What does a new tax year have in store for 2017? Tax is going digital, but basic things are still causing confusion. Here's some tips to help.
It’s time for everyone’s favourite type of new year: the tax year.With the guilt of dropping January’s resolutions long behind us, a new tax year gives the self-employed a chance to set out some achievable goals for 2017 - such as organising their invoices.But before you can really start organising something, it might be worth checking what needs to be organised in the first place.
If you’re self-employed, call yourself a freelancer, sole trader, or are even in a business partnership, gov.uk says you will need records of:
This is tricky, as laws surrounding precisely what documents you need are hazy at best.The 2006 companies act, for instance, simply states that ‘every company must keep adequate accounting records.’ Helpfully, they don’t tell you what those records are, just what they need to demonstrate. And what they need to demonstrate is pretty similar to gov.uk’s advice. Though it also includes some further points relating to stock taking.Now if you charge VAT, HMRC does offer some concrete guidance regarding records to keep.For self-employed, gov.uk recommends that you keep these:
But, crucially, none of these are required by law.You are not legally required to keep till rolls, for instance, or receipts, but HMRC do consider these to be key records.You won’t actually need to send any of these documents with your tax return. But HMRC may ask for them, at any time over the next five years. And HMRC can impose a £3,000 fine if you have ‘deliberately destroyed your records'. This language may scream ‘tax evasion,’ but the penalty can be applied if you simply destroyed records you didn’t think you needed.
If in doubt, keep it. However, you can keep it digitally.
“There are no rules on how you must keep records,” says gov.uk, “you can keep them on paper, digitally or as part of a software program.” They just have to be “accurate, complete and readable.”So scans of receipts are fine, as long they are legible. Which is a space saver.If you do go digital, however, make sure to keep multiple backups of your records. If you lose them, you’re to blame.
That’s a little different to digital record keeping.The idea is to have a centralised, digital tax account - sort of like accessing a bank account online - where relevant information is updated by HMRC in “as close to real time as possible.” Businesses using the service would be expected to update their digital tax information quarterly.You will be required to use this service, according to gov.uk, from:
If you earn under £10,000 - or are employed, but earn a secondary income of less than £10,000 through self-employment - you won’t be forced to use the digital service.
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As part of HMRC’s Making Tax Digital, sole traders will soon be required to complete 4 tax submissions per year instead of 1.
Take a look at the latest sole trader tax rates for the 2021/22 as well as our advice on how to prepare for the new tax year.