The deadline is looming and many individuals are still yet to complete their self-assessment tax return. Why is that? Well, for many the process is made more difficult due to lack of organisation.
So rather than flapping around every January in a bid to collate the right records, keeping yourself organised will not only make your life easier but will vastly reduce your stress levels when it comes to managing your finances and taxes.
Even more than that, keeping well organised records which you can provide your accountant with will minimise the time it takes to complete and in return lowers the fees you are charged.
Relatively new systems rolled out by the Government allows self-employed individuals access to expenses income tax schemes which are excellent for simplifying calculations and keeping the correct. These schemes, which are outlined below, have been designed to make it easier for smaller firms to manage their own income tax.
You can use cash basis if you:
- Run a small self-employed business, for example sole trader or partnership
- Have a turnover of £150,000 or less a year
If you have more than one business, you must use cash basis for all your businesses. The combined turnover from your businesses must be less than £150,000.
The cash basis allows you to record your income and expenses over the tax year as and when money enters and leaves your bank opposed to traditional banking. This is a good solution suited to the cash flow of smaller businesses.
Simplified expenses are a way of calculating some of your business expenses using flat rates instead of working out your actual business costs.
Simplified expenses can be used by:
- Sole traders
- Business partnerships that have no companies as partners
Check if simplified expenses could save you money with the free GOV UK simplified expense checker.
If you do not qualify for either of these schemes then traditional accounting is your only option. You must keep records of your income and expenses by the date you were invoiced or billed. So if you invoiced in March 2019 but did not receive the payment until the next tax period you still record it in the 2018-2019 tax year.
What Records Do I Need To Keep?
Whether you are a sole trader or a partner in business partnership it is vital that you keep a number of business records, not just for self-assessment, but for the general management of your finances and taxes. There are a few basic records that you will need to keep secure including:
- All sales and income bills
- All business expenses bills including stationary, staff costing and use of premises and other allowable expenses
- VAT records if applicable
- PAYE records if applicable
- Personal income records
On top of these records, you will also need to keep proof of all receipts for any goods or stock you have purchased; bank statements; sales invoices; and bank slips.
If you file your records with traditional accounting methods then you’ll also need to keep records of the following:
- Anything you are owed but have not yet received
- Anything you have committed to spend but have not yet paid out
- The value of any stock and work that is not complete at the end of your accounting period
- Your bank balance at the end of the year
- Your total investments in the business across the year
- Your total withdrawals for personal use from the business across the year
It is often the case that an individual will use their business’ assets for both personal and business use through the tax year which must be declared. You will need to work out the value of your personal use and take that away from the total amount you claim against your tax bill.
By keeping correct and organised records as stated above you will be able to calculate these cost easily and accurately.
How Long Should I Keep My Records For?
It is vital to keep your records for the ease of self-assessment and your general finance, particularly if you need to revisit previous documents.
HMRC advise that you keep your records for a minimum of 5 years after the 31st January submission deadline of the relevant tax year. Visit the GOV UK website to find out more about business records if you’re self-employed.
If however, you lose your records or in fact they are stolen or destroyed you must inform HMRC immediately. When filled in your forms you must do you best to provided estimated figures that are accurate and realistic. You can let HMRC aware that these figures are estimates in the ‘extra information’ section provided.
Whilst not recommended that you use provisional figures whilst your wait for actual numbers, if you are doing so you are obligated to make HMRC aware of the situation on your self-assessment tax return and submit actual figures when they have become available.
Need A Hand?
If you are self-employed and need additional information and advice concerning self-assessment give our team a call on 0117 379 0810. Alternatively visit the HMRC website for further information and guidelines when filling out the form and tips on how to keep your records.
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Categorised in: Self-Assessment
This post was written by Steph Roffey