Being self employed is a wonderful thing, being your own boss. But you still have rules to follow and taxes to pay.
Each industry has its own specific obligations, but all must abide by HMRC rules to prepare and submit accounts and returns, on which tax is then due.
Accountants learn HMRC rules and are here to help you apply them, both in everyday tasks as well as in preparing accounts and returns to present to HMRC.
Whether you are a sole trader, landlord or partner in a partnership you are obligated to prepare a personal tax return reporting your self-employed income if it exceeds £1,000.
There are many opportunities to claim expenses, which can reduce that income for tax purposes.
The summary of your income less the business expenses you are claiming is called a profit and loss account and forms the basis for calculating taxable income.
HMRC requires such self-assessment returns to be submitted annually, by post or electronically. However, there are plans for compulsory electronic submission quarterly; in just a few years’ time for those with income over £10,000.
Finally, please be aware that HMRC set you deadlines for the above, with penalties for late submission and late payment; find out your deadlines now.
Year End Accounts
All businesses, regardless of size, have a legal duty to ensure their annual profit and loss accounts are complete, accurate and submitted to HMRC on time. Non-compliance with submission rules and deadlines can lead to penalties.
Accounts for a sole trader, running a small business, are likely to be straightforward. We can advise you how to treat the purchase of assets for tax purposes and inform you of HMRC’s attitude to various expenses.
Accounts for a partnership are likely to be more complex, depending on the number of partners and their allocation of profit shares.
Profits derived from UK rental income are treated for tax purposes as arising from a business. We can advise which expenses or reliefs are allowable.
At Firestone Accountants we understand how tax law should be applied and provide an efficient, reliable and affordable year-end accountancy service to our clients. We assist in the preparation of all accounts for small businesses and ensure compliance with rules on preparation and submission.
Sole trader (self-employed)
As a sole trader your business is not separate from you personally which can put your personal finances and assets at risk, which is why we strongly encourage you to maintain separate bank accounts for business and personal. You can employ people, but you will be solely and personally liable for any debt related to the business. There are no set up cost but you still need to register your business with HMRC and complete an annual Self-Assessment tax return.
If you pay employees, then you must deduct their taxes before payment via a PAYE scheme; and submit returns to HMRC on or before each payment.
If you provide employee benefits (e.g. a company car, health insurance) you must submit an annual report to HMRC and pay National Insurance thereon.
If your turnover exceeds the VAT threshold of £85,000 in a rolling 12-month period, you must register for VAT and submit an electronic VAT Return to HMRC every 3 months, even if you have no VAT to pay or reclaim. These returns must be submitted via compliant software under HMRC initiative for Making Tax Digital (MTD).
For our clients in the construction industry, we have in-depth knowledge of the Construction Industry Scheme (CIS) and off-payroll working rules IR35.
Personal Tax Returns
All sole traders, business partners and landlords need to prepare a personal tax return annually, to report all their income and assess their personal tax liability.
Taxable business profits or losses play a big part in this, but the combination is key to the taxes due.
At Firestone Accountants we understand how tax law should be applied and provide an efficient, reliable and affordable tax return completion service to our clients. We assist in the preparation of returns and ensure compliance with rules on preparation and submission.
- The tax return must report/confirm all income and capital gains for the year
- It may also be used to claim allowances or reliefs
- HMRC use it to calculate if the correct tax has been paid on income, also some other tax related payment e.g. Student loans repayments and Child Benefit
- 6th April or when advised – HMRC will issue a notice to complete a personal tax return for the tax year just ended
- 31st October following or 3 months after Notice – deadline for submitting return by post
- 31st January following – deadline for electronic submissions
- £100 initial penalty for late submission – rising by £10 per day from 1st May
- 31st January in year – 50% of last year’s personal tax bill as a payment on account
- 31st July following – 50% of last year’s personal tax bill as a payment on account
- 31st January following – Balance with interest charged on late payment
- 28th February and 28th August – 5% surcharge on unpaid tax
We at Firestone Accountants can guide you through the maze of options, to prepare accounts that accurately tell the story of your business and take advantage of opportunities to keep your taxes low.