Self Assessment tax return calculator and submission tool.
AIA has teamed up with GoSimpleTax to provide AIA members with a cost effective easy to use solution which will ensure 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.
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 www.gosimpletax.com/tax-aia (example 100 client submissions £195, discount included).
*contact Amanda.swales@gosimpletax.co.uk to book a free one to one product overview.
A UK based software company specialising in providing an online solution in the simplest form possible– the only one of its kind!
Our tax calculator is a simple HMRC registered web tool that allows Tax Records to be maintained.
These records can then be submitted direct to HMRC in-line with the current requirements under Self-Assessment and will continue through MTD
The company owners have worked in the software industry since 1985 producing tax compliance products for both individuals and accountants.
The last 5 years being focused on GoSimpleTax. This secure end to end encrypted App is a recognised HMRC supplier.
GoSimpleVAT is MTD compliant VAT bridging/filing software that imports a VAT report from any spreadsheet or PDF. Approved by HMRC and guaranteed to lead you to compliance. You can take advantage of our free 14-day trial (no credit card required) to see just how simple VAT filing through bridging software can be.
For just £240.00 per year (£60.00 per Qtr.) for unlimited clients and unlimited submission.
Discount to AIA Members
GoSimpleTax offer 25% discount on all software, to all AIA Members.
Simply follow any of the above links or click here to sign up to receive your discount code.
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
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:
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
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?
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:
Need to know!
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:
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.
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.
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.
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
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:
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:
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.
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).
Usually, each December, with the 31 January online-filing deadline looming, many people start to worry about completing their Self Assessment tax return, when they’d much rather be getting into the Christmas spirit. Even if you leave it until after Christmas, having to complete your Self Assessment tax return early on in the new year can be an unwelcome chore when you’re trying to get back into work mode.
Having to file your Self Assessment tax return is unavoidable if you earn money that’s subject to Income Tax. Thankfully, good advice and support can make a big difference. So, here are ten top tips to make Self Assessment tax return much less taxing, so you can look forward to a cracking Christmas and New Year.
1 Use accounting and Self Assessment filing software
Using good accounting software to accurately and regularly record your income and expenses can make completing your Self Assessment tax return much easier, because key numbers are automatically calculated for you. You can also use other third-party software that makes completing and filing your Self Assessment tax returns much easier, while ensuring that your Self Assessment tax returns are error-free.
2 Improve your Self Assessment know-how
Do some online research and search for advice from reliable sources. You may be able to find ways to save time and make sure that your Self Assessment tax return is properly filled out. Also read HMRC’s own guidance on Self Assessment tax returns. HMRC has published a comprehensive range of Self Assessment guidance, including concise YouTube Self Assessment videos and live and recorded webinars (registration required).
3 File your Self Assessment return now
Why put off completing and filing your Self Assessment tax return? You don’t have to wait for the deadline. In fact, you could have completed and submitted your Self Assessment tax return months ago, when the new tax year began on 6 April. If you can’t do it immediately, do it ASAP. Do yourself a favour: get it off your plate.
4 Give yourself enough time
You need to go through the Self Assessment tax return form thoroughly, paying due care and attention when entering data. The more you rush, the more likely you are to make mistakes that later need correcting. Often the reason why people rush is they’re battling the Self Assessment online filing deadline or they don’t give themselves sufficient time to complete their Self Assessment tax return.
5 Have all the necessary information to hand
As already explained, accounting software can take much of the legwork out of completing your Self Assessment tax return. Alternatively, have all relevant facts and figures to hand or at the click of a mouse, because having to go and find information, from hard-copy invoices, bank statements and receipts, etc, will mean that filling out your Self Assessment tax return takes much longer.
You’ll also need your UTR (ie the unique ten-digit reference number that enables HMRC to identify you), your National Insurance number, P60 if you’re also employed and paid via PAYE (it shows your earnings and tax paid in the tax year), records of earnings from all taxable sources (eg rental income, interest/investment income, pensions, state benefits, etc), details of expenses, etc.
6 Claim your rightful tax allowances and reliefs
Income Tax payers can claim a variety of tax allowances (upon which no tax is payable) and reliefs (which lower your profit and resulting Income Tax liability). Government website GOV.uk explains expenses you may be able to claim if you’re self-employed, as well as Income Tax reliefs and personal allowances. Do some research or seek professional advice to make sure that you’re claiming everything to which you’re entitled.
7 Consider using simplified expenses
“Simplified expenses” is an HMRC-approved way to claim business expenses using flat rates rather than working out actual costs, which can take much more time and effort. You can use simplified expenses for business mileage, operating a business from home or living at your business premises (eg if you run a B&B).
While saving you time when filling out your Self Assessment tax return, you should be sure that claiming simplified expenses won’t leave you out of pocket. GOV.uk offers an online simplified expenses checker tool that enables you to find out.
8 Double-check your facts and figures
Once you’ve entered data into your Self Assessment tax return, double-check it all before submitting it to HMRC. Also take care when ticking boxes, as this is where mistakes can also occur. More serious errors can lead to a penalty if HMRC believes they’re the result of your being careless. Don’t let that happen. Don’t be sloppy.
9 Don’t miss the Self Assessment filing deadline
With so much to do, the run-up to Christmas can be a hectic, so, you may not manage to get your Self Assessment tax return done and dusted before the new year. Sometimes, that’s unavoidable. But still try to get it done early in the new year, so it’s out of the way. You don’t want to miss the online filing deadline of midnight on 31 January either, because this will result in a £100 penalty.
10 Reach out for Self Assessment support
In addition to HMRC’s online information resources, you can call its Self Assessment helpline (0300 200 3310 – Monday to Friday: 8am to 6pm). Make sure your personal details and address are up to date in your personal tax account, otherwise you could fail telephone security questions when asked. Also have your National Insurance number and Unique Taxpayer Reference (UTR) to hand when you call.
If the thought of completing and filing your first Self Assessment tax return or slogging your way through another one is all too much, you could always get an experienced professional to do it for you or at very least, check over one you’ve filled out. It may be cheaper than you think. Consider it a nice early Christmas present to yourself.
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 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.
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.
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.
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.
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.
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 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
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).
Boris Johnson wins Commons vote: Social care tax rise.
MPs yesterday voted 319 to 248 for a 1.25 percentage point rise in National Insurance for workers and employers to help fund health and social care.
From 6 April 2022, National Insurance contributions (NICs) for employees and employers will rise by 1.25 percentage points, as part of a new annual £12bn healthcare levy announced by Prime Minister, Boris Johnson, which he described as “reasonable and fair”.
Small-business organisations disagree and they haven’t welcomed the manifesto promise-breaking tax increase. However, the government says the increase in NICs and other measures are needed to tackle the “health backlog caused by the Covid pandemic”. Moreover, some of the money (reportedly £5.4bn over the next three years) will be used to improve the UK social care system, according to the government.
From 2023, the additional payment will become a separate tax on earned income called the Health and Social Care Levy, which will be calculated in the same way as National Insurance and detailed on payslips.
So what will it mean for sole traders?
Critics have been quick to point out that the increase in NICs will disproportionately affect lower earners and sole traders.
Sole traders pay two types of National Insurance: Class 2 (£3.05 a week) if their profits are £6,515 or more a year; and Class 4 if their profits are £9,569 or more a year.
Sole traders pay 9% Class 4 NICs on profits between £9,568 and £50,270 and then 2% on anything they earn above that. The changes when introduced will mean they will now pay 10.25% and 3.25% respectively on their profits.
What about employees?
According to government website GOV.uk:
What if you’re a landlord?
Landlords must pay Class 2 NICs if their profits are £6,515 a year or more and what they do counts as running a business (ie being a landlord is their main job, they rent out more than one property and buy new properties to rent out, etc). If profits are under £6,515, a landlord can make voluntary Class 2 NIC payments to get benefits, such as a state pension.
But, as explained on GOV.uk: “You do not pay NICs if you’re not running a [property rental] business – even if you do work like arranging repairs, advertising for tenants and arranging tenancy agreements.”
Other tax changes announced
As well as having to pay higher NICs, directors of small limited companies who receive part of their income from dividend payments will pay more tax.
From April 2022, tax on dividend income will increase by 1.25%. So, after the £2,000 allowance, those in the basic rate for Income Tax will pay 8.75% on dividend payments (currently it’s 7.5%), while those in the higher rate Income Tax band will pay 33.75% (currently 32.5%) and those in the additional rate will pay 39.35% (currently 38.1%).
The 1.25% tax increase on share dividends as well as NICs at 1.25% NIC increase will seem particularly unfair to many small-company directors who received little or no government financial assistance to survive during the pandemic. And in some cases, there may no longer be a tax advantage, which could see some deregister as companies and operate instead as sole-trader businesses.
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?
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:
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
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 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:
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:
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
Calculation: 1,200 miles x 45p per mile = £540
Annual mileage allowance = £540
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.”
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.
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:
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.
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.
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:
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.
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.
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”.
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.
There are two financial requirements you’ll need to meet in order to receive the allowance:
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.
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.
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.
For more information about how the Marriage Allowance works, and how you can apply for it, check out the GOV.UK website.
If you require further advice on tax related matters go to the AIA Tax Insights Page, or alternatively visit the AIA GoSimpleTax Partner Page.
Self-Employed Income Support Scheme (SEISS) has been a lifeline to many sole traders during the coronavirus pandemic. Provided they’ve met the necessary criteria, these individuals have been supplemented with up to 80% of their average trading profits.
Rachel Rutherford, Director of Policy and Public Affairs added “Undoubtedly the Self-Employed Income Support Scheme has provided much needed support for businesses paralysed by the ongoing pandemic.
“However, these grants are taxable – meaning that they’re subject to Income Tax and National Insurance contributions in the tax year in which they’re received. As a result, they need to be included in your client’s Self-Assessment tax return.”
So, to make that as easy as possible for you and your client’s, we’ve asked tax return expert. Mike Parkes, Technical Director at GoSimpleTax to set the record straight on SEISS grants and how to record them for HMRC.
Grant 4 now open
If your client had reason to believe that they have suffered a significant reduction in trading profits between 1st February 2021 and 30th April 2021 due to the coronavirus pandemic, and they are eligible, they can now claim support.
To apply, you’ll need your client will need:
This fourth instalment of SEISS closes on 1st June 2021. To determine your client’s eligibility, HMRC first reviews your clients 2019/20 tax return. Your trading profits must be no more than £50,000 and account for more than 50% of your taxable income.
Changes to grant 5
The eligibility criteria for the fifth grant will be different. As it stands, the amount your client receives will be dependent on your turnover between April 2020 and April 2021.
In effect, this means your client may receive support if your sales have fallen by:
This fifth and final instalment of self-employed support is expected to ‘cover’ the period from May 2021 to September 2021.
Declaring grants 1, 2 and 3 on your tax return
Your client won’t need to repay the SEISS grant, but they are subject to Income Tax and Class 4 National Insurance contributions. This means that, if your client claimed grants 1, 2 or 3, they will need to be reported, in full, in their 2020/21 Self Assessment tax return.
HMRC is making this easier for users by including a box on the 2020/21 and 2021/22 tax return forms. You’ll need to include a 4th or 5th grant on the latter tax return should you claim them in 2021.
Alternatively, you can easily declare that you’ve received support through tax return software. Platforms like GoSimpleTax include this as a simple drop-down field.
If your client discovers that they received a SEISS grant that they were not entitled to, or were paid more than they should have been, notify HMRC within 90 days to arrange repayment. Fail to do so, and your client may be charged a penalty.
Provided you have claimed the correct amount and include all grants within your clients Self-Assessment tax return, you should both stay on the right side of the taxman.
As we are aware on 1st April 2021, the soft-landing period for eligible businesses over the VAT threshold to comply with Making Tax Digital (MTD) for VAT will come to an end. Anyone currently following the rules of MTD for VAT will need to make sure that the software they use is able to send information directly to HMRC going forward.
This marks the start of a series of incoming tax changes that will impact how sole traders and landlords file their tax returns to HMRC. And while these individuals have until January 2023 to implement these changes as part of MTD for Income Tax, the longer they leave it, the harder it will be to adjust. But don’t just take our word for it. Below, GoSimpleTax’s Mike Parkes sets the record straight on what you need to do to prepare yourself.
What is MTD, Just In Case You Need Reminding…
MTD is a government initiative designed to digitalise taxes in the UK. According to the HMRC, avoidable mistakes cost the Exchequer £8.5bn between 2018 and 2019. Digitalisation would mean that income can be more effectively assessed, and taxpayers will find it easier to get their tax right.
Initially, the legislation only applied to some VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 (with those below the threshold required to follow the rules from April 2022). Soon, however, it will apply to sole traders and landlords with an annual income exceeding £10,000. This will begin in 2023 – specifically, from their accounting period starting on or after 6th April 2023.
How does it affect sole traders and landlords?
Sole traders and landlords with income above £10,000 will be required to use compatible software to keep digital records and send HMRC updates for their Income Tax. This means the end of the free HMRC tax return submission tool – instead, your client’s need to choose an HMRC-recognised platform that’s compatible with MTD for Income Tax.
There will also no longer be a need to submit a Self Assessment tax return. In its place, your clients will be required to send four quarterly updates, an end-of-period statement, and a final declaration to HMRC. But don’t worry, if your clients are now using software, you will both end up spending less time on admin under this legislation than you did previously.
What are quarterly updates?
At least every three months, your client will need to send HMRC a statement of their business income and expenses. The same is true for any property income that they earn. This allows HMRC to present you with a more up-to-date forecast on how much tax they will owe.
Again, software should make this process easy for you as you can log income and expenditure information in real time.
What about end-of-period statements and the final declaration?
End-of-period statements (made at the end of the accounting period or tax year) will involve a similar process to the current one for Self Assessment tax returns.
As for your clients final declaration, this is where they confirm that the figures submitted to HMRC are final and correct. This submission will then be used as the basis to calculate any tax they need to pay.
Why should I prepare now?
While sole traders and landlords have until 2023 before MTD for Income Tax comes into effect, if your clients leave it too late to sign up for approved software, 2023 could be a bit of a nightmare year.
Not only would they need to submit their 2021/22 tax return by 31st January 2023 as normal, they would also then have to quickly get up to speed with MTD for Income Tax before their first MTD submission. This first submission would most likely be for the period 6th April 2023 to 5th June 2023, and be due no later than 5th July 2023.
That’s why we recommend familiarising yourself and your clients with digital tax return software as soon as possible. By beginning to log their 2021/22 income and expenditure as and when they occur, you can both effectively be ready to submit the corresponding tax return as soon as you’re able to (6th April 2022, the start of the tax year). That means you and your client won’t have to worry about the 31st January 2023 filing deadline, freeing you both up to focus on your new MTD responsibilities.
You can start by choosing an MTD-compatible platform today, and getting to grips with keeping digital records. So what are you waiting for? 2021 is the perfect year to get organised.
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.
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.
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.
‘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.
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:
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:
Only with all of the above will you be able to safely claim any relevant expenses and stay on the right side of the taxman.
How long should records be kept?
Where businesses have to store receipts for six years, sole traders are only required to store theirs for five. That’s at least five years after the 31st January submission deadline of the relevant tax year.
This allows HMRC to investigate your clients accounts over a long period of time should they believe it necessary. Obviously, if you have claimed relief but misplaced the evidence, you may be penalised by HMRC all the same. So it’s best to tell your clients to invest in more than a wallet or a desk drawer for your receipts.
Where should records be stored?
Ideally, electronically. Train tickets and similar paper receipts are near impossible to keep in good quality for that length of time – especially if your client is lugging them around for up to five years in their coat pocket. You could have a physical filing system, but the amount of admin that would be required to keep it in order could quickly get exhausting.
Tax software, on the other hand, allows your clients to store certain documentation online. Some allow users to take photos of receipts from their phone, for instance. They can then upload the image to the app, keeping it secure in case you ever find yourself under investigation.
However, it’s worth bearing in mind that there are documents that HMRC will expect you to hold on to in their original form. Such documents usually show that you’ve had tax deducted. For example, if you’ve been an employee in that tax year, your P60 will prove your exemption.
Are you conscious you will not be able to use the government gateway for MTD for income tax?
GoSimpleTax software submits directly to HMRC and is the solution for accountants and sole traders alike to log all their income and expenses. The software will provide you with hints and tips that could save you money on allowances and expenses you may have missed.
Trial the software today for free - add up to five income and expense transactions per month and see your tax liability in real time at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading.
AIA members receive a 25% discount – to get your discount code simply sign-up to try our software above and it will be emailed to you. Volume Discounts are available.
Further more, AIA members who sign up to try the software throughout September and October 2020 will be eligible for a free one to one session providing an insight to our software and answering any questions you may have – sign up now www.gosimpletax.com/tax-aia.
The paper return deadline is this month, 31st October, therefore we thought it would be useful to invite Mike Parkes from GoSimpleTax to explain how best to prepare your clients for the Self-Assessment tax return submission and file with confidence.
If your clients are new comers to submitting Self-Assessment tax returns, they should understand it pays to know that there are three ways of filing. Firstly, you can submit via the HMRC site and receive instant acknowledgement post-submission. You can also use commercial software to do this for you. Or, you can send a paper tax return to HMRC in the post.
Whichever method they choose, it’s important to understand their exact responsibility. For those who are self-employed sole traders or Landlords letting out UK property, paper submissions can be complicated as they involve additional forms and documentation.
Should your client choose to file a paper tax return, don’t forget to file before the 31st October deadline. We would recommend sending their paper submission prior to the October deadline, either through recorded delivery or with some proof of posting in order to prove your compliancy.
If they miss the deadline for submitting their paper return, don’t be tempted to file it late – you have until 31st January to complete one online. Just don’t submit both. You will be charged penalties from the 1st February for any late submissions.
Remember, it isn’t enough to submit the main SA100 tax return. Your client needs to bundle it together with the rest of their documentation that references their property or self-employment income.
For any income as a landlord, all that’s required is to file an additional form (SA105) and submit it alongside their regular Self-Assessment tax return.
However, with self-employment, the additional sections required of your client could be either the SA103S or the SA103F. The difference between the two is that the former is for those who had an annual turnover below the VAT threshold for the tax year (£85,000 as of 2019/20), and the latter is for those who earn above the VAT threshold.
While your client may have historically always submitted their tax return by paper, the vast majority of tax returns are now submitted online. Improvements in technology and the extra three months to file are the main incentives to submit an online tax return.
Having an online account with HMRC allows you to not only extend your filing deadline but also check your details at any time to see how much tax is due and act accordingly.
If your client is happy to tweak the way in which they keep their records and adopt digital record-keeping, this will help minimise admin further, as well as enable you to submit their tax returns and automatically calculate the tax.
Going forward as of April 2023 your client will have to file their self-assessment digitally to HMRC providing updates every quarter via a digital platform.
Preparation is key, adopt the right approach now it could save both time and money, make the move to digital ahead of the deadline for MTD for Income Tax.
About GoSimpleTax
Trial the software today for free - add up to five income and expense transactions per month and see your tax liability in real time at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading.
AIA members receive a 25% discount – to get your discount code simply sign-up to try our software above and it will be emailed to you. Volume Discounts are available.
Further more, AIA members who sign up to try the software throughout October 2020 will be eligible for a free one to one session providing an insight to our software and answering any questions you may have – sign up now www.gosimpletax.com/tax-aia or contact leeanne.ogden@gosimpletax.co.uk
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:
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:
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.