Self-employed - 6 things not to miss for self-assessment
Updated: Jul 23
Top tips to get your tax return working for you and not against you
1. What do I have to do and when?
The deadlines (following the tax year end 5th April) are:
· Register for self-assessment by 5th October
· Paper tax return by midnight 31st October
· Online tax return Midnight 31st January (following calendar year)
· Pay the tax you owe Midnight 31st January (following calendar year)
But don't wait! – there are big advantages to getting ahead. You can file your tax return at any point after 5th April. If you start straight away not only is everything still relatively fresh in your head, you might also get some money returned early if a tax refund is due. Conversely if tax is owed, you still have until 31st Jan the following year to pay it meaning you can plan ahead for the coming bill. January is a usually a very stressful time for self assessment as people are scrabbling to find lost receipts and accountants and advisors are very busy chasing up missing information from the large number of people who do unfortunately leave it till the last minute. Plus if the worst come to the worst and you miss the deadline you will be saddled with penalty charges as well as a tax bill to pay 😫 Don’t be part of that crowd – start early 👍😀
2. Do I need to self assess at all?
If your trading receipts (income) is £1000 or less you do not have to complete a self-employment tax return. A £1000 trading allowance is automatically applied.
3. What if my costs are very small?
You can elect to use the same £1000 trading allowance instead of deducting your actual costs from receipts – so if your costs are less than £1000 it’s a win 😊
4. What is the cash basis and should I elect to use it?
Cash basis means you only need to record income or expenses when you receive money or pay a bill, so you wont be taxed on income you haven’t received yet. You can opt to use it if you are a sole trader with income of £150,000 or less. It can make filling in the return easier, especially if you have a dedicated business bank account as all your transactions can be taken from there. But - it may disadvantage you if you hold stock or if you have high levels of interest or bank charges for example. Using a cash basis also limits your ability to use losses to save tax. Check with your accountant if the cash basis would be good for you 👩💼
5. What counts as deductible business expenses?
Costs have to be ‘wholly and exclusively’ for the business although there are some items which are acknowledged to be both personal and business and can be apportioned. Here is a list of some of the straightforward items you shouldn’t forget (not exhaustive!):
✅ All materials & consumables used in providing your products or services or in administering your business
✅ Staff costs
✅ Advertising and website
✅ Bank interest and charges
✅ Office costs (e.g. printing, stationary, software)
✅ Business premises (e.g. rent, maintenance & repairs, utility bills etc)
✅ Professional memberships and subscriptions
✅ Non-regular travel and accommodation (NOT your regular commute between home and business premises – see below)
✅ Business insurance
✅ Clothing – (NOT everyday clothing - think uniforms, protective items etc)
6. What are the trickier items to look out for?
⚠ Equipment. Unless you are using the cash basis (or the item is very low value), you cant expense equipment which is used on an ongoing basis. Instead you have to claim ‘Capital Allowances’. There are different capital allowance rates for different classes of equipment. This includes cars and vans (more below).
⚠ Cars & vans. The initial cost of a car is the one item you can never claim as an allowable expense, even under the cash basis. You can only claim this through either Capital Allowances or the mileage flat rate (see below). A car is also very likely to be used privately as well as for your business so you will need to apportion the cost for the capital allowances calculation and can only consider the business part – this also applies to vans if there is an element of private use.
⚠ Travel. You can only claim for business related travel and not for your regular commute. So, a visit to a customers is allowed, for example. To make sure you only capture business travel you need to record the mileage for all your trips. Then you either apportion your actual fuel costs (and any other vehicle costs – see below) between business and private - only claiming for the business part. Or, you can opt to use the government approved mileage flat rate (currently 45p per mile for first 10,000 miles).
⚠ Other vehicle running costs (repairs, insurance, MOT, servicing etc). All have to be apportioned according to the calculated private / business use. You cannot claim these separately if you have opted to claim for the government mileage flat rate – the rate is deemed to be inclusive of these items.
⚠ Home office costs (light, heat etc). If you work from home you can claim a portion of your home utility costs as allowable expenses. Again, you must work out a means of apportioning between business and private use. For example – if you work out of one room in an eight room house you might consider claiming 1/8 of your utility costs. You just need to be reasonable and have a calculation to back up your assumption. Alternatively, you can claim the government home-working flat rate. This is currently £10 per month assuming you work between 25-50 hours from home each month. The flat rate doesn’t include telephone and internet so you can add a proportion of these on top.
If you are unsure about any of these your accountant or advisor can help you. Remember though that in the end self-assessment is exactly that. You remain responsible for submitting accurate data so do check and ask questions.