Get your books ready now to avoid a stressful self-assessment

FreeAgent's Emily Coltman gives her top tips on what you can be doing right now to make self-assessment as painless as possible.

The January 31st self-assessment tax return filing deadline is set in stone, and with Christmas in the middle, that time can go by surprisingly fast! If you are responsible enough to prepare before the new year you can save yourself a lot of stress. Here are some tips to help you get organised.

Get your accounts in order

If you’re self-employed, your business’s accounts will form a key part of your tax return figures, so you need to make sure they’re absolutely ship-shape and in order. Here’s how:

What are your accounting dates?

You’ll usually show a year’s worth of transactions in your business accounts. Many sole traders prepare their accounts to coincide with the tax year, which means that for the tax returns now due for filing, the accounts would cover April 6th [year] – April 5th {following year]. That means April 5th [following year] is your year end.

If you use March 31st [year] as your year end then these still count as matching the tax year (as do accounts prepared to any of the first four days in April).

And remember that if your year end doesn’t match the tax year, then you’ll be taxed on the profit for the accounting year which finishes within the tax year, so for example, if you prepare accounts to December 31st each year, then in 2012/13 you’ll pay tax on the profits for the calendar year 2012.

Make sure you know which dates your accounts should cover for this tax return.

Does your bank balance?

For each of your business bank accounts, find your bank statement as at your year-end date, and compare it to the figure in your accounts for what was in that bank account.

Do these two figures match? If they do, that’s your first check done.

If they don’t, is that because of transactions you’ve entered into your accounts that haven’t yet gone through the bank, such as cheques that haven’t cleared yet?

If you don’t know why these two figures don’t match, then you need to look carefully at your figures and work out why! Go back to a point in time when they did match, and work forward from there, looking for missing or duplicated transactions.

Is all your income included?

You need to make sure your accounts include all your business’s income. This includes invoices that you’d issued before your year end date, but that your customers hadn’t paid for by then. It also includes income you were due for work you’d done but hadn’t yet invoiced by your year end.

However, if any of your projects cross the year end, you should remember to include income that you would have been entitled to for the work you did before the year end.

Don’t miss income out, because this will result in HMRC not receiving all the tax they are due.  They do not like that at all, and they can charge interest and stringent penalties if you conceal income.

Have you included all your costs?

Similarly, it’s important to make sure you’ve included all your business’s costs in your accounts, otherwise you could risk paying too much tax.

Don’t forget business costs that you paid for yourself using a personal credit card, or personal cash – these are called out-of-pocket expenses and you can usually still claim tax relief on them.

Also, you can include costs you’ve incurred but not yet paid for, such as suppliers’ bills.

Remember too that if you’re new to business, you can include business costs that you incurred before the business started to trade, so long as you spent the money no more than seven years before the start of your business and the cost could have been included if you had incurred it after the start of your business. So for example, you can include business cards you had printed before your first sale, but not for training that puts you in a position to start your business, because that’s not tax-deductible.  

Are you registered with HMRC?

If this is your first year in business, you need to make sure that HMRC are expecting a tax return from you with self-employment pages.

Also, the deadline to file your tax return on paper has now passed, so you must file your tax return online now.

Make sure that you have registered your business with HMRC and that you have registered to file your tax return online. If your business is new, you can register for both at the same time using this link.

Collect your other paperwork

You may have income from other sources as well as your business, for example if you have a job as well as being self-employed, you rent out a property, or you earn interest on a bank account.

Collect the paperwork for this income, such as your forms P60 and P11D from your employer, or bank interest certificates.

Remember you need the paperwork that relates to the tax year which ended on 5th April.

Find an accountant now!

If you want an accountant to help you to prepare your tax return, now is the time to find one. Don’t wait any longer because some accountants charge extra if you go to them when the self-assessment deadline is getting near.

Preparing your own tax return can feel daunting, but it need not be so hard if you make sure your accounts and paperwork are in good order before you start filling in the form.

Further reading:

Emily Coltman

Emily Coltman

Emily is Chief Accountant at FreeAgent Central Ltd and a graduate of of the University of Cambridge.

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