The deadline is looming and many of you are still yet to complete your self-assessment. Why is that? Well, for many the process, which contrary to popular belief is not that much of a strain, 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.
Cash Basis – To qualify for this scheme your annual income as a self-employed business cannot exceed the VAT registration threshold, which currently stands at £81,000 for the 2014/15 tax year. 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 fantastic solution suited to the cash flow of smaller businesses.
Simplified Expenses – To qualify for this scheme you must work from home for more than 25 hours a month. You will need to keep a record of your business miles, hours worked, and how many people live with you at your business premises and as a result you can use fixed rates to calculate how much you claim for certain, common types of business expense.
Whilst both of these are optional it is important to note that ‘cash basis’ and ‘simplified expenses’ schemes are not suited for limited companies or limited liability partnerships.
Traditional Accounting – 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 2014 but did not receive the payment until the next tax period you still record it in the 2013-14 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 you’re registered for VAT
- PAYE records if you employ people
- Records about your personal income
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:
- What you’re owed but haven’t yet received
- What you’ve committed to spend but haven’t paid out yet
- The value of stock and work in progress at the end of your accounting period
- Your year-end bank balances
- How much you’ve invested in the business in the year
- How much money you’ve taken out for your own use
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 keeps 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 relevant tax year.
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. If you are using provisional figures whilst your wait for actual numbers, again make HMRC aware of the situation on your self-assessment form and submit actual forms 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 Fran Tyler