When you go self employed, no one sits you down and explains to you how you prepare or submit your personal tax return.
We asked our Holly, who’s never had to submit a return, to do a bit of research and try to come up with a simplified way of explaining what we need to do as self-employed people.
Without further ado, we introduce you to Holly’s “How to bake a tax return cake” method:
Before you even attempt to complete your return, go and gather all of the following:
- A cup of invoices you’ve raised or sales you’ve taken since April 5 2021*
- 500g of receipts and invoices for what you’ve spent during this period*
- A splash of bank statements so you can make sure you’ve included everything in the above
- If you work from home for any part of the working year, check if you can claim tax relief for this.
- To taste (optional) any additional income (if you’re employed as well as self-employed) and any taxes you paid on this
You’ll probably add to this list “a slight feeling of regret that I’m not better at keeping receipts or filing invoices”, but once you get all those ingredients together you’ll be flying!
Oh, and for first-time tax returners, one self-registration form. This ingredient can take up to 20 working days to be ready!
*There are two ways of recording these – you can either record a sale or expense at the time it happens, or at the time the cash leaves/enters the bank. This is usually known as Accrual Accounting vs Cash Accounting.
- Firstly, add together all of your invoices and sales for the year
- Then, mix together any employment, if you work part time alongside running your business (keep this in a separate bowl)
- Then it’s time for the expenses… take everything that’s tax-deductible, which can include some travel (but not commuting), social media ads, office stuff, a “reasonable” meal etc, then divide them them into months and put aside for later (PS there’s a handy guide on expenses for the self employed on the Government website).
- Now let’s mix it all together – your PTR will ask for these freshly mixed ingredients in separate sections, you don’t have to do any more calculations yourself!
- HMRC will take all these numbers and send you back a lovely fresh amount of tax you owe them (or they owe you, if you’ve previously paid too much tax).
- Collect/pay and enjoy (until next year)
If submitting a paper return, you have until 31st October to get your return submitted. Alternatively, you have until 31st January to submit online.
The ‘Limited Edition’ recipe:
If you run a limited company, your personal tax return should be a little bit easier. Your invoices, expenses etc will be calculated as part of your Corporation Tax Return. The kind of things you need to declare on your personal tax return as a company director are:
- Any salary you earned (this goes into the Employment section even if you’re only employed by your own company – you don’t pay tax on this income via your PTR)
- Any dividends you took from your company (you do pay tax on these)
- You can still claim back any taxable deductions for expenses incurred personally that you didn’t claim back from your company
So there you have it – if you simplify the process of completing your tax return into gathering the ingredients you need to work out your income and your expenses, then it CAN be as simple as that.
A few additional tips:
- Consider using an online accounting system like QuickBooks or Xero (preferably one with a receipt scanner)
- If you prefer paper-based, get into the habit of keeping receipts and invoices in one place (preferably in date order)
- You could even sit once a month and reconcile your bank statements against your receipts and invoices
- There’s an awful lot value in using an accountancy firm who can help you maximise your income and minimise your tax liability – you do this once a year, they do it every day! Our amazing sponsors Valued Accountancy are always happy to help.