Are you self-employed and facing the tax return deadline of January 31st?
Do you keep accounts to April 5th each year, to coincide with the end of the tax year?
Are you unsure about what figure should you put in the box for “business income ” in the self-employment pages of your tax return? (This is box 8 of the short self-employed pages, box 14 of the full self-employed pages.)
Emily Coltman ACA of FreeAgent, an accountancy specialist for freelancers, offers her top tips to help ensure you include the right amount of income on your tax return:
1. Check the dates
Most self-employed businesses prepare accounts each year to match the date of the tax year.
That means that, for this tax year, you need to include all your business ’s income that was earned between April 6th 2010 and 5th April 2011.
2. Earned income, not received
You must include income in the tax year it was earned – not when your customers paid you.
So, if you issued an invoice for work done in March 2011 and your customer paid you on April 30th 2011, that invoice has to be included in your income for the tax year to April 5th 2011 – because that was the tax year in which you did the work.
3. Earned income, not invoiced
This one’s a bit harder.
If you’re selling services rather than goods, you need to work out your income on the basis of when you did the work.
So, if you completed a piece of work in March 2011 but you didn’t invoice your customer for it until 30th April 2011, you have to include that income in the tax year to April 5th 2011 - because the work was done before the end of the tax year.
If you had partly finished a project before the tax year ended but there was still some work to do in April, then you need to include the income that would have been due on the work completed before 5th April.
This is a bit complicated so if you are in any doubt, you should seek further advice from an accountant.
4. Business income only
When you ’re filling in the self-employed pages of your tax return, make sure you only include trading income from your business.
That means you should leave out income from the following sources:
● Employment (from any job you have in addition to running your business. Remember your own business does not count as employment)
● Rent of a personal property
● Transfers into the business bank account from a personal account
● Bank interest (even if it ’s a business account)
● Money that you put into the business
● Inheritance
This list is not exhaustive, so do seek professional advice if you are still unsure about what qualifies as business income.
5. Exclude VAT
If your business is registered for VAT, remember that the figure for trading income will be your sales exclusive of VAT.
If your business is on the flat rate scheme, however, then this figure would be your sales net of flat rate VAT.
What happens if I don’t file on time?
You’ll be fined and HMRC have upped the ante on penalties for late tax returns.
Until this year, they imposed a fixed penalty of £100 for filing your tax return late, but this was limited to the amount of tax and National Insurance you were paying. No tax bill = no fine.
Now, if you’re late filing your tax return for the tax year ended April 5th 2011, you will be fined £100 – even if you had no tax to pay and even if you were due to receive a refund from HMRC.
And that’s not all. The later you file, the higher the penalties.
If your return is more than three months late, HMRC will charge you £10 for every day you’re late, up to a maximum of £900, as well as the fixed penalty of £100.
More than six months late and you’ll be fined an additional £300, or 5% of your tax bill, whichever is the higher.
More than 12 months late and there’s another £300 or 5% to pay. And HMRC say that “in serious cases” they may choose to fine you 100% of your tax bill instead – so effectively making you pay your tax twice. So it really is worth making sure you file correctly and on time!
Jan 23, 2012
Email this article
Printer friendly page
Previous Page
