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You’re a one man band, you freelance, you’re a micro business owner. Can you do your own self assessment tax return?
Let’s break it down into limited company directors and sole traders (click here if you aren’t sure which you are).
Difficulties with sole trader tax returns usually happen with the self employment pages.
Let’s look at some issues and why they can be a problem.
You need to keep your invoices, receipts, statements, evidence of your transactions and why they’re entered as tax-deductible (if they are).
(Tax-deductible means you are permitted to deduct the cost of an item from your business income)
It can be a bit of a nightmare finding everything if you haven’t kept it all where you know where it is. You don’t need to be a saint but you do need to take ‘reasonable care’ (HMRC speak for giving a s***).
Once you’ve had the experience of spending 3 hours looking for a receipt or statement it hits home that the lazy option is to be organised (or hire someone to do it for you. Ask for recommendations or drop me an email – bookkeeping isn’t a service I offer but I can introduce you to people who can help).
Resources: How To Do Your Tax Return course
Expenses are the costs you have as part of the day-to-day running of your business (see capital items for what doesn’t count as an expense).
The 3 biggest issues are allowed and disallowed expenses, claiming a capital item as an expense, and not entering disallowed expenses into your accounts.
1. Allowed expenses are those HMRC permit you to deduct from your self employed income (giving you a lower level of profit you need to pay tax on). Disallowed expenses are those you are not permitted to deduct, even if they are ‘wholly and exclusively for business’ (more HMRC speak) as their view of wholly and exclusively often differs from the common interpretation.
2. It’s easy to claim a capital item as an expense when you’re new to doing self assessment. Have a look at the Capital Items item for more details.
3. Do enter all business expenses into your accounts, even if they aren’t deducted from your tax bill. A lot of people don’t. You can’t calculate your overall business profit unless you know all the numbers, so keep those records. (It’s also part of taking ‘reasonable care’).
The general rule is that if an expense is ‘wholly and exclusively’ for business then it is tax-deductible. It’s more complicated in practice. Food and drink is almost always disallowed, so is clothing. Travel is almost always allowed, and so are a proportion of working from home expenses.
There are generic rules, and then rules when it depends on your circumstances and that of your business. For example, food and drink is usually not allowed however if you are an events organiser and providing food and drink is part of your service to your clients, then it becomes an allowed expense.
Also remember that the rules for sole traders can be different to those for employees, limited companies and limited company directors, so what applies to your friend may not apply to you.
Capital items are costs that are longer term that are not part of the day-to-day running of your business. Examples are your laptop, camera, desk, printer, software and web design.
It’s easy to enter them as expenses if you don’t know. It’s ok to have a column in your spreadsheet for capital items to make things easy.
Like with expenses, there are rules about whether you are allowed to deduct an item from your business income and there is an annual allowance (AIA) which changes each year.
Rosie’s Top Tip: Get my Capital Items ‘Cheat’ Sheet with my How To Do Your Tax Return course
Even someone who has problems with numbers can do their own tax return with help.
It may not be for everyone, but ask. It’s good to be familiar with the process even if you decide to have someone do it for you, as legally it’s your responsibility.
How To Do Your Tax Return course is perfect if you’re doing your own tax return, want to start a business or just to familiarise yourself with what you need to do.
If you want support with understanding all this getting paid business, what’s right for you and a safe space to ask as many silly questions as you want, have a look at my sole trader or limited company coaching packages. I can also create an individual package just for you.
If you want easy to understand guides with printable checklists and a sense of humour and mentions of cake, have a look in my shop.