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

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

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

Read on to find out:

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

What is a “cryptocurrency”?

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

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

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

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

How does HMRC view cryptocurrencies?

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

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

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

Cryptoassets and tax – individuals

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

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

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

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

• Further tax guidance for individuals regarding cryptocurrencies is available on GOV.uk.

 Cryptoassets and tax – businesses

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

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

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

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

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

Tax and cryptoassets: looking ahead

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

More information

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

About GoSimpleTax

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

It includes partnership, non-resident and previous year returns.  it has an easy-to-use interface and submits direct HMRC.

GoSimpleTax are ready for MTD and the software shows the Tax liability in real time.  It has a simple dashboard allowing you to switch between clients easily.

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

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:

• If you earn £20,000 a year, you currently pay £1,251 a year in NICs, which will increase by £130 a year from April 2022.
• If you earn £30,000 a year, you currently pay £2,451 a year in NICs, which will increase by £255 a year from April 2022.
• If you earn £50,000 a year, you currently pay £4,851 a year in NICs, which will increase by £505 a year from April 2022.
• If you earn £80,000 a year, you currently pay £5,479 a year in NICs, which will increase by £880 a year from April 2022.
• If you earn £100,000 a year, you currently pay £5,878 a year in NICs, which will increase by £1,130 a year from April 2022.

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

What is a sole trader?

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

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

Sole trader NICs

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

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

Declaring sole trader earnings and VAT

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

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

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

The advantages of being a sole trader

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

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

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

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

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

Example 1

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

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

Difference = £1,392

Example 2

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

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

Difference = £1,717

Example 3

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

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

Difference = £334

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

Conclusion

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

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

About GoSimpleTax

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

Our software includes partnership, non-resident and previous year returns, it has an easy-to-use interface and submits direct to HMRC.

GoSimpleTax are ready for MTD and the software shows the Tax liability in real time with a simple dashboard allowing you to switch between clients easily.

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

How much do your landlord clients know about Making Tax Digital (MTD)? Chances are, they may know little or nothing. But with significant changes scheduled in the coming years, they should at least know a few basic facts, so they can start to prepare and minimise impact.

You can play a key role in ensuring that they get the information and advice they need, of course, while pointing them in the direction of sources of further support and guidance. This guide will help you.

Here’s what we’ll cover

• How MTD will change record keeping and reporting for landlords
• When MTD for Income Tax will be introduced
• How landlords can voluntarily join MTD for Income Tax now

Why is MTD being introduced?  

As you’ll no doubt already be aware, Making Tax Digital is an ambitious government initiative that will transform how people, businesses and their accountants/bookkeepers report data to HMRC.

According to the government, MTD seeks to make it easier for people and businesses to manage their tax affairs and get their tax right. Making Tax Digital could also swell government coffers, as HMRC believes that using MTD-compatible software and apps will help to prevent avoidable tax mistakes (estimated to have cost more than £9.9bn in lost tax revenue in 2017-2018 alone).

How will Making Tax Digital for Income tax change things?

When introduced, landlords (and/or their agents) will need to use MTD-compatible software to maintain digital records of the landlord’s income and expenses.

MTD-compliant software will summarise figures, which must be submitted online via the landlord’s HMRC digital account (they’ll get up to a month after every quarter-end to do so). Landlords will also be able to see how much tax they owe, based on the information supplied, so they can better budget for paying their tax bill, which could help many.

At the end of the tax year, the landlord will need to finalise their business income and submit a final declaration, confirming that the updates they’ve provided are accurate, with any accounting adjustments made. Then, they’ll soon receive their tax bill. They must submit their final declaration and pay the tax they owe by 31 January the following tax year.

When will MTD for Income Tax be introduced?

Landlords with annual business or property income of more than £10,000 must follow MTD for Income Tax rules from the accounting period starting on or after 6 April 2023.

They’ll still need to send HMRC a Self Assessment tax return for the tax year before they signed up for MTD for Income Tax. But after that – no more annual Self Assessment tax returns and all the hassle and panic that can go with them.

For those already using accounting software, HMRC recommends asking the provider whether they plan to make their software MTD-compatible. Government website GOV.UK already lists Making Tax Digital for Income Tax-compatible software. Those still using paper-based record-keeping system will need to start using an MTD-compatible digital solution.

MTD for Income Tax pilot scheme

Some self-employed workers, landlords and accountants have already been part of a live pilot to test and develop MTD for Income Tax. Your landlord clients may be able to sign up voluntarily for MTD for Income Tax if:

• they’re a UK resident
• they’re registered for Self Assessment as a landlord and
• their returns and payments are up to date.

They can sign up now for their current or next accounting period. It could be a good way to get used to MTD requirements and make sure they have the right software/systems in place.

Landlords can sign themselves up to the MTD for Income Tax pilot scheme via government website GOV.UK. They’ll be asked for their:

• name
• email address
• National Insurance number
• accounting period
• accounting type (eg cash or standard accounting)
• Government Gateway user ID and password you use when you file your Self Assessment return. If you don’t have a user ID, you can create one when signing up.

If your landlord client needs to report income from other sources (eg wages from working for someone else), they cannot sign up voluntarily. 

If you maintain you landlord client’s financial records and complete their tax returns, you can sign them up for MTD for Income Tax. Obviously, you’ll need all of the above information to hand if they ask you to sign them up.

MTD: What if a landlord has more than one property for rent or let?

As you’d expect, they’ll only need to report their earnings and expenses via MTD once for all of their properties together, they don’t need a digital account for each property.

Making Tax Digital: What about co-ownership?

If a property is owned by a business partnership of which the landlord is a member, the partnership is responsible for Making Tax Digital obligations, which must be fulfilled by a nominated partner.

Quarterly summary information concerning share of the profit (based on ownership) can be pushed to each partner’s digital tax account. When the end-of-year declaration is made, the nominated partner must push each partner’s share of profits to their digital tax accounts. Individual tax liability will then be calculated.

Where property is jointly held, for example, a husband and wife own a property for rent or let, each person who has received income must report it separately, after registering for Making Tax Digital.

More information for landlords about MTD for Income Tax

• Your landlord clients can head to government website GOV.UK for HMRC guidance on Making Tax Digital for Income Tax.
• HMRC has also created videos about Making Tax Digital for Income Tax and landlords can view a recorded webinar on Making Tax Digital for Income Tax.

About GoSimpleTax

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

Our software includes partnership, non-resident and previous year returns, it has an easy-to-use interface and submits direct to HMRC.

GoSimpleTax are ready for MTD and the software shows the Tax liability in real time with a simple dashboard allowing you to switch between clients easily.

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

Whether to pick up supplies, drop off deliveries, see customers or make site visits to quote for jobs, each year many self-employed sole traders rack up thousands of miles on UK roads while running their business.

You may be self-employed and use your own vehicle to drive far fewer miles for business reasons, but even so, you should still claim your mileage allowance. After all, as well as fuel costs, business journeys help to cause wear and tear that can lead to expensive maintenance and repair bills. And, crucially, the more allowances and expenses you claim, the higher your self-employed earnings. 

What is mileage allowance?

If used for business, you may be able to claim a proportion of the actual total cost of buying and running your vehicle, including such things as insurance, repairs, servicing, fuel, etc. This option may or may not enable you to claim more. However, keeping track of every cost and working out the exact proportion of business use for your vehicle takes time and effort.

Instead, many self-employed people claim mileage allowance, a flat-rate scheme that provides a much simpler way to claim back the cost of using your own vehicle for business. Mileage allowance is part of a range of “simplified expenses” options that HMRC offers to self-employed people. They’re designed to make tax admin easier and quicker.

How much mileage allowance can you claim?

If you’re self-employed, you can claim a mileage allowance of:

• 45p per business mile travelled in a car or van for the first 10,000 miles and
• 25p per business mile thereafter
• 24p a mile if you use your motorbike for business journeys.

If you use more than one of your vehicles for business, you don’t have to use the flat-rate mileage allowance option in all cases, you could claim the actual cost for some, and mileage allowance for others. However, once you start using the flat rate mileage allowance option for a vehicle you use for business, you cannot change.

If you travel with someone else who also works for your business, as the driver, you can claim an additional 5p per mile for each extra passenger. So, if three of you travel together, you can claim 45p + 10p per mile (two x 5p per mile for the two additional passengers) for the first 10,000 miles, then 25p + 10p per mile thereafter.

Need to know! Claiming mileage allowance doesn’t stop you claiming for other business travel expenses, such as train tickets and taxi rides. Parking tickets and toll fees while on business can also be claimed as a legitimate business expense.

When can’t mileage allowance be claimed?

You can’t claim mileage allowance for personal journeys, they must be made “wholly and exclusively for business purposes”. And neither can you claim mileage allowance for journeys to and from your usual place of work (ie your commercial business premises). You can claim for travel to a temporary workplace, for example, if you’re a plasterer who needs to travel to different sites and jobs.

Simplified expense claims can’t be used for cars designed for commercial use, such black taxicabs or dual-control driving instructors’ cars. Limited companies cannot use simplified expenses either, as they’re only available to self-employed people.

Need to know! You cannot claim simplified expenses for a vehicle you’ve already claimed capital allowances for or one you’ve included as an expense when you worked out your business profits. Where necessary, seek guidance from an accountant.

Three example mileage allowance claims

1. You’ve driven 1,200 business miles in your car during the year.

Calculation: 1,200 miles x 45p per mile = £540

Annual mileage allowance = £540

2. You’ve driven 10,000 business miles in your van during the year. Calculation: 10,000 miles x 45p per mile = £4,500
   Annual mileage allowance = £4,500
3. You’ve driven 12,000 business miles in your car during the year. Calculation: 10,000 miles x 45p per mile = £4,500, plus, 2,000 miles x 25 per mile = £500
   Annual mileage allowance = £5,000

Working out your business mileage

Logging your business mileage is a good idea, as it can make it far easier to later work out and claim your mileage allowance. And your claim is more likely to be accurate and credible if HMRC can see precise details of dates, miles travelled, journeys and reasons. HMRC can request proof during an investigation.

It can be wise to get into the habit of recording details after every journey for which you plan to claim mileage allowance. Manually recording your business mileage takes more time and effort, while scraps of paper and notebooks can go missing, so it’s better to record and store your mileage details in a spreadsheet/software, with data stored safely online. Many apps have been created to help business owners track and record their business travel mileage (some even use GPS to automatically measure business mileage).

Some self-employed business owners simply estimate their business mileage, by claiming for a percentage of their vehicle’s total annual mileage. So, if your car does 1,000 miles a month and you can show that half of that is for business use, you can claim mileage allowance of 6,000 miles a year (ie £2,700).

How to claim mileage allowance

Good accounting software will do all of the hard work for you, saving you lots of time and hassle. You enter your business mileage and it calculates your mileage allowance, which you enter into your Self-Assessment tax return. The amount is taken into account and your tax liability is reduced as a result.

If you use simplified expenses to claim mileage allowance, you cannot claim for motoring costs such as insurance, road tax or fuel, because these are accounted for within the mileage allowance.

Need to know! Deliberately inflating your mileage allowance claim can lead to penalties. HMRC takes a very dim view of anyone who deliberately enters false information into tax returns.  

For more information

• Visit government website Gov.uk to read Travel – mileage and fuel rates and allowances. There is also an online tool that enables you to Check if simplified expenses could save your business money.

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

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

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

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

What is the trading allowance?

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

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

A reminder of the personal allowance 

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

Once that amount is exceeded, there will be tax: 

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

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

Is a tax return required?

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

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

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

Can the tax bill be lowered?

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

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

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

Getting the most out of online sales for your clients

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

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

Further Advice

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

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

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

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

What is the Marriage Allowance? 

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

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

Marriage allowance, are you eligible?

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

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

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

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

How does the Marriage Allowance work? 

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

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

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

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

What are the benefits for landlords?

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

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

Further Advice

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

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

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

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

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

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

Grant 4 now open

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

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

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

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

Changes to grant 5

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

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

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

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

Declaring grants 1, 2 and 3 on your tax return

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

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

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

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

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

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

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

What is MTD, Just In Case You Need Reminding…

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

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

How does it affect sole traders and landlords?

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

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

What are quarterly updates?

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

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

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

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

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

Why should I prepare now?

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

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

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

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

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

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

Additional COVID-19 support

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

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

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

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

Income Tax thresholds to change, then freeze

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

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

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

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

HMRC to invest in a new taskforce

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

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

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

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

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

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

About GoSimpleTax

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

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

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

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

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

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

Offer real-time answers and advice

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

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

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

Record income more easily

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

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

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

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

Enhance security

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

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

Be MTD-ready

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

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

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

It’s time to go digital

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

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

About GoSimpleTax

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

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

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

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

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

1. It’s easy to use

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

2. You can get tips on how to make savings

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

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

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

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

4. It’s MTD-compliant

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

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

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

About GoSimpleTax

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

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

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

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

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

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

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

Gather all information soon

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

Documents and Information Checklist. (suggested format)

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

Remind your clients of what is required

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

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

Make clients aware of possible penalties

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

Minimise errors with tax software

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

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

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

About GoSimpleTax

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

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

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

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

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

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

What expenses can sole traders claim for?

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

They include:

Travel and accommodation

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

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

Legal and financial costs

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

Marketing costs

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

Clothing Expense

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

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

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

Rent for premises

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

Utilities

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

Subscriptions

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

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

What records should be kept?

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

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

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

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

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

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

How long should records be kept?

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

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

Where should records be stored?

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

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

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

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

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

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

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

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

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

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

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

1. Be conscious of the deadline

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

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

2. Organise supplementary pages

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

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

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

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

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

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

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

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

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

About GoSimpleTax

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

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

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

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

What VAT information must be stored digitally for MTD?

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

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

The following information has more specific rules surrounding it:

1. Use of supplier statements 

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

2. Petty cash transactions

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

3. Supplies received by third party agents

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

4. Charity fundraising events

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

5. Reverse charge transactions

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

6. Summary data

HMRC require the following summary data to be recorded:

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

7. Adjustments

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

8. Correcting Errors

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

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

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

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

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

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

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

Register with HMRC

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

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

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

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

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

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

Know your expenses

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

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

This includes expenditure like:

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

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

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

Keep records

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

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

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

About GoSimpleTax and Your AIA Member Discount

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

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

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