A Beginner’s Guide To Personal Tax Return’s

Self-assessment tax returns occur once a year and are known to cause a lot of aggravation amongst business owners, entrepreneurs and the self-employed. Below will tell you all about self-assessment tax returns and whether or not you need to file one. 

Self-assessment tax returns exist to make sure that individuals report their annual earnings and their sources to HMRC. In turn, this allows HMRC to be able to calculate how much tax you are liable to pay in the applicable tax year. It is the individual’s responsibility so you must understand if, how and when to file the paperwork.

Who must complete a tax return?

In the UK, a tax deduction system known as PAYE is used if you are an employee of a company. This type of system allows your employer to deduct a percentage of your wage depending on your tax code. If this method is used, it is not required of you to fill in a self-assessment unless you have a second income, such as running a personal business on the side.  

Self-assessment tax returns are frequently used by self-employed people, freelance contractors, small business owners and entrepreneurs being the main culprits. Furthermore, if you live in the UK but are developing money from abroad, additionally if you live abroad but are generating money from the UK tax must be paid. If you want to be entirely sure this applies to you, you can check online on the government website

You should provide the following information to the best of your ability: 

  • National insurance and employee reference number
  • P60 forms
  • P11D forms
  • A review of any personal profit or investments
  • Capital gain summaries
  • A list of taxable benefits received via your employer or the government

You must remember to meet the deadlines as you could face paying severe penalties. These are:

Day 1- £100

Upto 3 months- £10 a day, with a maximum of £900

Upto 6 months- £300 or 5% of the tax due, whichever is the higher amount.

If you are a UK resident submitting a self-employed self-assessment, it can be deferred by either post or online. However, if you are a non-resident, you cannot submit online it has to be by post, or you can get an accountant to do this on your behalf.

Is An Accountant Required To Submit Your Tax Return?

Most often, it is fair to say that most business owners are not confident when it comes to deciding which aspects of their tax duties they can deal with themselves and when they can be at an advantage from calling in a professional. Some would argue that giving the job to an accountant is a much easier option. However, there is now clever technology that can boost your confidence when organising your taxes on your own. 

How does self tax assessment work?

Self-assessment tax returns declare how much taxable income you have earned in that financial year and determines any expenses you may be qualified to claim. 

The digital tax initiative, which is slowly being introduced, means that annual returns will be replaced with quarterly reports. 

Tax returns depend upon close attention to detail, making sure to provide exact dates, figures and details of any marital and special relief privileges you might be eligible for. Business owners should always be willing to support their claims with sufficient evidence such as invoices or receipts if requested to do so. If you submit false information you may be charged with a hefty penalty, this would be the same if you were to miss a filing deadline. The longer you take to amend the complication, the more your fine is likely to grow. 

Other tax filing options

Sadly, some small businesses simply do not have the money to spare to hire an accountant; however, it’s essential to keep your returns free from errors. Human error is a genuine but leading issue in incorrect returns, and if they were to make a mistake, your business would be liable. Many people shy away from completing their tax returns due to the added pressure it brings.

An alternative method is to invest in a tax software (for example Quickbooks) that keeps track of your income and expenses throughout the financial year. Providing you input your figures carefully, the calculations should be error-free! On the other hand, spreadsheets, calculators and good book-keeping can help you be your own accountant. Although it may not be as simple as tax software, it is undoubtedly attainable if you have a good head for numbers!

How can a tax account be useful? 

Business accountants deal with numbers daily, therefore, are ideal for protecting your figures. More so, they know the conduct; what you are and are not entitled to claim and how you can cut your liabilities. Employing an accountant not only saves bundles of stress but also a lot of time, it is typically around £150 for a reputable firm, often a little less if you only require a basic service. The price may seem quite reasonable to a business who may on average spend several hours completing their own tax return. 

If you feel like you could benefit from having an accountant, don’t hesitate to get in contact!

Benefits of Making Tax Digital

The Government’s programme to make tax digital is a bold one. HMRC has set its aim to become one of the most advanced digital tax administrations on the globe. But what do we mean by making tax digital and most importantly, what are the benefits of this new scheme? This article will guide you through the pros of making tax digital and why it’s a win-win situation for all parties involved in the programme.

What is making tax digital?

The definition of making tax digital is the programme to which HMRC aim to change from paper-based systems as well as forms for the administration of tax to more digital variants. Making tax digital is already prevalent for VAT in the UK. This was established in April 2019 for businesses that are over the VAT threshold of £85,000. As of March 2020, there were over 1.4 million businesses who have joined the digital VAT service. It will eventually be rolled out for self-employment tax, company tax and income tax too.

Making tax digital also aims to make tax files simpler for businesses as online software will be able to automatically prepare tax returns as well as sending them to HMRC directly.

The Benefits

There are numerous benefits to making tax digital. For example, businesses will become more productive; saving them hours each week of business administration. Additionally, there will be less paperwork and reduced stress filing all the tax returns. Accuracy will be enhanced, and fewer errors will be made when submitting these tax returns. Tax liabilities will be more visible, staff can do other business activities with the time saved, and it will be quick and easy to view all tax data on phones and tablets. Not only this, but it’s a greener method, with zero paper so a reduction in deforestation will occur.

The future of making tax digital

So, what can we expect soon by making tax digital? Well, by 2021, it is predicted that HMRC will enforce digital tax methods for corporation tax as well as income tax. It is expected that this will happen in the first tax year for income tax 2021/2022. However, all this may potentially be delayed because of the COVID-19 pandemic. The pandemic has led to delays in numerous projects across sections and has led to the prioritising of specific financial resources. 

Speak to Herridge Accountants now about making your tax digital. 

An Introduction to VAT

VAT can be a confusing concept to grasp if you have never needed to pay VAT before. Nonetheless, being VAT registered can bring with it lots of advantages concerning your finances. Here is a brief introduction on VAT with some answers to questions you may have on the subject.

VAT is a tax which is added to the majority of services and goods. It is something you must pay if you are a business or merely an individual. You pay it on a range of things from bills to clothes. For companies who make over £85,000 a year, they will need to add VAT to their goods and services’ costs. Businesses must register for VAT if they turn over more than this.

Once registered, a business will need to charge VAT on the goods and services which they sell and offer. Companies will also need to fill in a return every three months. This will include information like how much VAT their business has charged as well as how much their business has paid.

Businesses will have to pay outstanding amounts of VAT if they have charged more than they have paid. In contrast, companies are able to claim back VAT money from HMRC if they have paid too much VAT than they have charged.

VAT rates in the UK are 20%. That is the standard rate. Mobility aids and children’s car seats are 5%, and most food, male razors, children’s clothing and books are 0%. Health, financial insurance and most sports services are exempt from VAT too. Find out more about on different types of VAT.

Sole traders and freelancers must also pay VAT if their turnover annually will exceed the £85,000 threshold. The VAT will be registered in their name unlike businesses, and they must ensure always to keep records of the VAT they are charging customers.

There are a few VAT schemes to consider when applying for VAT, so it is important to do your research to discover which one is right for you. There is standard accounting, which is the common one, the Flat Rate for businesses which turnover less than £150,000 per year, as well as Annual Accounting for a turnover of less than £1.35 million and cash accounting which is the same threshold but for small businesses.

Advantages of VAT are that you can reclaim VAT that is paid on top of things bought for your business, such as phones, laptops and office equipment. You can register for VAT even if you do not earn the £85,000 per year yet. This will mean you won’t have to bother looking out for the threshold when you hit that sum and owe HMRC a large lump sum.

To register for VAT, you will need to go to the gov.uk site. You will need things like a tax reference, bank details of your business and company number/address. After this, you will gain your VAT certificate with details of your VAT.