Self Assessment and Tax Return Filing
The government has announced some major changes to how self employed people file their returns. From April 6th 2018, HM Revenue & Customs (HMRC) will no longer require self-employed taxpayers to complete a separate set of forms called Schedule A. Instead, it will use a single form called Form 1095/1096.
This form will contain information about income earned during the previous calendar year. There will be a box where you can indicate whether you are a sole trader, partnership, limited liability partnership or another type of self-employment arrangement. You will also be able to list the names of each person who worked for you during the year.
If you do not provide enough detail about your earnings, HMRC will ask for further information. If you fail to respond within 14 days, HMRC will assume that you did not earn anything during the year.
In addition to providing information about earnings, you will also need to give details about your expenses. For example, you might need to say what you paid for rent, utilities, repairs and maintenance, fuel costs, meals and entertainment, travel and telephone bills.
You will also be required to fill out a section called “Other Expenses”. In this box, you must include amounts spent on things such as insurance premiums, interest payments, legal fees and professional advice.
There is one exception to the above rule. If you are a sole trader or a member of a partnership, you will still be asked to complete Schedule A. However, you will not be required to provide any additional information about your earnings or expenses.
Keeping costs down and working from home
If you’re running a small business from home, it might seem like there are many things you don’t know about how to calculate your tax and National Insurance bills. But the good news is that HM Revenue & Customs (HMRC) has recently announced some changes to the way you can claim for the costs associated with running your business. These include simplifying the rules around what you can claim for, and making it easier to do so.
The most important change for businesses operating from home is that from April 2020, you will no longer need to keep records of every single expense you incur while running your business. Instead, you can now simply choose one of three categories – ‘business’, ‘home’ or ‘other’. You can then apply a fixed percentage to each category, based on whether you spend more or less than average time in the room during the week. If you spend less than average time in a room, you can claim a flat amount; if you spend more than average time, you can claim a higher percentage. For example, if you spend 10% of your time in a room, and 20% of your time doing something else, you could claim 25% of your total expenditure.
This is known as the Simplified Expenses Scheme. Previously, you had to record everything you spent money on, including travel, meals and entertainment. Now, you just need to decide where you spend most of your time, and allocate a percentage to each activity. There is no limit to the number of activities you can claim for under the Simplified Expenses scheme, although you cannot claim for items such as rent, mortgage interest and council tax.
Having an office at home
You can use your home as an office if you spend at least one hour every day working at it. This includes activities such as cooking, cleaning, gardening, painting, exercising, reading, watching TV or listening to music.
However, you cannot claim tax relief if you are renting out the space. If you do decide to make some money from it, you could still be liable for capital gains tax.
The amount of time you spend in your home is important. For example, if you work full time, you must spend at least 30 hours each week in your home. However, if you work part time, you can spend up to 40 hours a week in your home.
If you live in a rented property, you can claim expenses relating to the property. These include things like mortgage interest, rates, maintenance, repairs and insurance. You can claim these expenses whether you rent the whole house or just a room within it.
Simplified expenses mileage rates
HM Revenue & Customs (HMRC) announced changes to the way it calculates business car mileage rates in April 2018. This change affects businesses that use cars for work purposes, such as taxis, delivery drivers, hauliers and contractors.
The new rules are designed to make it easier for small businesses to claim the correct amount of tax relief. Previously, businesses had to calculate the cost of running their business out of a car based on the number of miles driven each week. However, many companies found this complicated and confusing.
Now, businesses can simply add up the total annual costs of owning and maintaining a car for business purposes and divide this figure by the number of days worked in the same period. For example, if a taxi driver works 50 days per month and spends £1,500 on petrol and maintenance over the course of a year, he or she could claim a tax refund worth £300.
This is because the new system takes into account the vehicle’s fuel consumption and depreciation. Companies can still choose to pay additional taxes if they want to claim a larger sum.
If you’re unsure whether you qualify for simplified expenses, contact us today. We’ll help you decide what you can claim.
Having fewer expenses and being able to live at your place of business
If you run a business from home, it might seem like a dream come true. You could spend your days doing what you love, while saving money on rent and bills. But there are some things to consider before making the leap into self employment.
One thing to keep in mind is that you won’t be able to claim back any of your business expenses against your income unless you’re registered for VAT. And even if you are, you’ll still have to pay it yourself. So how do you know whether you’re eligible for the simplification allowance?
The rules around claiming simplified expenses are complicated, but here’s everything you need to know about the allowances and deductions you can make.
Self Assessment allowable expenses
If you earn money through work, you might be entitled to tax relief. You could save thousands of pounds every year by claiming what you are allowed to spend on things like travel, meals out, childcare and even home improvements. But there are some rules to follow – and one of those is knowing exactly what you can claim.
The government says you can claim up to £255 per month for each child under 13 living at home. This includes rent, bills, food, clothing, school uniform and books. If you live away from home, you can still claim for children living at home. However, you cannot claim for boarders, holidays or gifts.
You can also claim up to £400 for each adult over 16 who lives at home. This includes bills, food, clothing and household items.
For example, if you live in London and you pay £1,200 in rent, you can claim £255 towards your rent bill. Or if you live in Manchester and pay £500 in rent, you can also claim £255 towards your monthly rent.
But if you claim too much, you could lose money. For example, if you claimed £300 towards your rent, you would lose £75. So don’t go overboard.
And remember, you must keep records of everything you spend. These include receipts, invoices, bank statements and credit card statements. And if you’re unsure about anything, check HM Revenue & Customs’ Self Assessment Help Page.
Self-Evaluation: What can I say?
The self assessment process is one of the most important aspects of tax planning. With it, you are able to calculate how much tax you owe and pay it over a period of time. This helps to ensure that you don’t end up owing too much money. However, there are some pitfalls that could lead to paying too much tax.
You must make sure that you are claiming everything that you can within the rules set out by HMRC. If you spend money on something that isn’t allowed, you won’t be able to claim anything towards it. In addition to allowances, there are certain types of expenditure that aren’t allowed. These include:
• Travel costs
• Business meals
• Charitable donations
Frequently Asked Questions
What’s the difference between money coming in and money going out?
The UK government has published guidance on what it calls “revenue expenditures”. These include things like printing paper, ink cartridges, postage stamps, etc. They’re called revenue because you spend money on them and use them yourself.
A capital expenditure is different – it’s something you buy, such as a building, machinery, vehicles, computers, etc. You might think of it as buying something that you’ll keep for a long time, for example a car.
There is no fixed time set in law, but the amount of time you must hold onto an asset before you can claim tax relief depends on how much you paid for it. This is known as the useful life test. If you bought a £1,000 laptop in 2017, you’d normally pay income tax on the full cost over five years. But if you bought it for £500, you could deduct half the value now and still pay tax on the other half over four years.
If you want to know whether something qualifies as a capital or a revenue expense, take a look at the following questions.
• Is it something you intend to use personally, rather than selling it?
• Does it help make your business run smoothly?
• Will it last for a long time?
Who can use simplified expenses
Simplified expenses are designed to make it easier for individuals and small businesses to keep track of their tax obligations. They allow you to enter your income and expenditure information into one place and submit your annual return online. If you’re a sole trader or partnership, you can use simplified expenses to record your personal expenses such as mortgage interest, rent and fuel costs. A business partner can use simplified expenses to track their expenses associated with running a business. However, simplified expenses aren’t suitable for use by limited companies or business partners that involve a limited company.