The clock is ticking as we continue to countdown to the self-assessment deadline at the end of January. Here's some advice to help you along the way.
Last year 958,296 taxpayers missed the deadline (eeek), and 702,171 taxpayers filed their returns on deadline day (fun fact: peak filing hour was 4pm to 4:59pm!).
Sounds a bit stressful to us…
It’s much better to start the prep now so you’ve got it submitted in good time — and before the 31 January deadline. It’ll be one thing you can put behind you, along with the rest of 2020 😏.
To help you get started, here are some tips on how to prepare.
PS. If this is your first time, make sure you’ve registered with HMRC.
(Please bear in mind that the guidance below is tailored for Sole Traders using the cash basis accounting method. We also highly recommend speaking with an accountant or bookkeeper if you have any questions or aren’t sure what steps to take. Looking for an accountant? We can match you with one from our partner network).
Start by looking back over all of your incoming payments and add everything up that you were paid between 6th April 2019 and 5th April 2020. Even if it’s related to work you did before the 6th April, you should still include it. It’s when you actually got paid that counts.
Don’t include any income you were paid through PAYE, you add this to your tax return separately (you’ll need your latest P60 or P45 handy).
💡 Top tip for Coconut customers: Most payments into your Coconut current account will be categorised as income unless you choose to change it. So, check there isn’t anything there that isn’t income – say, the money you moved over from your personal account. We do our best to catch this but it’s worth double-checking.
And if you have any employment income paid into your Coconut current account, make sure you’ve categorised this as “PAYE Income” to keep it separate.
This bit is key to making sure you’re not paying more tax than you need to. If you’re not already using a digital accounting tool, it’s time to dig out that shoebox of receipts!
Ultimately you’re going to need the total amount spent on allowable expenses. As well as proof of those purchases if HMRC ever comes asking.
The rule of thumb is that you can only claim expenses that are ‘wholly and exclusively’ for business purposes, so check you’re not including any personal purchases.
To see an exhaustive list of all expenses and categories, head over to HMRC’s website. The rules differ in some cases depending on whether you’re a Sole Trader or a Limited Company. If in doubt, it’s always best to speak with an accountant.
💡 Top tip for Coconut customers: Payments to your personal account from your Coconut account need to be categorised as “Personal” or “Your Wages”. You can’t claim for these on your tax return. So don’t include them in any of the allowable expense categories such as “Other costs”.
It’s a good idea to export your data and check it over in more detail. To export all your data from the app simply tap “Export” on the Accounts tab and select the CSV file format.
There are a few things that you might want to claim for additionally at the end of the tax year. These include:
1. Work from home allowance - you can claim a fixed amount per day based on how much you work at home, or you can claim a proportion of your rent and utilities that relate to your work from home. We’ve got a handy tool to help you work this out.
2. Mileage allowance - you can also claim for mileage of trips you take relating to work. Note that if you claim for mileage, then you can’t claim for fuel expenses. There is a fuel category in Coconut, and so if you are claiming for mileage, make sure you don’t include any fuel expenses.
3. Trading allowance - if your total expenses for the year are less than £1,000, then consider using the trading allowance instead.
You don’t need to do it all in one go. HMRC lets you Save and Return as many times as you like so you can break it down into bite-sized pieces. But the sooner you start, the better.
If you make a mistake, you’ve got 12 months’ grace to file an amendment. And don’t worry, it’s not the whole thing again, just the bit you need to change.
If you have any questions or concerns, feel free to get in touch with us by leaving your questions in Coconut Bite, dropping us a line in our in-app chat, or sending an email to firstname.lastname@example.org.
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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.