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April 23, 2018

Self Assessment – Do I need to complete a Tax Return?

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What is Self Assessment?Self assessment enables an individual to prepare details of their incomes and relief’s for HMRC. HMRC will then calculate the tax liability based on these figures. These figures will not be checked until later in the tax year.  However tax law is vast and confusing so it is always best to instruct an accountant to prepare this on your behalf to ensure you don’t end up paying too much tax or too little. Also HMRC can impose penalties if you provide incorrect or fraudulent information. The first Self Assessment tax return was issued in April 1997. The Self Assessment tax return is made up of a basic core return together with separate supplementary pages – which ones you get will depend on your circumstances and the type of income you receive.

Do I need to complete a Self Assessment Tax Return?A wide range of individuals in varying circumstances need to complete a Self Assessment Tax Return. Normally HMRC will inform you if you need to complete one. However they can’t inform you if you have not completed the appropriate forms necessary to make them aware of your circumstances. Generally speaking an individual or partnership will need to complete a Self Assessment Tax return if income is received that does not have tax deducted at source or if they are a director of a Company. However even if all your income is taxed at source, you may still be required to complete a Tax Return. You should contact an accountant if you are unsure.

More information on Self Assessment can be found in a free Online Accountant Knowledge Bank. Alternatively, for up to date information and advice, based on your specific circumstances, contact an online accountancy firm.

February 13, 2018

November 21, 2017

Self Assessment Tax Return Form and Capital Tax Allowances

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While a potential difficult area for the non accountant capital allowances reduce the net tax payable. The difficulty in this section of the tax return form is that it is an area which many start up businesses may not have come across before. It is an area which affects not just the calculation of the tax allowances and knowledge of the tax rates but also how an item becomes considered for such tax allowances.

100% of the purchase price of the majority of items is deducted from income as business expenditure to produce a net taxable profit. Purchases of certain items where that item is not consumed by the business in a single year but may be used by the business in both the current year and future years are not expensed in the year of purchase but classified as fixed assets. It is these items which are not written off in the tax year but are subject to capital allowances.

A fixed asset includes not just the original cost of the item but also the cost of alterations, improvements and extensions of the asset. The fixed asset cost does not include the repairs and maintenance of that asset which may be treated as a normal business expense and written off against income when incurred. Accounting records need to be kept of fixed asset purchases in order for the capital allowances to be calculated and included in the self assessment tax return.

Having identified certain items as fixed assets the normal accounting practise is to use a technique called depreciation to write off the cost of the asset against profits over the expected life of that asset. The scale of the write off being a management decision as all depreciation calculations are ignored for tax purposes. Depreciation is entered on the self assessment tax return and subsequently deducted in an adjustment section.

When calculating the net taxable profit of a business the tax system add back to the profit shown in the business accounts any depreciation charges the business has made in the preparation of the accounts. The tax system then deducts the capital allowances from the net profit made by the business and shown on the self assessment tax return form to arrive at the actual net taxable profit, those tax allowances being according to a fixed set of rules applicable for the tax year.

Completing the self assessment tax return form also includes calculating the capital allowances which compromise of two elements. Capital allowances being a first year allowance which can be claimed on some types of fixed asset and writing down allowance on the net asset value in subsequent years until the total value of the fixed assets has been claimed against profits earned.

The rate of first year allowance for small businesses has changed each year from 2004-05 to 2007-08 starting in 2004-05 at 40%, rising to 50% the next year and then back to 40% in 2006-07 before returning to 50% in 2007-08. The first year allowance can be claimed on most assets except vehicles were special rules are applied.

Generally first year allowances can not be claimed on vehicles except if that vehicle is deemed to be a commercial vehicle. The inland revenue website contains a list of vehicles it considers to be vans and commercial vehicles and first year allowances can be claimed. Cars and commercial vehicles not on the approved list are not subject to a first year allowance except new vehicles with low CO2 emissions below 120gm per km driven.

The writing down allowance is 25% of the net written down value for tax purposes and is the amount of capital allowance claimed on fixed assets after the first year and in the case of motor vehicles used for business purposes in the first year. Capital allowances on motor vehicles being restricted to a maximum of 3,000 pounds per vehicle and vehicles costing over 12,000 pounds being in a separate section of the tax return to those under 12,000 pounds

The capital allowance section of the self assessment tax return form also includes the term balancing charges. A balancing charge arises when an asset is sold or disposed of and is the difference between the amount received and the net written down value for tax purposes. Net written down value is the original cost less capital allowances that have already been claimed against the net taxable profit.

Terry Cartwright, qualified accountant and CEO at DIY Accounting, designs Small Business Accounting Software that automates the Self Assessment Tax Return for self employed business in the UK producing an excel copy of the tax return from simple lists of income and expenditure.

November 8, 2017

Capital Tax Allowances And The Self Assessment Tax Return Form

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The capital allowances section of the self assessment tax return form is the most difficult for people who are self employed and not conversant with at least a minimum knowledge of accounting and the tax system. The difficulty in this section of the tax return form is that it is an area which many start up businesses may not have come across before. It is an area which affects not just the calculation of the tax allowances and knowledge of the tax rates but also how an item becomes considered for such tax allowances.
The first step towards claiming capital allowances is to understand that not all purchases which may have been entered into the accounts are treated the same for tax purposes. 100% of the purchase price of the majority of items is deducted from income to produce a net taxable profit. Purchases of certain items where that item is not consumed by the business in a single year but may be used by the business in both the current year and future years are not expensed in the year of purchase but classified as fixed assets.
A fixed asset includes not just the original cost of the item but also the cost of alterations, improvements and extensions of the asset. The fixed asset cost does not include the repairs and maintenance of that asset which may be treated as a normal business expense and written off against income when incurred. Accounting records need to be kept of fixed asset purchases in order for the capital allowances to be calculated and included in the self assessment tax return.
Having identified certain items as fixed assets the normal accounting practise is to use a technique called depreciation to write off the cost of the asset against profits over the expected life of that asset. The scale of the write off being a management decision as all depreciation calculations are ignored for tax purposes. Depreciation is entered on the self assessment tax return and subsequently deducted in an adjustment section.
When calculating the net taxable profit of a business the tax system add back to the profit shown in the business accounts any depreciation charges the business has made in the preparation of the accounts. The tax system then deducts the capital allowances from the net profit made by the business and shown on the self assessment tax return form to arrive at the actual net taxable profit, those tax allowances being according to a fixed set of rules applicable for the tax year.
Completing the self assessment tax return form also includes calculating the capital allowances which compromise of two elements. Capital allowances being a first year allowance which can be claimed on some types of fixed asset and writing down allowance on the net asset value in subsequent years until the total value of the fixed assets has been claimed against profits earned.
The rate of first year allowance for small businesses has changed each year from 2004-05 to 2007-08 starting in 2004-05 at 40%, rising to 50% the next year and then back to 40% in 2006-07 before returning to 50% in 2007-08. The first year allowance can be claimed on most assets except vehicles were special rules are applied.
Generally first year allowances can not be claimed on vehicles except if that vehicle is deemed to be a commercial vehicle. The inland revenue website contains a list of vehicles it considers to be vans and commercial vehicles and first year allowances can be claimed. Cars and commercial vehicles not on the approved list are not subject to a first year allowance except new vehicles with low CO2 emissions below 120gm per km driven.
The writing down allowance is 25% of the net written down value for tax purposes and is the amount of capital allowance claimed on fixed assets after the first year and in the case of motor vehicles used for business purposes in the first year. Capital allowances on motor vehicles being restricted to a maximum of 3,000 pounds per vehicle and vehicles costing over 12,000 pounds being in a separate section of the tax return to those under 12,000 pounds
The capital allowance section of the self assessment tax return form also includes the term balancing charges. A balancing charge arises when an asset is sold or disposed of and is the difference between the amount received and the net written down value for tax purposes. Net written down value is the original cost less capital allowances that have already been claimed against the net taxable profit.

Terry Cartwright, qualified accountant, designs Small Business Accounting Software that automates the Self Assessment Tax Return for self employed in the UK producing an excel copy of the Tax Return from simple lists of income and expenditure.

July 21, 2017

Explaining Income And Expenditure Sections Of The Self Assessment Tax Return

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A self employed business enters the income and expenses on page SE1 of the self assessment tax return form if the total sales of the business for the financial year were less than 15,000 pounds. Only the totals of turnover, expenses and net profit are required.


Businesses whose turnover has exceeded 15,000 pounds are required to show greater analysis of the income and expenditure. From a practical point of view even those businesses who expect the turnover to be less than 15,000 pounds should also maintain financial accounts which show the increased analysis to both maintain financial control and be prepared to enter the increase3d analysis should turnover exceed the 15,000 turnover threshold.


When turnover exceeds 15,000 pounds totals are required of the sales and business income and then deducted from that total the cost of sales which is split into three categories of expense. Cost of sales is the direct costs of purchases which are resold, these purchases usually being physical materials but should also include any services which are bought for resale.


In particular reference to taxi drivers and haulage contractors the vehicle costs would be included in this cost of sales category as the items being resold are transportation costs. Other types of business who principal business is not the resale of transport would enter vehicle running costs in the motor expenses expense category. Another example would be an IT consultant who purchased and installed software for clients and would enter his software costs as a cost of sale as that is the service they are reselling while other businesses would enter software costs in general administration charges.


Subcontractors costs is the second category while other direct costs makes up the third area of the cost of sales. Other direct costs is a useful category in which to include all costs of the business not analysed elsewhere which are basically the costs of operating the business other than items being purchased for resale. The difference between the turnover and the sum of the three costs of sales categories is the gross profit.


Other income and profits is where the business would enter such items as rental income or for start ups taxable new deal payments. Bank interest would not go in this box as nit can be entered elsewhere on the tax return. Also business start up grants and enterprise allowances would not be entered in this box as there is a separate box in which to enter these receipts.


The remaining and main body of the inland revenue self assessment tax return form concerns an analysis of the expenses. The majority of the expense categories are self explanatory in the title. Additional expense analysis other than the prescribed headings on the self assessment tax return is unnecessary for the vast majority of self employed business.


Employee costs include the wages, salary, pension and employers national insurance contributions for all employees. Also include in this section any costs associated with employees such as recruitment fees and staff benefits. Excluded are the self employed own wages and taxes as these are not included in the inland revenue self assessment tax return form at all being a distribution of net profit after tax not a tax deductible expense.


Premises costs would include rent, rates, gas, electricity, power costs and items associated with the business premises such as property insurance. Also included in this section would be the portion of home costs being claimed as business expenses. Household expenses can be claimed as business expenses to the extent that the costs represent the proportion of the home that is used exclusively for business purposes.


Repairs include the repair, maintenance and renewal of plant and machinery. Vehicle repairs would not be entered in this category but in the motor vehicle category.


General administrative costs telephone, postage, stationery and general office expenses. Also in this section would be included all other general operating costs of the business not entered elsewhere.


Motor expenses include the running costs of the vehicles being fuel and oil, repairs and maintenance, tax and insurance, parking charges and membership of breakdown services. Parking fines should not be included as these are legal fines and not deductible expenses.


Travel and subsistence includes all travel costs excluding those included in motor expenses. Typically these items would be air and train fares, toll fees, hotel costs and subsistence costs incurred on business journeys. Receipts should be presented for all subsistence costs claimed where possible.


Advertising, promotion and entertainment expenses include all types of expenditure related to the promotion of the businesses products. Entertainment of clients to obtain business is allowed while the entertainment of staff is not and is a disallowed expense on the self assessment tax return.


Legal and professional costs include all professional fees and bills. These would include accountants, solicitors, surveyors, architects and other professional bodies. Also included in this section would be indemnity insurance.


Bad debts are sales made and included in turnover where a decision has been taken that the outstanding unpaid sales invoice will not be paid. A general percentage of sales is not acceptable and if included in the accounts is disallowed on the inland revenue self assessment tax return. The items entered being specific debts. Normally any debt that is 6 months overdue would reasonably be considered as a bad debt.


Interest and finance payments includes bank interest paid on loans and overdrafts, credit card interest and any payments made to raise finance to fund the business operations.


Other finance charges are entered in a separate category. Other finance charges would include bank and credit card charges, hire purchase and lease charges other than property leases.


Depreciation charges include the cost of writing down the value of the asset in the business accounts. As depreciation of fixed assets is a management decision and has no foundation in tax law then the value of depreciation charged against profits is disallowed for tax purposes and replaced in the calculation of tax payable by capital allowances.


The final expense category is other expenses. Enter in this category any other business expenses not entered in the other categories. As the other categories are reasonably comprehensive and sufficiently general for the vast majority of expenditure to be entered it would be regarded as unusual if any significant sums of money were to be shown in this category.


A significant level of expenditure unusual for that category may give rise to an inland revenue enquiry into the self assessment tax return and this is particularly the case of significant expenditure being shown as other expense items.


Tax adjustments to the net profit and loss are where disallowed expenses are entered. Disallowed expenses being items such as the business expenses already entered of which there was personal use, and generally all expenses which have been included that were not wholly business expenses. These would include for example meals paid by the business not classified as client entertainment except where incurred on overnight trips.


Also disallowed is the depreciation charge on fixed assets which as stated is replaced in the tax calculation by capital allowances. Balancing charges being capital allowances on assets sold where the price obtained exceeded the written down value of the asset and entered in the capital allowance section of the self assessment tax return.


Added back to net profit are capital allowances that are claimed by the business. The capital allowances in effect being the tax allowance that replaces the depreciation charge.


A number of potential adjustments can also be entered in the next section which is the adjustments to arrive at the net taxable profit or loss. These adjustments are variable in nature and very much dependent on the adjustments required when the basis year has been changed or past losses are claimed to offset the net taxable profit.


The final section of the self assessment tax return is a list of the business assets and liabilities at the end of the financial year. Completion of this section is optional and should only be completed by those businesses that have produced a balance sheet as part of the accounts. In effect this section is the totals of assets and liabilities taken from the balance sheet and should represent the increase or decrease indicated by the net profit being declared by the business.

Terry Cartwright, qualified accountant, designs Small Business Accounting Software that automates the Self Assessment Tax Return for self employed in the UK producing an excel copy of the Tax Return from simple lists of income and expenditure.

June 6, 2017

Registering Self Employment And The Self Assessment Tax Return Form

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The first action by anyone self employed in business in regard to his self assessment tax return is to register that self employment with the inland revenue. Self employment must be registered within three months of starting business to avoid a late registration penalty fine of 100 pounds. Not all income outside the paye system is considered to be self employment.


There is no strict definition of self employment as opposed to not being self employed however the basic rule is if you have income other than is taxed under the paye system then you may be self employed. If this income is irregular and not part of an ongoing business then you are probably not self employed as such. An alternative to registering as self employed would be to request the Inland Revenue to issue a tax return and declare the additional untaxed income under the category of any other income.


If the income is received on a regular basis or is income from a recognisable business or repeated activity then it is likely that business would be classed as self employed. And being self employed you do need to register for self employment within three months as a consequence of which you would receive an inland revenue self assessment tax return to complete each year. If you have any doubts about the status of the income being taxable as any other income or under the self assessment tax return then you should contact the Inland Revenue helpline for further advice.


Completing the self assessment tax return is not the most difficult thing in the world although many people who are self employed prefer to leave the task to a tax accountant. While many items on the tax return form involve details of income and expenses which require little knowledge of accounting there are areas which require some understanding of the tax system.


The inland revenue self assessment form can be completed if the accompanying notes are read thoroughly and those notes that are sent out each year with the tax return are understood and changes from the previous year noted. Most of the notes are quite straight forward although to anyone inexperienced in tax matters the sections on capital tax allowances can appear daunting.


The self assessment tax return form consists of 4 supplementary pages which are attached to the main annual tax return. The return is broken down into various sections of business details, capital allowances, income and expenditure, tax adjustments and finally a balance sheet section which is optional.


The business details section is quite straight forward registering the name, address, description of the business and the relevant accounting dates. It is recommended that new start up businesses submit their first accounts from the date of commencement to the end of the tax year being 5 April.


If you are self employed then you can choose not to adopt the standard financial tax year of 6 April to 5 April although this is not recommended. By choosing a different tax year to the standard financial year the accounts will cross over more than one tax year and in doing so if the tax rules have changed which they do frequently then more than one set of tax rules could be applicable. And if more than one set of tax rules is applicable then individual entries in the accounts become time sensitive.


The capital allowance section of the self assessment return involves maintaining records of fixed assets purchased and applying the tax rules relating to fixed assets. These tax rules involve claiming a first year allowance on most non vehicle assets in the year they are purchased and writing down allowance thereafter. Commercial vehicle purchases are also subject to a first year allowance while non commercial vehicles can receive writing down allowance of 25% in the first year restricted to 3,000 pounds.


The income and expenditure section is straighter forward for the non accountant requiring a statement of the income and expenses incurred during the financial year. Accurate records should be maintained including receipts for everything to support the figures being declared.


The next sections of tax adjustments do require at least a minimum knowledge of the tax system. Knowledge of what is allowed and disallowed and what adjustments can be made regarding apportionment of net profit to produce an annual net taxable profit plus adjustments for previous years losses.


The final section of the self assessment tax return form is the balance sheet. Only those self employed businesses that produce a balance sheet need complete this section which is optional. And even those businesses that have produced a balance sheet need not complete this section if they do not wish to.

Terry Cartwright, qualified accountant, designs Small Business Accounting Software that automates the Self Assessment Tax Return for self employed in the UK producing an excel copy of the Tax Return from simple lists of income and expenditure.

June 3, 2017

Self Employment Registration and the Self Assessment Tax Return Form

Filed under: Tax — Tags: , , , , , , — admin @ 12:47 pm

There is no strict definition of self employment as opposed to not being self employed however the basic rule is if you have income other than is taxed under the paye system then you may be self employed. If this income is irregular and not part of an ongoing business then you are probably not self employed as such. An alternative to registering as self employed would be to request the Inland Revenue to issue a tax return and declare the additional untaxed income under the category of any other income.

The first action by anyone self employed in business in regard to his self assessment tax return is to register that self employment with the Inland Revenue. Self employment must be registered within three months of starting business to avoid a late registration penalty fine of 100 pounds. Not all income outside the paye system is considered to be self employment.

If the income is received on a regular basis or is income from a recognisable business or repeated activity then it is likely that business would be classed as self employed. And being self employed you do need to register for self employment within three months as a consequence of which you would receive an inland revenue self assessment tax return to complete each year. If you have any doubts about the status of the income being taxable as any other income or under the self assessment tax return then you should contact the Inland Revenue helpline for further advice.

Completing the self assessment tax return is not difficult although many people who are self employed prefer to leave the task to a tax accountant. While many items on the self assessment tax return involve details of income and expenses which require little knowledge of accounting there are areas which require some understanding of the tax system.

The inland revenue self assessment tax return can be completed if the accompanying notes are read thoroughly and those notes that are sent out each year with the tax return are understood and changes from the previous year noted. Most of the notes are quite straight forward although to anyone inexperienced in tax matters the sections on capital tax allowances can appear daunting.

The self assessment tax return form consists of 4 supplementary pages which are attached to the main annual tax return. The return is broken down into various sections of business details, capital allowances, income and expenditure, tax adjustments and finally a balance sheet section which is optional.

The business details section of the self assessment tax return form is quite straight forward registering the name, address, description of the business and the relevant accounting dates. It is recommended that new start up businesses submit their first accounts from the date of commencement to the end of the tax year being 5 April.

If you are self employed then you can choose not to adopt the standard financial tax year of 6 April to 5 April although this is not recommended. By choosing a different tax year to the standard financial year the accounts will cross over more than one tax year and in doing so if the tax rules have changed which they do frequently then more than one set of tax rules could be applicable. And if more than one set of tax rules is applicable then individual entries in the accounts become time sensitive.

The capital allowance section of the self assessment tax return form involves maintaining records of fixed assets purchased and applying the tax rules relating to fixed assets. These tax rules involve claiming a first year allowance on most non vehicle assets in the year they are purchased and writing down allowance thereafter. Commercial vehicle purchases are also subject to a first year allowance while non commercial vehicles can receive writing down allowance of 25% in the first year restricted to 3,000 pounds.

The income and expenditure section is straighter forward for the non accountant requiring a statement of the income and expenses incurred during the financial year. Accurate records should be maintained including receipts for everything to support the figures being declared.

The next sections of tax adjustments do require at least a minimum knowledge of the tax system. Knowledge of what is allowed and disallowed and what adjustments can be made regarding apportionment of net profit to produce an annual net taxable profit plus adjustments for previous years losses.

The final section of the self assessment tax return form is the balance sheet. Only those self employed businesses that produce a balance sheet need complete this section which is optional. And even those businesses that have produced a balance sheet need not complete this section if they do not wish to.

Terry Cartwright, qualified accountant, designs Small Business Accounting Software that automates the Self Assessment Tax Return for self employed in the UK producing an excel copy of the tax return from simple lists of income and expenditure

May 11, 2017

Filing Self Assessment Tax Return Online

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Every self employed business is required to register the business with HMRC within three months of commencing trading. Following registration HMRC issue the unique tax payers reference and annually send out the self assessment return. The self assessment paper return is submitted by October while filing the Inland Revenue self assessment tax form online requires further registration. Filing Paper Self Assessment Tax Return Filing paper self assessment tax return is achieved by posting to HMRC to arrive by 31 October or hand into a HMRC enquiry centre. Tax office addresses can be found on the Inland Revenue website. After filing paper self assessment return the tax payable can be paid but remains due by the following 31 January tax payment deadline. The printed paper tax return sent to HMRC should be identical in format to the official HMRC version of the paper return. Substitute copies of the paper self assessment tax form are not accepted. Additional information can be sent and filed if necessary to support for example notes in the additional information section of the paper tax return. Registering To File Self Assessment Tax Return Online Before the self assessment tax return can be filed online the self employed business has to register and activate the process which can take 7 to 10 days as the activation pin number is sent by post. To register visit the Inland Revenue website home page and in the do it onlinr section click self assessment. In the new user section of the HMRC online services page click register. On the next page click individual and the following page self assessment and then follow the online tax registration instructions. When registering you will be required to provide either your post code or national insurance number and your UTR, the unique taxpayer reference. The unique taxpayer reference would have been allocated when the business was first registered as self employed and appears at the top of the full tax return and also on any Inland Revenue letters regarding your tax affairs. Following registration government gateway post the unique user ID and activation pin number which can then be used to log into the online account to complete the registration within the 28 days limit for activation. Advantages Filing Self Assessment Tax Return Online HMRC encourage filing self assessment tax return online as it streamlines their administration and carries advantages for the tax filing by self employed business enabling the online tax return to be processed quicker than the paper tax return. The HMRC tax calculator immediately calculates the national insurance and income tax liability and also offers the option to pay that tax liability online immediately. Filing the self assessment return online also offers peace of mind as an email acknowledgement is received. HMRC do not issue receipts for paper returns Filing tax returns online can be done 24 hours a day and both the tax liability and payment history can be accessed and payments made if required to avoid late payment fines. A significant advantage of filing tax return online is the additional 3 months between the paper tax return deadline at 31 October and the online tax return deadline 31 January. This time gap can be used to review the self assessment return being submitted ensuring accuracy. Reviewing the financial accounts after completing the tax form and before submission can often stimulate the memory of tax deductible expenses that may have been mislaid or forgotten which can then be deducted to reduce the final tax bill.

DIY Accounting incorporate tax software in the tax accounting software producing basic self assessment tax returns for elf employed business which include a profit statement and calculates the tax liability.

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