I think it’s safe to say that Christmas seems to start earlier and earlier every year. When did you start to argue over who will be going up in the attic to get the ancient decorations down, or start to crack the spine of the latest seasonal recipe book and make endless lists for the coming festivities? November? Not October, surely?
But when did you start think about the other looming date that self-employed people have to take note of? We think about preparing for it all year, but only really do something about once all the Christmas cake has been scoffed, and the ancient decorations have been returned to their dusty corner of the attic.
Yes, I’m talking about the fast approaching January deadline for tax returns. We all know that they are due 31st January following the end of the tax year, (so from 6th April 2017 to 5th April 2018) but do we know what we need to be claiming in terms of our income?So, before the sherry and mince pies have disappeared and before the groaning weight of your turkey (or otherwise) finally breaks your table, let’s check through all your paperwork so that you know what types of income are taxable and what are not.
Employment, Benefits and Private Pension Income:
Some of you will not only have your self-employment tax to take into consideration, you might also have PAYE that needs to be accounted for. You will have received a P60 after the end of the tax year, and the amount detailed there will have bearing on how much you pay in tax from your self-employment and other income.
Don’t forget, for each employment you have had during the year, you will have received a P60, and all of them need to go to your accountant, who will deduct the tax you have already paid. Any private pension you have is also classed as taxable income. A P60 will be generated by your provider and any tax paid is deducted from the final tax liability.
P60s record your tax code for the year and this indicates whether you have paid the right amount of tax. It might mean that you are owed a rebate, just in time to pay for that expensive gift! You may also have had certain benefits from your employed work, such as medical insurance and a company car, in which case a P11D will have been issued and needs to be given to your accountant, so that benefits and expenses can be recorded.
State Pension and State Benefits:
State pensions are always paid with no tax deducted, so this means you won’t get a P60 for this income. What you will have received is a letter from the Department of Work and Pensions at the start of the tax year (remember, April 2017 is the year you are looking for), giving you a weekly amount. Simply calculate your annual income by multiplying this amount by 52. A tax coding notice will give you the same amount, and both these can be given to your accountant.
Other state benefits that you pay income tax on are Jobseeker’s Allowance, Carer’s Allowance, contribution-based Employment and Support Allowance, Bereavement Allowance, Widowed Parent’s Allowance, Widow’s pension and Pensions paid by the Industrial Death Benefit scheme. Incapacity Benefit starts to be taxable from the 29th week you get it. These can all be found on your statements and a list of benefits received and their total for the tax year can be calculated by you to give to your accountant. This makes their job easier, and your bill down! However, if you are in any doubt about what benefits apply to your tax return, your accountant is the person to ask.
Bank or Other Interest:
While you are trawling your statements for benefits, also list any interest you have received from your bank or other financial institutions. There is a a tax free allowance on savings (£1000 for basic rate tax payers, £500 if you are paying at the higher rate) but it can be surprising how much it all mounts up. Provide the list to your accountant and they can make sure anything which needs including is there.
These days, most banks pay your interest gross but if tax is being deducted it should be on your bank statement. In that case, ask your bank if they can provide you with a tax summary – saving you and your accountant time.
Stock and Shares:
Dividend income from stocks and shares needs to be included in your tax return. Give your tax voucher that you received with the Dividend to your accountant. The first £5000 will be tax free for 2017/18.
Money from the sale of shares is classed as capital and therefore subject to capital gains tax. This This can be a complex area, so you need to make your accountant aware of any capital gains. The tax-free allowance here is £11,100 to cover capital gains. If you have made a loss, don't ignore it, as your accountant may be able to set it off against future capital gains.
Managed Portfolios of stocks and shares very often have a tax certificate, at the back of your annual report, which you can give to your accountant.
Rent from a property you own is also included in your tax return. Your accountant will need to have figures from your gross rent and any expenses incurred during the year, including repairs, insurance and management fees. If you contract estate agents to manage your property, they will have this information. If you have a mortgage on that property or properties, obtain a mortgage statement from your provider. The amount claimable is restricted, but your accountant should have the correct information for this year.
If you have made a loss on your property, then you should still include this on your tax return. This is because it can be set off against future profits of the property business.
Profits from self-employment
What you can claim from self-employment must be wholly and exclusively for the purpose of your business. Some items need to be split between what you use for the purposes of trade and your own personal use – such energy bills and a room for an office, if you work from home for instance. Your accountant will be well versed in what you can claim as expenses.
And in the spirit of the time of year, did you know that you can claim up to £150 inclusive of VAT for staff entertaining – that’s per person per year. So, you can treat all those on your payroll to a slap-up Christmas meal. Partners can come too!
There. Job done! Now you can sit back and relax - and maybe have a second (fifth?) mince pie.
But before you do, make sure you have all the information organised for your accountant. No, not all stuffed into a bag like an oven-ready turkey. Make sure you keep costs and hassle to a minimum this time of year by presenting all your records in the form of spreadsheets, cash books or even better bookkeeping software that is compatible with what your accountant uses, referencing as simply as you can your pile of receipts.
We hope that this quick guide will support you through the process of gathering everything you need for your tax return, and if you would like further help and information, please do contact us. Or, you can sign up for our free training course on Self-Assessment