these things happened and how you can address any problems and make more of any opportunities.

Be more successful in 2022

Using reputable cloud-based accounting software and updating it regularly makes it much easier and quicker to assess your businesses financial performance. If you’re not already using cloud-based accounting software, maybe it’s time you did, because it could help you to better control your business’s financial health and wellbeing in 2022 and beyond.

Set aside time each month to look at your key performance indicators and figure out what they’re telling you. If it’s anything worrying, such as an alarming rise in costs or a drop-off in sales, you cannot afford to do nothing. Hopefully, your indicators show that your business is performing well and is growing. If need be, get help from an experienced accountant to assess your financial records and business performance.

Also make completing and filing your Self Assessment tax return much less stressful in 2022. If you have good accounting software, completing your Self Assessment tax return should be much quicker and easier. You can also use Self Assessment filing software that makes the task even easier, while ensuring that you don’t make any mistakes.

Reach out for sources of support

You can get an expert to fill out your Self Assessment tax return or advise you. Crucially, to be tax-efficient, make sure you’re claiming all reliefs and allowances available to sole traders and freelancers. Again, an experienced accountant or other tax professional could provide valuable tax-saving advice.

HMRC has published a comprehensive selection of free Self Assessment guidance, including YouTube Self Assessment videos and webinars. In addition, you can call HMRC’s Self Assessment helpline (0300 200 3310 – Monday to Friday: 8am to 6pm) if you have any specific queries. And rather than wait for the 31 January 2023 online filing deadline, why not get your Self Assessment done and dusted soon after the 2021/22 tax year ends on 5 April 2022. That could free you up to get on with winning more business and becoming even more successful in 2022.

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 50 client submissions £150.00 inc VAT and using discount).

There are 2m limited companies actively trading in the UK, making up about 37% of the total business population (source: Federation of Small Businesses). Some have one company director, while others have more.

Company director income is often made up of a relatively small amount of wages paid through the company payroll, topped up with company share dividend payments, with both taxed accordingly. But what if you’re a company director with income from other sources, more specifically, from renting out property?

If you’re a company director who’s recently started renting out property or you’re considering it, you may be wondering how you report rental income, what expenses you can claim and how much tax you’ll pay. This guide provides a basic overview.

Here’s what we’ll cover

  • Whether you need to register for Self Assessment.
  • Paying tax on rental income when you’re a director.
  • Rental income records you need to keep.
  • What expenses you can claim.

Do you need to register for Self Assessment?

If you receive taxable income from renting out a property, you must declare those earnings by registering for Self-Assessment online and filing an SA100 tax return each year.

In the supplementary SA105 form, which you submit with the SA100, you detail your rental income and allowable costs/expenses for that tax year, so that your Income Tax and National Insurance liability can be calculated by HMRC. This is based on your net profit, accounting for your other income. HMRC will then send you a bill, which you pay directly.

You can, of course, rent out more than one property or jointly own a rental property, perhaps with a relative, partner, spouse or colleague, and you’ll be taxed according to your share of the net profits.

When should you register for Self Assessment?

You can register as soon as you receive your first rent payment and HMRC recommends registering for Self Assessment as soon as possible.

However, you’re only required to register for Self Assessment by 5 October following the end of the tax year in which you received taxable rental payments. If you don’t, you risk having to pay a penalty.

Need to know! The deadline for online filing of your Self Assessment tax return is 31 January, following the end of the tax year on 5 April. Fines of £100 are payable if you’re late.

What rental income records should you keep?

You must maintain accurate financial records detailing all rent received, as well as any payments for additional maintenance or repairs your tenant pays you for, together with specific dates of when your property was occupied by a tenant.

You should also keep detailed records of costs incurred while managing and maintaining the rental property (see allowable expenses below). Recording your income and expenses/costs in accounting software is recommended, because it will save you a lot of time and effort when completing your Self Assessment tax return.

Also retain all receipts and invoices as proof of claimed expenses. There are apps you can get that automatically link to accounting software to update your total outgoings. HMRC can ask for proof of your expenses and go through your bank statements. Records must be kept for six years and you can be fined if your records are inaccurate, incomplete or lost.

Need to know! Keep a log of mileage you drive wholly and exclusively as a result of renting out your property (eg if you need to visit the property), as fuel and vehicle costs can be claimed as an allowable expense.

What allowable expenses can you claim?

Costs must be “wholly and exclusively” the result of renting out your property if they’re to qualify as allowable expenses. You can’t claim for company or personal expenses.

Allowable can expenses include:

  • property maintenance and repairs (eg replacing a broken window)
  • redecorating between tenancies
  • insurance (eg building, contents and public liability)
  • gardening and cleaning services
  • letting agent fees/management fees
  • legal fees for lets of a year or less
  • accountancy fees
  • direct costs (eg phone calls, stationery and advertising for new tenants)
  • fuel/vehicle costs (only the proportion used for your rental business).

Replacing domestic items such as baths, washbasins and toilets is allowable, because they’re classed as building repairs, but only if you replace like for like (ie the quality must not be superior).

Similarly, if your rental property is furnished or part-furnished, you may be able to claim for replacing worn, damaged or defective sofas, beds, carpets, curtains, fridges, washing machines, sofas, crockery, cutlery, etc, as long as the quality is of comparable value, not superior.

Landlords used to be able to deduct mortgage interest and other finance costs (eg mortgage arrangement fees) from their rental income to reduce their tax liability. But now you get a tax credit of 20% instead.

Need to know! You can’t claim allowable expenses for property improvements such as building an extension, but you may be able to subtract these costs to reduce your capital gains tax bill if you sell your rental property. 

How much tax will you pay?

The standard tax-free Personal Allowance is £12,570 (2021/22 tax year) if you earn less than £100,000 a year. The Income Tax rates are different in Scotland, but in England and Wales:

  • If you earn between £12,571 and £50,270 a year, you will pay 20% Income Tax (Basic Rate) on your taxable income.
  • If you earn between £50,271 and £150,000 a year, you will pay 40% (Higher Rate) on your taxable income.
  • If you earn more than £150,000 a year, you will pay 45% Income Tax (Additional Rate) on your taxable income.

The wages you earn from your company via its payroll will be added to your rental income to determine your overall Income Tax liability.

If you rent out more than one property and or buy new properties to rent out, HMRC will consider it to be running a property rental business and you’ll need to pay Class 2 National Insurance contributions if your profits are £6,515 a year or more.

When you’re new to renting out property, no matter how much experience you have of running a company, it’s advisable to seek tailored tax advice from an expert. It could really help to maximise your rewards and take away the pain of having to complete tax returns.

Available on desktop or mobile application.

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 50 client submissions £150.00 inc VAT and using discount).

There are about 2.66m private landlords in the UK and some of them could well be your clients. Although renting out property can offer excellent returns, it involves a wide variety of expenses, big and small.

Thankfully, as you know, many costs can be claimed as “allowable expenses”, which buy-to-let landlords can deduct from their profits, to help minimise their Income Tax bill. But many buy-to-let landlords fail to claim some allowable expenses, which can leave them overpaying hundreds if not thousands of pounds each year in Income Tax.

This guide provides a basic overview of allowable expenses that your landlord clients can claim, as well as ones that they may not be claiming.

Here’s what we’ll cover

  • Why buy-to-let landlords often fail to claim some allowable expenses.
  • Allowable expenses that HMRC allows landlords to claim.
  • Allowable expenses that buy-to-let landlords often fail to claim.
  • How property maintenance, repairs and improvements are considered.
  • Things that buy-to-let landlords cannot claim as an allowable expense.

Why do buy-to-let landlords fail to claim allowable expenses?

A big reason why some buy-to-let landlords’ allowable expense claim is lower than it could be is poor expense management. Obviously, this commonly includes losing receipts for purchases for which they could otherwise claim. Other buy-to-let landlords deem a cost so insignificant that they don’t think it worth the time or effort to record. But such costs can mount up over the year, so, where allowable, they should be encouraged to claim them all.

Lack of knowledge is the other key reason why some buy-to-let landlords fail to claim their full allowable expenses. They simply don’t know that certain expenses are allowable for tax purposes. In some instances, they might suspect that they can claim, but don’t, because they fear breaking the rules and getting into trouble with HMRC. 

In addition to your advice, some simple desk-based research can enable them to quickly find out which outgoings they can claim as an allowable expense. Some online sources of information are less accessible and reliable than others, which is why advice from a trusted tax professional can make a big difference.

What are “allowable expenses”?

For an expense to be allowable for tax purposes, as you know, it must be generated “wholly and exclusively” for the purpose of trade (in this case, renting out property). So, for example, a landlord cannot claim as an allowable expense a vacuum cleaner that they also use for cleaning their own home.

If they use something for business and personal reasons (eg their mobile phone), they can only claim allowable expenses for the proportion that results from renting out their property.

Some allowable expenses are more obvious than others. For example, a buy-to-let landlord may well know that they can claim for Council Tax, water rates, gas and electricity, if they pay these for the rented property (otherwise the tenant pays them, obviously).

They can also claim as an allowable expense ground rents and service charges, as well letting agent fees and management fees. Landlords’ insurance policies for buildings, contents and public liability can also be claimed as an allowable expense.

Need to know! The introduction of “Section 24” in 2017 removed a landlord's previous right to deduct mortgage interest and other finance costs (e.g. mortgage arrangement fees) from their rental income before calculating their tax liability. Instead, landlords now get a tax credit of 20%.

Allowable expenses: what might landlords not be claiming for?

To maintain their property, a landlord may do some gardening, DIY or end-of-tenancy cleaning to save money, rather than paying someone else to do it. However, they can claim such services as an allowable expense, which could save them the trouble.

Landlords can also claim for some legal fees (e.g. for advice about pursuing a tenant for unpaid rent) and rather than doing their own bookkeeping or tax returns, they could hire an accountant and claim their fees as an allowable expense.  

A landlord may be using their own landline or mobile phone for making calls that result from renting out their property. This proportion of their total bill can obviously be claimed as an allowable expense, and the same applies to vehicle mileage costs (e.g. if they need to travel to their rental property or make any other related journeys).

Some landlords may not realise that they can claim for advertising their property to attract new tenants, or that even relatively small costs, for example, stationery, can be claimed as an allowable expense. They may even be able to claim for costs incurred to dispose of old items of furniture or electrical appliances.

What about property maintenance, repairs and improvements?

Costs landlords pay out to maintain and repair a rental property to ensure that it retains its condition can be claimed as an allowable expense. Common examples include redecorating a property between tenants, fixing a broken window or mending a garden fence. If a landlord claims on their insurance to cover a repair, obviously, they cannot also claim it as an allowable expense. The same is true if their tenant pays for damage out of their deposit.

Replacing baths, washbasins and toilets is allowable, because they’re classed as building repairs, but only if the landlord replaces like for like (i.e. the quality isn’t superior).

Landlords cannot claim “capital improvements” as an allowable expense. Making capital improvements means upgrading, adapting or enhancing a property so that its value increases, which often involves making a structural change, for example, building an extension or converting a loft.

Need to know! Capital expenses aren’t allowable, so landlords can’t claim for them against their rental income, but they may be able to set them against Capital Gains Tax if they sell the property later on. 

What can’t buy-to-let landlords claim for?

As explained on government website GOV.uk: “[Landlords] cannot claim the costs for replacing furnishings or equipment in a [rental] property. These are not allowable as costs of maintenance and repairs, but from 6 April 2016 they may qualify for Replacement Domestic Items relief.”

So, if the property is furnished or part-furnished, a landlord may be able to claim tax relief for replacing such things as sofas, beds, carpets, curtains, fridges, washing machines, sofas, crockery, cutlery, etc, as long as the quality is comparable – not superior.

Buy-to-let landlords cannot claim installing a security alarm system as an allowable expense unless they’re replacing one of a similar standard that was already there. If they’re in any doubt about what they as a buy-to-let landlord can and cannot claim as an allowable expense, you can add much value to the relationship by providing them with sound advice.

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 with an easy-to-use interface that submits direct HMRC.

GoSimpleTax are ready for MTD and the software shows the Tax liability in real time with 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 50 client submissions £150.00 inc VAT and using discount).

With the 31st October paper return deadline fast approaching, we thought it would be useful to look at the paper return and the other methods your client can use to file their Self Assessment tax return.

If they’re new to submitting Self Assessment tax returns, it pays to know that there are three ways of filing. Firstly, you can submit via the HMRC portal 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 chosen, it’s important to understand the exact responsibility. For those who are self-employed or let 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 31st October deadline. Failure to do so will see them start being charged penalties from the 1st November. We would recommend sending the paper submission prior to the October deadline, either through recorded delivery or with some proof of posting in order to prove compliancy.

You have longer to submit online tax returns. The deadline is the 31st January, and you will be charged penalties from the 1st February for any late submissions.

  1. Organise supplementary pages

Remember, it isn’t enough to submit the main SA100 tax return. You need to bundle it together with the rest of your clients 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 your 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 2020/21), and the latter is for those who earn above the VAT threshold.

  1. Be open to online

While you may have historically always submitted your clients tax returns by paper, the vast majority of tax returns are now submitted online. Last year saw only 700,000 paper submissions, for example. 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 you’re happy to tweak the way in which you keep your records and adopt digital record-keeping, this will help minimise admin further, as well as enable you to submit your tax returns and automatically calculate your tax.

Lastly, be conscious of MTD for Income Tax now scheduled for April 2024 – whilst this may seem far in the future it will be here before we know it. Adopting a digital approach to filing your Self Assessment now will ease the transition in 2024.

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 50 client submissions £150.00 inc VAT and using discount).

Research suggests that some 2.3m adults in the UK now hold cryptoassets (also called cryptocurrency, crypto tokens or just “crypto”). That figure has increased by more than 400,000 since 2020 (source: Financial Conduct Authority), with more and more of us investing in cryptocurrencies. 

Reportedly, UK cryptocurrency investors are typically men aged over 35 in professional or managerial jobs, holding an average of about £300 of cryptocurrency. That’s a relatively small investment, but it’s increasing each year (in 2020 the average was £260). 

About two thirds of UK cryptocurrency investors have invested in Bitcoin, which was launched in 2009 and is the world’s biggest and best-known example. But other popular cryptocurrencies include Ethereum, Litecoin, Ripple, Bitcoin Cash and Bitcoin SV. 

Read on to find out:

  • what cryptocurrencies are
  • what makes cryptocurrencies different
  • tax liabilities when you’re an individual investor
  • tax liabilities when you’re a business investor.

What is a “cryptocurrency”?

Cryptocurrencies are digital assets. According to HMRC: “Cryptoassets are cryptographically secured digital representations of value or contractual rights that can be transferred, stored [and/or] traded electronically.”

You can’t spend cryptocurrencies in the shops and they have no inherent value; their value is determined only by how much someone is prepared to buy them for. Cryptocurrencies are bought and sold via a peer-to-peer online network. Their value can go up or down, which can make them a good or bad investment.

The word “crypto” means secret or concealed, which goes some way to explaining the concept of cryptocurrencies, of which there are now thousands. Secure encryption of data and communication is key to cryptocurrencies.

Cryptocurrencies are decentralised open networks. Unlike more familiar currencies, they’re not managed or controlled by government or a central authority such as the Bank of England or the US Federal Reserve. Ownership data is stored and shared via ‘Distributed Ledger Technology’ (ie an online/digital database which lists transactions). Anyone anywhere can send and receive payments and transactions, without the need for verification from a bank. Investors keep their cryptocurrencies in a digital wallet and can buy and sell at will.

How does HMRC view cryptocurrencies?

If you’re considering investing in one or more cryptocurrencies, naturally you’ll wonder about the tax implications.

As explained on government website GOV.uk: “HMRC does not consider cryptoassets to be currency or money. On its own, owning and using cryptoassets is not illegal in the UK and does not imply tax evasion or any other illegal activities.”

Moreover: “The tax treatment of all types of cryptocurrency depends on its nature and use – not its definition.”

Cryptoassets and tax – individuals

People buy cryptocurrencies either hoping their investment will grow over time or to make certain purchases. That’s why they’re required to pay Capital Gains Tax if they sell cryptocurrency tokens, exchange them, use them to pay for good or services, give them away or even donate them to charity. You can claim a CGT allowance and some allowable expenses are deductable. GOV.uk explains the cryptoasset records you must keep and how to report them.

You must pay Income Tax and National Insurance contributions (NICs) on cryptoassets if you receive them from your employer as a non-cash bonus/benefit/payment.

If HMRC believes that you’re trading in cryptocurrencies rather than occasionally investing, you’ll be expected to pay Income Tax rather than Capital Gains Tax. There can also be implications relating to Stamp Duty, Inheritance Tax and pension contributions.

Many cryptoassets are traded on exchanges that don’t use UK currency pounds sterling, so the value of any gain or loss you make must be converted into pounds when completing your Self-Assessment tax return.

 Cryptoassets and tax – businesses

Businesses that buy or sell cryptocurrency (tokens or a denomination of a cryptocurrency), exchange them for other assets (including other cryptoassets) or provide goods or services in return for tokens, are liable for tax, whether Capital Gains Tax, Corporation Tax, Corporation Tax on Chargeable Gains, Income Tax, National Insurance contributions, Stamp Taxes and/or VAT.

The amount of tax the business must pay on cryptocurrency is determined by its turnover, costs, profits and gains. Obviously, these are declared each year to HMRC via Self Assessment for sole trader businesses and Corporation Tax returns for limited companies.

As stated on GOV.uk: “Generally, for Income Tax or Corporation Tax, profits from a trade involving cryptoassets must be calculated in accordance with Generally Accepted Accounting Practice, subject to any adjustment required or authorised by law.

“HMRC will consider each case on its own facts and circumstances. It will apply the relevant legislation and case law to determine the correct tax treatment (including where relevant, the contractual terms regulating the exchange tokens).”

If your cryptoassets are traded on exchanges that don’t use pounds sterling, the value of any gain or loss you make must be expressed in pounds sterling when completing your tax returns.

Tax and cryptoassets: looking ahead

According to HMRC, how cryptoassets are taxed will continue to develop as a result of the ever-evolving nature of the technology used and the areas in which cryptoassets are used. “As such, the facts of each case need to be established before applying the relevant tax provisions according to what has actually taken place (rather than by reference to terminology). Our views may evolve further as the sector develops and HMRC may publish amended or supplementary guidance accordingly.”

More information

  • Visit government website GOV.uk to download HMRC’s Cryptoassets Manual, which provides more detail on taxation of cryptoassets.

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 50 client submissions £150.00 inc VAT and using discount).

COVID-19 helped to push UK business start-up figures to new heights in 2020. According to the Centre for Entrepreneurs, annual year-on-year UK business formations in 2020 rocketed by 13% to 772,002.

A key decision when starting a business is which legal structure do you choose when registering. The three most common options are sole trader, limited company and ordinary business partnership, although most people become a sole trader. Sole traders make up about 59% (3.5m) of the total UK business population of 5.9m, and they include many freelancers, contractors and agency workers.

Ordinary business partnership members make up about 7% (405,000) and basically these are sole traders who go into business together. The UK also has about 2m (34%) active private limited companies. So, why do so many people in the UK who work for themselves operate as sole traders?

Here’s what we’ll cover

  • What is a sole trader?
  • How much tax do sole traders pay
  • The key advantages of being a sole trader
  • Sole trader v limited company: what’s more tax-efficient?

What is a sole trader?

Being a sole trader is the same as being self-employed. In law, you and your business are the same thing, which makes you personally responsible for your sole trader business debts. If you don’t build up large debts and your business is successful, this won’t be an issue, of course.

To become a sole trader, you must register for Self Assessment (SA), the system (UK tax authority) HMRC uses to collect tax from sole traders. You’ll then pay Income Tax on your profits during the tax year (20%, 40% or 45% depending on your income/earnings). You work out your profits by deducting your expenses and any allowances from your income/earnings/sales.

Sole trader NICs

Most self-employed people pay their National Insurance contributions (NICs) via SA:

  • Class 2 if your profits are £6,515 or more a year (£3.05 a week) and
  • Class 4 if your profits are £9,569 or more a year (9% on profits between £9,569 and £50,270 and 2% on profits over £50,270 – all figures quoted are for the 2021/22 tax year).

Declaring sole trader earnings and VAT

Sole traders aren’t required to submit annual accounts to HMRC, but they must maintain accurate financial records (which can be checked) and submit details of their income and business costs in their annual SA100 tax return, which must be filed each year.

If your VAT-taxable earnings/turnover goes over £85,000 a year (the current VAT threshold) or you know they will, you must register for VAT. You’ll then have to charge VAT, collect it and pay it to HMRC. This also applies to limited companies.

Need to know! The UK tax system is being fully digitised under Making Tax Digital, which means Self Assessment will be replaced come 2023.  

The advantages of being a sole trader

It’s very easy to register online for Self Assessment so you can start your sole trader business. There are no costs and the process is very quick (minutes not hours or days). The tax admin is much easier when compared to a limited company, which means it can be done quicker. This saves cost, whether you do it yourself or pay an accountant to do it for you.

The paperwork and financial record-keeping requirements when you’re a sole trader are minimal; completing your SA tax return is more straightforward and any losses you make can be offset against other income.

Many customers won’t care whether you’re a sole trader or not, as long as your prices, products and/or services meet their expectations. In any case, you can easily change to a limited company structure later if you wish. And sole traders can employ others and their businesses can grow and prosper.

Being a sole trader can give you much more flexibility and control over your business, because you’re not answerable to shareholders – and you won’t have to share your profits with them either. You will enjoy more privacy, too, because the annual accounts of limited companies must be published on the Companies House website, which means anyone can view them. Sole traders do not have to publish their annual accounts.  

Sole trader v limited company: which is more tax-efficient?

Example 1

Sole trader profit = £50,000 Net income = £38,717                                                            

Ltd co profit = £50,000 Net income = £40,109

Difference = £1,392

Example 2

Sole trader profit = £100,000 Net income = £67,752

Ltd co profit = £100,000 Net income = £69,469

Difference = £1,717

Example 3

Sole trader profit = £150,000 Net income = £91,723

Ltd co profit = £150,000 Net income = £92,057

Difference = £334

These examples assume that all profits are extracted from the business, salary up to Secondary National Insurance threshold (£8,840) is taken and the remainder paid as dividends (2021/22 rates).

Conclusion

As the above examples show, operating as a limited company can reduce your tax bill. However, if you need to pay an accountant each month to look after your tax admin and complete your annual accounts and Corporation Tax returns, in reality, any financial advantage as the director of a limited company can be minimal or non-existent.

Each year, hundreds of thousands of people in the UK who decide to work for themselves register as a sole trader and many go on to establish and grow highly successful small businesses. In many ways, being a sole trader is the easier and cheaper choice and it need not hamper your business or your ambitions.

About GoSimpleTax

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

Our software includes partnership, non-resident and previous year returns, it has an easy-to-use interface and submits direct to HMRC.

GoSimpleTax are ready for MTD and the software shows the Tax liability in real time with 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 www.gosimpletax.com/tax-aia  (example 100 client submissions £187.50 inc using discount)

How much do your landlord clients know about Making Tax Digital (MTD)? Chances are, they may know little or nothing. But with significant changes scheduled in the coming years, they should at least know a few basic facts, so they can start to prepare and minimise impact.

You can play a key role in ensuring that they get the information and advice they need, of course, while pointing them in the direction of sources of further support and guidance. This guide will help you.

Here’s what we’ll cover

  • How MTD will change record keeping and reporting for landlords
  • When MTD for Income Tax will be introduced
  • How landlords can voluntarily join MTD for Income Tax now

Why is MTD being introduced?  

As you’ll no doubt already be aware, Making Tax Digital is an ambitious government initiative that will transform how people, businesses and their accountants/bookkeepers report data to HMRC.

According to the government, MTD seeks to make it easier for people and businesses to manage their tax affairs and get their tax right. Making Tax Digital could also swell government coffers, as HMRC believes that using MTD-compatible software and apps will help to prevent avoidable tax mistakes (estimated to have cost more than £9.9bn in lost tax revenue in 2017-2018 alone).

How will Making Tax Digital for Income tax change things?

When introduced, landlords (and/or their agents) will need to use MTD-compatible software to maintain digital records of the landlord’s income and expenses.

MTD-compliant software will summarise figures, which must be submitted online via the landlord’s HMRC digital account (they’ll get up to a month after every quarter-end to do so). Landlords will also be able to see how much tax they owe, based on the information supplied, so they can better budget for paying their tax bill, which could help many.

At the end of the tax year, the landlord will need to finalise their business income and submit a final declaration, confirming that the updates they’ve provided are accurate, with any accounting adjustments made. Then, they’ll soon receive their tax bill. They must submit their final declaration and pay the tax they owe by 31 January the following tax year.

When will MTD for Income Tax be introduced?

Landlords with annual business or property income of more than £10,000 must follow MTD for Income Tax rules from the accounting period starting on or after 6 April 2023.

They’ll still need to send HMRC a Self Assessment tax return for the tax year before they signed up for MTD for Income Tax. But after that – no more annual Self Assessment tax returns and all the hassle and panic that can go with them.

For those already using accounting software, HMRC recommends asking the provider whether they plan to make their software MTD-compatible. Government website GOV.UK already lists Making Tax Digital for Income Tax-compatible software. Those still using paper-based record-keeping system will need to start using an MTD-compatible digital solution.

MTD for Income Tax pilot scheme

Some self-employed workers, landlords and accountants have already been part of a live pilot to test and develop MTD for Income Tax. Your landlord clients may be able to sign up voluntarily for MTD for Income Tax if:

  • they’re a UK resident
  • they’re registered for Self Assessment as a landlord and
  • their returns and payments are up to date.

They can sign up now for their current or next accounting period. It could be a good way to get used to MTD requirements and make sure they have the right software/systems in place.

Landlords can sign themselves up to the MTD for Income Tax pilot scheme via government website GOV.UK. They’ll be asked for their:

  • name
  • email address
  • National Insurance number
  • accounting period
  • accounting type (eg cash or standard accounting)
  • Government Gateway user ID and password you use when you file your Self Assessment return. If you don’t have a user ID, you can create one when signing up.

If your landlord client needs to report income from other sources (eg wages from working for someone else), they cannot sign up voluntarily. 

If you maintain you landlord client’s financial records and complete their tax returns, you can sign them up for MTD for Income Tax. Obviously, you’ll need all of the above information to hand if they ask you to sign them up.

MTD: What if a landlord has more than one property for rent or let?

As you’d expect, they’ll only need to report their earnings and expenses via MTD once for all of their properties together, they don’t need a digital account for each property.

Making Tax Digital: What about co-ownership?

If a property is owned by a business partnership of which the landlord is a member, the partnership is responsible for Making Tax Digital obligations, which must be fulfilled by a nominated partner.

Quarterly summary information concerning share of the profit (based on ownership) can be pushed to each partner’s digital tax account. When the end-of-year declaration is made, the nominated partner must push each partner’s share of profits to their digital tax accounts. Individual tax liability will then be calculated.

Where property is jointly held, for example, a husband and wife own a property for rent or let, each person who has received income must report it separately, after registering for Making Tax Digital.

More information for landlords about MTD for Income Tax

About GoSimpleTax

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

Our software includes partnership, non-resident and previous year returns, it has an easy-to-use interface and submits direct to HMRC.

GoSimpleTax are ready for MTD and the software shows the Tax liability in real time with 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 www.gosimpletax.com/tax-aia  (example 100 client submissions £187.50 inc using discount)

Whether to pick up supplies, drop off deliveries, see customers or make site visits to quote for jobs, each year many self-employed sole traders rack up thousands of miles on UK roads while running their business.

You may be self-employed and use your own vehicle to drive far fewer miles for business reasons, but even so, you should still claim your mileage allowance. After all, as well as fuel costs, business journeys help to cause wear and tear that can lead to expensive maintenance and repair bills. And, crucially, the more allowances and expenses you claim, the higher your self-employed earnings. 

What is mileage allowance?

If used for business, you may be able to claim a proportion of the actual total cost of buying and running your vehicle, including such things as insurance, repairs, servicing, fuel, etc. This option may or may not enable you to claim more. However, keeping track of every cost and working out the exact proportion of business use for your vehicle takes time and effort.

Instead, many self-employed people claim mileage allowance, a flat-rate scheme that provides a much simpler way to claim back the cost of using your own vehicle for business. Mileage allowance is part of a range of “simplified expenses” options that HMRC offers to self-employed people. They’re designed to make tax admin easier and quicker.

How much mileage allowance can you claim?

If you’re self-employed, you can claim a mileage allowance of:

  • 45p per business mile travelled in a car or van for the first 10,000 miles and
  • 25p per business mile thereafter
  • 24p a mile if you use your motorbike for business journeys.

If you use more than one of your vehicles for business, you don’t have to use the flat-rate mileage allowance option in all cases, you could claim the actual cost for some, and mileage allowance for others. However, once you start using the flat rate mileage allowance option for a vehicle you use for business, you cannot change.

If you travel with someone else who also works for your business, as the driver, you can claim an additional 5p per mile for each extra passenger. So, if three of you travel together, you can claim 45p + 10p per mile (two x 5p per mile for the two additional passengers) for the first 10,000 miles, then 25p + 10p per mile thereafter.

Need to know! Claiming mileage allowance doesn’t stop you claiming for other business travel expenses, such as train tickets and taxi rides. Parking tickets and toll fees while on business can also be claimed as a legitimate business expense.

When can’t mileage allowance be claimed?

You can’t claim mileage allowance for personal journeys, they must be made “wholly and exclusively for business purposes”. And neither can you claim mileage allowance for journeys to and from your usual place of work (ie your commercial business premises). You can claim for travel to a temporary workplace, for example, if you’re a plasterer who needs to travel to different sites and jobs.

Simplified expense claims can’t be used for cars designed for commercial use, such black taxicabs or dual-control driving instructors’ cars. Limited companies cannot use simplified expenses either, as they’re only available to self-employed people.

Need to know! You cannot claim simplified expenses for a vehicle you’ve already claimed capital allowances for or one you’ve included as an expense when you worked out your business profits. Where necessary, seek guidance from an accountant.

Three example mileage allowance claims

  1. You’ve driven 1,200 business miles in your car during the year.

Calculation: 1,200 miles x 45p per mile = £540

Annual mileage allowance = £540

  1. You’ve driven 10,000 business miles in your van during the year. Calculation: 10,000 miles x 45p per mile = £4,500
    Annual mileage allowance = £4,500
  2. You’ve driven 12,000 business miles in your car during the year. Calculation: 10,000 miles x 45p per mile = £4,500, plus, 2,000 miles x 25 per mile = £500
    Annual mileage allowance = £5,000

Working out your business mileage

Logging your business mileage is a good idea, as it can make it far easier to later work out and claim your mileage allowance. And your claim is more likely to be accurate and credible if HMRC can see precise details of dates, miles travelled, journeys and reasons. HMRC can request proof during an investigation.

It can be wise to get into the habit of recording details after every journey for which you plan to claim mileage allowance. Manually recording your business mileage takes more time and effort, while scraps of paper and notebooks can go missing, so it’s better to record and store your mileage details in a spreadsheet/software, with data stored safely online. Many apps have been created to help business owners track and record their business travel mileage (some even use GPS to automatically measure business mileage).

Some self-employed business owners simply estimate their business mileage, by claiming for a percentage of their vehicle’s total annual mileage. So, if your car does 1,000 miles a month and you can show that half of that is for business use, you can claim mileage allowance of 6,000 miles a year (ie £2,700).

How to claim mileage allowance

Good accounting software will do all of the hard work for you, saving you lots of time and hassle. You enter your business mileage and it calculates your mileage allowance, which you enter into your Self-Assessment tax return. The amount is taken into account and your tax liability is reduced as a result.

If you use simplified expenses to claim mileage allowance, you cannot claim for motoring costs such as insurance, road tax or fuel, because these are accounted for within the mileage allowance.

Need to know! Deliberately inflating your mileage allowance claim can lead to penalties. HMRC takes a very dim view of anyone who deliberately enters false information into tax returns.  

For more information

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. 

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.

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.

  1. 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.

  1. 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.

  1. 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).

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.

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 5th 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.