Tax returns 2010/2011

Tax is complicated so filling out a tax return can be mind boggling. That’s why we’ve put together some of the most frequent tax return questions we get asked by our clients. Hopefully the answers will help you:

Why do I need to fill out a tax return?
So, let’s start with the basics. Well, it enables you to tell Her Majesty’s Revenue and Customs (HMRC) about your various types of income, business expenditure and any other ‘capital gains’ (profits on your business assets) so that they can accurately work out your tax bill. It also helps HMRC to work out whether they owe you any tax which you may have previously overpaid.

How do I know if I need to fill out a tax return?
If you’re self employed (either full time or part time) and are being paid outside of PAYE i.e. you do not get paid through an employer, get a payslip or pay income tax on your earnings, then you will definitely have to fill out a tax return.

If you’re already registered as a sole trader then HMRC will send you a notification that you are required to complete a tax return. If you haven’t yet registered as a sole trader but you know you need to fill out a tax return, make sure you register as self employed as soon as possible on the HMRC website as failure to do so can result in a penalty.

Where do I fill out my tax return?
Most people generally find filling out a tax return confusing. Rightly so, you need to consider all your incomes, expenses (HMRC's Expenses guide is over 100 pages), capital gains and losses as well as any specific tax relief's you could be entitled to. As well as being a specialist at what you do in your professional career you have to be a sales and marketing director, finance manager, debt collector, as well as tax collector for the government for things like VAT. 

Whilst you can fill out a tax return yourself, if you’re not a qualified accountant it can be a minefield leaving you with expensive penalties and an incorrect amount of tax to pay. It’s no wonder the words self assessment fill so many people with dread.

There are two options in terms of where to fill out the tax return:
• Paper-based return – this must be submitted by 31st October. 
• Online – this must be completed by 31st January. There are a number of advantages of using this method however you must ensure that you have a unique tax reference (UTR) number which is a ten digit number which should be included on any correspondence from HMRC.

We’d always suggest that you get an accountant to either fill-in or help you with your tax return. If you don’t yet have an accountant or would like some advice, please call us on 0500 234 111.

What information do I need?
It’s best to speak to your accountant about the information needed to complete a tax return, however, the basic information you need is:

1. The amount invoiced over the tax year (your income)
2. Bank interest received
3. Employment income earned during the year (a copy of your P60 or P45 should have the information required).
4. Property income and allowable expenses (rent & expenses from any owned property)
5. Expenses incurred during the year (knowing what you can and cannot claim for tax purposes is often a mystery to most businesses, this is where an accountant can advise you in more detail)
6. Any tax that has already been deducted from your income (most commonly pension, bank interest and employment income).
7. Any national insurance paid (are you paying the right amount or even paying any at all?)

Throughout the tax year, make sure you keep all books and records in a safe place as HMRC can request to view you records at any time. Of course, it can be a bit time consuming collating all your income and receipts but if you’ve kept everything in good order you’ll have less to worry about when you’re filling out your tax return.

If you’ve pushed all your records to the back of a dusty drawer, don’t worry. Start collating them together as soon as you can and get in contact with an accountant; they can help you manage your finances.

To keep it simple, you ideally need to keep a spreadsheet which lists all of the work you have invoiced in the tax year, and all business expenses which went out (you can download our free bookkeeping spreadsheet and free invoice template click the links). That’s everything from stationery and IT costs, through to business motoring expense or premises costs where relevant. The aim is to end up with a profit figure (income less expenditure) - your tax liability will be calculated on this.

Another thing to note, being self employed, you must keep records by law for five years and ten months after the end of the tax year that the figures relate to. In fact if you don’t keep the records that you need to file a tax return, you can be fined up to £3,000.

What items can I claim on expenses?
Being self employed it is quite common to incur expenses that are partly business related and partly personal related expenses. The business part of the expense can be claimed however personal expenses cannot be claimed. For example, you may use your mobile phone for business as well as for personal calls and texts, you can claim the minutes and texts that have been used for business purposes. Many freelancers and sole traders have separate mobiles for business and personal calls. 

If you do have a lot of money coming in and going out of your bank account, you may want to think about setting up a business bank account so that all your business transactions are separately recorded.To read more about expenses read our handy guide to business expenses.

How to complete your tax return
Although you can fill out your tax return yourself – this can be a long process and if you’re not a qualified accountant, you can never be sure that you’re inputting the correct figures. If you do enter incorrect figures you may be liable for interest on the underpaid tax and other costly penalties.

We’d always recommend hiring an accountant to fill out your tax return to make sure you never have to pay expensive penalties. You’ll need to provide the information outlined above and they’ll do the rest!

If you'd like to talk to us about tax, yourself assessment return or have any questions, please call us on 0500 234111 or email nikki.hanlon@easyaccountancy.co.uk

When do I need to complete my tax return?

31st October Deadline Paper Tax returns
31st January Deadline for all tax returns

You should be sent a reminder in December stating that you need to fill out a tax return. If you have an accountant, make sure you get in touch with them in advance of the deadline. 

What happens if I don’t complete my tax return on time?
If you miss the 31st January deadline, you’ll incur a £100 fine and may be charged additional interest on late payments.

If you do not complete your tax return by 28th February, you’ll also need to pay a 5% surcharge based on the value of tax you owe.

When do I pay tax for the year 10/11?
If you started your business in the year 10/11 this will be your first tax return. The amount you pay will of course be dependent on the amount you invoiced over the year 10/11 but, as an example, we’ll say that the tax owed is £3000.

For new sole traders and freelancers, you’ll have to take into account the additional tax paid for the year 11/12 which will be paid on January 31st 2012.

For more information, please call or email us with any questions you have on 0500 234 111/01442 275767.

You may also find the following pages useful:

• Top Tax Tips
• VAT Guide
• Flat Rate VAT Scheme Guide
• Tax and Financial Strategies
• VAT Basics
• Guide to Beating the Recession