"Tax doesn't have to be taxing..." Despite what the adverts say - it is. I've been doing my homework this afternoon and for a moment there I thought I had to file my first ever tax return online before January 31st. And there was me thinking I had until April...! Then I came across the following on the HMRC website:
If you have been working for yourself for less than 12 months, you will have to choose your accounting date (and you usually keep to that date each year). You can choose any date you like (I did) but as the tax year ends on 5 April you may find it easier to use 5 April. The beginning of your accounting period, that is, the period (usually a year) from one accounting date to the next, covered by your books and records, will be the first day of your business or trading year.
Here's some more advice:
A tax return lists your income for the year and all of your allowable business expenses and capital allowances. Deduct the latter from the former and you get your taxable income. The online system automatically tells you exactly what you owe and then you pay it.
You need proof of everything so keep good records and receipts. Enter every job and expense into a spreadsheet on a daily / weekly basis, and buy everything that could constitute a business expense on plastic.
Internet banking and online statements come into their own when trying to work out your expenses!
What you can claim:
Business travel - including petrol, train and bus fares and even taxis
Office expenses – if you rent an office or a space somewhere you can claim this cost, but what happens if you work from home? You're entitled to claim some of your home running costs as long as you only claim for business usage. Use this as a guide - you will spend a third of your time working in your home if you do an eight hour day, so work out a third of your bills such as electricity and gas.
However, you have to account for the fact that your work space is not your entire home, and you can only claim for the space you use – for example one third. So a third of a third might be the amount you could claim as an expense. Say I spend £90 a month on gas and electric, I can claim £10 a month on my expenses. Also ensure every household bill is in your name - if you're looking to claim on your home.
Phone costs – same rule applies as office expenses, you need to work out what is spent on work and personal use if you don’t have separate lines. Broadband costs can also be claimed. If you use a mobile smart phone to run your business (like me), you can claim that too.
Misc expenses – paper, postage, repairs, stationary are all tax deductible, provided they are needed for your business and you have receipts.
There is a difference between your running costs and fixed assets, like computers, a car, printer or photocopier, which you can claim under capital allowances.
Each year you can claim 20% of the cost or value of new equipment and machinery as an annual allowance, meaning you do not claim it all in one year.
NB: In your first year you can claim 100% of items that fall under capital allowances definitions.
Box 48 Annual Investment Allowance
You can claim a capital allowance called an Annual Investment Allowance (AIA), if you bought equipment (but not cars) during the year up to an annual amount of £100,000. Add the cost of all the equipment together and, if the total cost is £100,000 or less, you can claim 100% of that whole amount as your AIA. If the total is more than £100,000, then you can claim up to £100,000 of the total as your AIA. Where you use an item of equipment for both business and private purposes, the AIA claimed has to be reduced by the private use proportion.
Gordon buys some tools for £5,000 and a van costing £10,000. The tools are used only for the business. The van is used 60% for business and 40% for private motoring. As the total cost is less than £100,000, Gordon can claim the full amount as AIA.
However, because the van is used for private purposes, Gordon must restrict the amount of AIA that he claims on the van to reflect his private use. This means that the AIA he can claim for the van is £6,000 (£10,000 less 40% private use).
His total AIA claim is £11,000 (£5,000 for the tools plus £6,000 for the van).
For more information on tax deductible items, visit here.
Visit HMRC for help and information about your tax return.
Blogging is an amazing concept so here I am giving it a whirl. You'll get words. You'll get pics. Sometimes a vid or two. You'll get tongue in cheek, the odd humble opinion and an honest insight into my travels and writing life. Maybe even a few gems along the way. I'll be musing on home turf as I see more and more of the UK and sharing my experiences further afield on holidays and adventurous trips across the globe.