Completing Your Self Assessment Tax Return for Carpenters
If you are looking to launch your career as a carpenter then you may like to check out our guide to How to Become a Carpenter.
Branching out on your own as a freelance carpenter or running your own carpentry business as a sole trader is an exciting step in your career, so congratulations in making the move! There are many things to think about when launching a new business venture, but we know from dealing with sole traders up and down the country that one of the biggest concerns is how to sort out your tax affairs when working for yourself.
One of the most important things when it comes to staying on track with your taxes is completing the Self Assessment Tax Return. You may be familiar with this if you have done a lot of contract work before or done extra work beyond your regular salaried position. However, if most of your working life has been spent working for an employer and having your salary and taxes sorted out by somebody else, then there’s a good chance you’ve never had the pleasure of completing this tax return before.
It can seem a daunting prospect when you first look through all the paperwork that needs to be filled out, but we are here to help you through that and you will find plenty of support and advice out there to ensure that your self assessment taxes don’t have to be as stressful as you might think. The self assessment system has been in place since 1997 and is the way that HMRC works out how much tax you should be paying. It means the responsibility lies with you to submit accurate evidence of your business incomings and outgoings to be able to determine your profit and calculate your tax bill after each financial year.
To help make it as easy to understand as possible, we’ve broken the process down into a number of clear stages:
Keeping accurate records, supported by the necessary evidence, is how you can accurately complete your tax return and how HMRC works out what you owe. The basic breakdown involves adding up your incomings in terms of what you have been paid by customers for your carpentry services, taking away your business expenses, such as the cost of tools and travel, and this then leaves your profit. It is this amount of profit that determines how much tax you will have to pay.
Staying on top of you finances in the most organised way possible is the best start you can make for keeping your taxes in order. Organised bookkeeping is also a legal requirement as HMRC can ask to inspect your books at any time. It does not have to be complicated or expensive for you to do this. There are various software packages that you can use to keep track of your finances, but you could also do it through something simple and free such as a spreadsheet – you can also download our own bookkeeping software for free. You can use this spreadsheet to record how much you have charged to your customers and when, and also keep track of all your business expenditure, giving you a running tally of incomings and outgoings and helping you to keep on top of your finances.
A proper filing system is also important as you’ll need to keep hold of all the paperwork related to your business, including invoices and receipts. If you’ve never sent an invoice before or want a neater way of doing it then check out our free invoice template.
You need to keep everything in a safe place and filed in a way that you can easily get hold of the information you need.
As a sole trader you will legally be required to keep hold of all this paperwork for at least five years and 10 months after the end of the tax year to which it relates. So, for all your invoices and receipts relating to the 2012/13 tax year, you’ll need to keep them on file and accessible until February 2019, in case they need to be inspected by HMRC.
Get your personal paperwork in order too
If you are setting up a sole trader business, then we would always recommend keeping you business and personal finances as separate as possible, for example, using separate business and personal bank accounts. However, there will inevitably be a degree of crossover, especially if you have more than one form of income and from a HRMC point of view, your self assessment tax return is effectively a personal tax return.
So, when it comes to completing yours after the financial year ends, it is not only the paperwork relating to your new carpentry business that you will need, but also any other details about your financial earnings. If you launched your own carpentry business part way through a financial year, for example, but worked for an employer prior to that during the same financial year, then you will need details of any salary you were paid through PAYE. All the information you will need will be on the P45 or P11D that you should have been given by your employer at the time you left.
You may also have income from other sources, such as other casual work in the evenings to bump up your earnings while your carpentry business takes off, if you have savings you may be earning interest from those, or if you own any property then you will also need details of any rental income generated. All of these extra sources of income need to be outlined on your tax return, so it is best to keep all the paperwork for these organised and accessible at all times too.
Your Self Assessment Tax Return – where to start
If you are now in a position where you need to complete a Self Assessment Tax Return then you are not alone. In fact more than nine million people in the UK have to do it every year. Out of all those people though, the HMRC estimates that around 10 per cent are late filing the necessary paperwork so you want to avoid falling into that bracket, otherwise you will be hit with financial penalties, which is not what you want when starting up a new business.
Being organised and staying on top of the deadlines will save you a whole lot of hassle and money in the long run, so get your finances in order right from the start and your tax obligations will be so much easier. There is no benefit to leaving your return until the last minute and you only risk missing the deadline if you run into any unexpected problems. Delaying your tax return won’t delay the time you need to pay your tax, it is unavoidable so best to get it all out of the way as early as possible.
The tax year ends on 5th April and covers the 12 months prior to that date. Self Assessment Tax Return forms will be sent out shortly after this and if you have registered as a self employed carpenter then you should get your forms automatically. If you don’t receive them, then this isn’t an excuse to avoid self assessment, it is up to you to contact HMRC and request one or to submit one online.
Filling in your tax return – what you will need
The HMRC website details a lot of information to help you with your tax return, including a comprehensive breakdown of paperwork required, but here’s a list of the key things that you will most likely need:
- Full accounts for the time spent in self-employment, including details of all invoices and payments received for your work as a carpenter throughout the relevant financial year
- Details and receipts for any allowable self-employed expenses relating to your business or charitable donations
- Bank statements, both personal and business
- P60 from your last employer, if you did any work for them during the same tax year that you also became self-employed
- Stubs from your chequebooks and paying-in books
- Paperwork relating to other income, including investments, savings, property, capital gains and dividend vouchers
Be sure to get things right
It’s an obvious statement, but you need to make sure you fill in your tax return correctly and fill in all the sections that are relevant to your own personal circumstances. You will need to fill out the main SA100 Tax Return form, but there may also be other additional pages that you would be required to complete. For example, if you have property that earns you a rental income, then there is an additional page to fill in about this.
If you are only recently registered as a sole trader it might be the case that HMRC doesn’t have all the relevant information about you so they might not send all the forms you need to fill in automatically. It is up to you to ensure you get hold of anything additional that they have not sent, whether through the HMRC order line on 0845 9000 404 on by downloading through the HMRC website.
You must also make HMRC aware of any changes to your personal details and correct them on any mistakes they may have about your details on correspondence they send out. Mistakes on your tax return can lead to penalties, even if is the result of an oversight on your part. Deliberate mistakes, such as declaring you earned less than you really did, are much more serious, of course, and would be classed as fraud, potentially leading to criminal proceedings.
You should be sent a hefty guidebook by HMRC to help you fill everything in correctly, but even with this assistance most people really benefit from professional accountancy advice, as you want to make sure everything on your tax return is filled in properly. We know it can be daunting to tackle it on your own, but we also know the prospect of escalating accountancy fees can be even more scary, which is why we offer sole traders two affordable options to help with their taxes. We can complete your self assessment tax return for you for a flat fee of £250 or you can also benefit from ongoing services throughout the year, including completing your tax return, for the fixed fee of just £30 a month. Follow the link to find out more about our fixed fee service aimed specifically at sole traders.
The tax return deadlines you need to know
Every tax year ends on 5th April, after which time you should receive your tax return forms. The deadlines are the same every year so make a note of them in advance and make sure you’re ready in plenty of time. Of course, you can always ask your accountant to help and they will make sure you get everything in on time.
The deadlines for submitting your forms are as follows:
- Must be returned to HMRC by midnight on 31st October. If submitted by post by this date then HMRC will calculate your tax bill for you.
- Postal returns sent in after 31st October but before 30 December will still be accepted and HMRC will calculate what you owe, but they cannot guarantee to get the information to you before the 31st January payment deadline.
- Extensions to these deadlines may apply if you received your notification to submit a tax return later than 31st July, in which case you will have three months after the date of receipt in which to return your paper tax return. Also, if you are completing a paper return because of a problem with online software or you’ve been instructed that you cannot submit online, then you will have until 31st January to complete and return your paper forms.
Online tax returns
- Online tax returns must be submitted by midnight on 31st January.
- Exceptions apply if you were not notified officially to file a tax return until after 31st October and in that case you will have until three months after the date of receipt.
Stay aware of these deadlines as leaving it all until the last minute can cause a lot of stress, especially if you run into difficulties in completing your return that may cause a delay in submission – this could well happen if you have never filled out a tax return before.
At Easy Accountancy, we would always encourage you to get working on your tax return as soon as possible after the financial year ends on 5th April. Missing the deadlines leads to a £100 fine and interest charges on anything you don’t pay in time.
Things to remember
If sending in your return by post, check that you have signed and dated every page that you need to. You will need to do this even if an accountant has completed it on your behalf, so make sure you check everything is in order yourself as well.
Take copies of everything you send to HMRC. Your accountant should do this automatically, but check with them that they do. If anything gets lost in the post then you will have backup copies should you need them.
The benefits of submitting your tax return online
Millions of people now submit their tax returns in digital form, using HMRC’s online portal. Here are some of the benefits:
- Cuts down on paperwork
- No fear of losing the tax return in the post
- Extra time to complete and return everything, an extra three months compared to paper tax returns
- You get an instant calculation of how much tax you owe
- Money you are owed by HMRC will be processed more quickly
How to file your tax return online
You will need to make sure you register through the website and request your own PIN number to activate your online account. This can take up to a week to arrive, so make sure you do it in plenty of time before the deadline. You will need your Unique Taxpayer Reference (UTR), a 10-digit number found on your tax return form or on other correspondence from HMRC, as well as your National Insurance number and registered address.
You do not have to fill in the online form all at once, you can save it as you go and return to it at different stages. You can also download and print off the completed copy, which you should do for your own records.
Deadlines for paying your taxes
As a self-employed carpenter, you will have to manage your tax payments in three stages. This can seem complicated at first so let’s break it down into a simple example.
- For 2012/13, your first year of trading, your tax bill is £2,000
- By 31st January 2014, you will be required to pay this £2,000 in full.
- You will also have to make your first ‘payment on account’ – basically advance payments towards your 2013/14 tax bill. This is worked out as half of your 2012/13 tax bill, so in this case would be £1,000.
In total, you need to pay £3,000 by 31st January, 2014.
- You need to pay your second payment on account by 31st July, 2014. This is the same as the first payment on account, so means paying another £1,000 in this example.
- On 31st January 2015 you will owe any balancing payments for 2013/14. If your earnings have gone up compared to your first year, then there may be more to pay. If you actually owe £3,000 in tax for 2013/14, then you will need to pay £1,000 (this is the total tax bill, minus the £2,000 already paid in 2014).
- You will also be due to pay your first payment on account for 2014/15, which in this example would be £1,500 (half of your tax bill for 2013/14).
We appreciate the above can be complicated, so speak to an accountant if you are unsure of anything. It is important that you keep money aside to pay these bills when you need to, so that means you can’t ignore your tax obligations throughout the year and only think about them on deadline day. A good rule is to put aside 30 per cent of all your income throughout the year, this should be enough to cover your tax and National Insurance bills.
What happens if you miss your tax deadlines
Failing to submit your tax return by the 31st January deadline will lead to an automatic £100 penalty. Failing to pay what you owe by this deadline will also lead to interest being charged on the outstanding amount. The amount owed will increase further, as a 5 per cent surcharge is added on if payment is not sent by 28th February and another 5 per cent on top if you do not pay by 31st July. You could also face debt collection proceedings if you continue to avoid paying your taxes.
So, as you can see, costs soon spiral if you miss deadlines, which is why it is best to stay on top of things and get everything in on time!
If you would like professional advice on business accounting or more information about your self-assessment tax return then please give us a call on 0500 234 111 / 01442 275767 or email firstname.lastname@example.org.