Submitting your first self-assessment tax return can feel daunting. The deadline for online returns for the tax year 2013-14 is 31 January 2015. This may feel like a long way off but it will roll around sooner than you may think, especially as we approach the busy months in the run up to Christmas. It pays to be well prepared.
HM Revenue & Customs (HMRC) is running a live interactive webinar at 12pm on 24 October 2014 aimed at self-employed people who are submitting their tax return for the first time.
It will demonstrate:
You will also have the opportunity to ask the presenter your own questions.
You can take part in the free live webinar by pre-registering on the HMRC website and submitting questions in advance to be answered on the day. The webinar will last an hour.
Register for the HMRC live webinar self-employment and your online tax return
HMRC is also holding another live interactive webinar on record keeping for the self-employed at 3pm on 20 October 2014.
This webinar is aimed at sole traders and partnerships (but not LLPs) and is intended to give an introduction to the basic principles of keeping good records. It will give you guidance as to what HMRC expects from you and how you can get into good habits from the start.
Again, you can take part in this free live webinar by pre-registering on the HMRC website and submitting questions in advance to be answered on the day. The webinar will last an hour.
Register for the HMRC live webinar record keeping for the self-employed
One of the main advantages of being self-employed is that you have more control over your finances than you would as an employee, meaning you can use tax-planning techniques to reduce your bill. Here are my top tips about how to be more tax efficient when you’re self-employed or running your own small business.
If you are newly registered as self-employed you are probably operating as a sole trader, though as your business grows and generates profits of £25,000 or more each year, it may be more tax-efficient to operate through a limited company. The benefit of working as a limited company director is that you will have greater opportunity for tax planning.
Business costs that you incur solely and exclusively for your business, for example, accommodation, travel and equipment, could be claimed as expenses. Offsetting your business costs as expenses could save you 20% tax (or 40% as a higher earner). Remember that HM Revenue and Customs (HMRC) could ask for proof that the expense was incurred – up to seven years following the claim. Make sure you keep your receipts!
Registering for the Flat Rate VAT scheme could save you money, especially if you don’t incur many business costs. In basic terms, through the scheme you would charge your clients 20% VAT on your services, but pay back a lower VAT rate to HMRC.
You could claim tax relief your pension contributions. This means you would pay your pension out of your gross salary, not your net salary, and save 20% tax or 40% if you are a higher earner.
Missing online tax return deadlines results in a penalty of £100. If your return is more than three months late the penalty will increase by £10 each day up to a maximum of £900 or 90 days. If your return is six months overdue an extra £300 or 5% of the tax due (whichever amount is greater) will be added to your penalty, bringing the total to £1,200. The fine will increase by this amount again if your tax return is 12 months late and then you could potentially incur further penalties depending on your individual circumstances. Employing an accountant will help you keep up-to-date with your bookkeeping and manage these deadlines so you don’t incur any penalties.
Britain has seen a surge in self-employment over the past 12 months, but becoming your own boss comes with the daunting task of filing tax returns. Some of the most common mistakes to look out for when filing your return yourself are:
It’s no wonder a lot of self-employed people leave their return until the last minute, thinking about the number crunching, hunting for receipts and statements, and finding the hours to sit down and fill in your return is all time consuming. It can be difficult to find the motivation to file early, but with the late charge rates and the amount of mistakes found in late submissions, is it wise to miss the initial deadline?
Maths errors are commonly found on tax returns, as well as miscalculations surrounding taxable income, childcare deductions and tax credits. These inaccuracies can be easily avoided by keeping accurate, up-to-date records, so month on month you are sure your figures are correct. Using free online tax return software is a free and simple way of keeping on top of things.
Double-check to make sure there are no mistakes on your return. Look out for any missed information, for example, empty boxes should alert you to possible mistakes. Recalculate your sums to check your answers are 100% correct to the best of your knowledge, and if possible have a colleague or family member check for you. If you are unsure of something always get a second opinion or contact the helplines available. It’s always best to get advice rather than shrug it off and hope for the best.
To avoid interest and penalties on repayments ensure your financial account numbers are correct. If they contain a typo or are incorrect, it can cause delayed refunds to yourself or even result in late charges if HMRC can’t collect your tax bill payment in a timely manner.
All self-employed people have a Unique Reference Number usually referred to as a UTR. This is a ten-digit number that identifies you to HMRC. It is most important that you note this down correctly, because it can cause problems if incorrect. In the case of self-employed builders, if your UTR number is incorrect when given to someone you are subcontracting for, it could mean that you have emergency tax deducted at 30% instead of the normal 20%.
Copyright © Celso Pinto 2014. Celso is the founder and CEO of SimpleTax.
|Copyright: Ingvar Bjork|
Last week John Woolfenden was sentenced at Bolton Crown Court to two years imprisonment for cheating the public revenue and or transferring criminal property. John was an eBay trader and over a six year period he had dodged nearly £300,000 in taxes!
Many of us think of eBay as being a place where a few people earn an extra couple of quid by selling unwanted items but it is fast becoming big business; in six years John sold £1.4 million worth of DVDs, games and music. Maybe this was an extreme situation and who knows if we’ll see more of these types of cases in the future. The likelihood is high given the fact that over 3 years ago HMRC announced its intention to target e-tailers, ie those who trade on sites like eBay and Amazon.
With sophisticated technology available such as robots HMRC are able to trawl through on line transactions and see just who is carrying on an online trade – there is no place to hide from the HMRC e-tailers radar.
There are no hard and fast rules on when you are carrying on a trade; HMRC do give some guidance on this – known as the badges or indicators of trading.
The full list of the badges or indicators of trading can be found on the HMRC website.
Some key indicators to be aware of are ...
Common sense will often tell if you are trading or not; of course setting up an eBay shop or being a Power Seller on eBay is a HUGE indicator to carrying on a trade.
Don’t kid yourself that you’re not trading when it is clear that you are – living with the stress and worry of wondering if HMRC will come knocking on your door to demand undeclared and unpaid taxes can be a nightmare. Not paying tax on the profit made on your e-tailer business is tax evasion and can result in hefty fines & imprisonment – a high price to pay for not declaring your profits.
If in doubt, declare your business profits by registering as self employed. Remember that you will pay tax on profit, which is income less your costs, so of course you need to keep all of your receipts relating to your eBay trading.
If you are carrying on a business on eBay, Amazon or the like as an e-tailer, then you need to register as self-employed.
You do this on the GOV.UK web site.
Copyright © 2014 Elaine Clark. Using 20 years’ experience spent working at some of the UK’s leading businesses, award-winning chartered accountant Elaine Clark is the founder and managing director of www.cheapaccounting.co.uk, an online accounting service aimed at small businesses with big ambitions. Follow Elaine on Twitter at @cheapaccounting.
Many UK businesses will be affected by new VAT rules that are set to be introduced in 2015. From 1 January 2015, the 'place of supply' of telecommunications, broadcasting services and e-services (eg video on demand, e-books and app downloads), will change in instances where the customer is a private individual.
Currently, supplies of e-services made within the EU to non-business customers are subject to VAT in the place where the supplier belongs. However, from 1 January 2015, VAT will be charged based on where the customer belongs.
For business-to-business transactions, the customer will still be able to account for any tax due through the 'reverse charge'. However, where consumers and other non-taxable people receive goods electronically, the reverse charge is not possible, so liability to account for any VAT due in one of the 28 EU member states rests entirely with the supplier.
Businesses affected by this new piece of VAT legislation should undertake a thorough review of their services, so they can reduce the risk of heavier VAT bills from next year.
This legislation is aimed primarily at large businesses such as Amazon, but it could have a greater impact on smaller businesses, which do not have the logistical and administrative back-up that multinational firms have. Those in the line of fire will need to register for VAT in each relevant EU member state where their customers are based and file VAT returns as appropriate in each state based on the rules in that country. Businesses will also need to consider the impact on pricing, website information and customer relationships.
To ease the potential administrative burden, the European Commission has developed the voluntary 'Mini One Stop Shop' (MOSS) initiative, which allows suppliers to have just one additional VAT registration and through a special web portal, account for the VAT charged on all sales to EU customers.
HMRC will start accepting applications to register for MOSS from October 2014, enabling businesses to start using the scheme from 1 January 2015. Businesses at risk must start planning now or face unwanted administrative and financial headaches at the start of next year.
Copyright © 2014 Russell New. Russell New is a firm of business, tax and charity advisers based in Upper Beeding, West Sussex.
The end of July brought the closure of HMRC’s Direct Recovery of Debts (DRD) consultation. As stated on government website gov.uk when it opened: “Budget 2014 announced a new power that will allow HMRC to recover tax and tax credit debts directly from debtors’ bank and building society accounts, including Individual Savings Accounts (ISAs). The consultation document outlines how this will work in practice. The government would like to gather views on how best to implement this policy, including which safeguards would be proportionate and balanced to ensure that debtors do not suffer undue hardship.”
The AAT (the “UK’s leading qualification and membership body for accounting and finance staff”) is critical of details contained within the document because it feels appropriate safeguards are lacking (although it “appreciates and endorses that HMRC must be able to collect ‘established’ debt”).
The organisation wants greater consideration given to: “independent oversight”; the impact “DRD action could have on [how] banks view affected customers”; “what constitutes formal notice of an intended DRD action”; “the approach to seizure of funds from joint accounts”; and “the need to restrict HMRC from sharing data obtained around the department for non-DRD purposes.”
The AAT is urging HMRC to look closely at consultation responses received and use them as the “basis for another consultation”. Brian Palmer, AAT tax policy adviser, says: “Direct recovery of debt from an individual’s bank account was always going to be an emotive issue. This is why we would advise HMRC to take the time to consult on this matter to take on board all relevant views.”
AAT won’t support current plans because they lack “sufficient depth”, adequate safeguards and “the integral feature” of independent oversight and accountability. Should HMRC stage a second consultation, shaped by feedback gathered in the first, AAT says it will then “work with [HMRC] to see if we can [affect] a more appropriate outcome.”
The AAT is not alone in its criticisms. The ICAEW (Institute of Chartered Accountants in England and Wales) was also concerned about the adequacy of safeguards, and “whether HMRC can be relied upon to have accurate information and exercise its judgement properly”, as well as “the adequacy of appeal rights (which are not clearly explained), and the fact that HMRC is in effect becoming a preferential creditor.
“Further, we think this measure is wrong in principle and infringes fundamental civil liberties that no-one should access someone else’s bank account without their permission or under the supervision of a judge. We believe that principle should remain. Is this the thin end of the wedge and where will it end if accepted?”
According to a Law Society Gazette headline (28 July): “City lawyers lambast plans for direct tax debt recovery”. The article states: “The government says the change will help recover debts from debtors who choose not to pay despite being able to do so. But the City of London Law Society [CLLS] has warned that the proposals are ‘seriously misguided’ and could impact on innocent taxpayers.”
CLLS’s consultation response cited two key objections: “The potential for mistakes by HMRC; and the fact it will be HMRC and not the courts [that will make] decisions.” It described the proposals as “deeply flawed” and representing “a dangerous precedent regarding the balance of power between HMRC and taxpayers”, while potentially vulnerable to a challenge under the Human Rights Act,” it warned.
Blog written by freelance content writer and Start Up Donut editor Mark Williams.