Ten top tips to help you get your Self Assessment tax return sorted for Christmas
Article by GoSimpleTax
Usually, each December, with the 31 January online-filing deadline looming, many people start to worry about completing their Self Assessment tax return, when they’d much rather be getting into the Christmas spirit. Even if you leave it until after Christmas, having to complete your Self Assessment tax return early on in the new year can be an unwelcome chore when you’re trying to get back into work mode.
If this is your 1st return it may seem all the more daunting, but don’t put it off – filing early doesn’t mean paying early. The tax you owe will be payable on 31st January.
Having to file your Self Assessment tax return is unavoidable if you earn money that’s subject to Income Tax. Thankfully, good advice and support can make a big difference. So, here are ten top tips to make Self Assessment tax return much less taxing, so you can look forward to a cracking Christmas and New Year.
1 Use accounting and Self Assessment filing software
Using good accounting software to accurately and regularly record your income and expenses can make completing your Self Assessment tax return much easier, because key numbers are automatically calculated for you. You can also use other third-party software that makes completing and filing your Self Assessment tax returns much easier, while ensuring that your Self Assessment tax returns are error-free.
2 Improve your Self Assessment know-how
Do some online research and search for advice from reliable sources. You may be able to find ways to save time and make sure that your Self Assessment tax return is properly filled out. Also read HMRC’s own guidance on Self Assessment tax returns. HMRC has published a comprehensive range of Self Assessment guidance, including concise YouTube Self Assessment videos and live and recorded webinars (registration required).
3 File your Self Assessment return now
Why put off completing and filing your Self Assessment tax return? You don’t have to wait for the deadline. In fact, you could have completed and submitted your Self Assessment tax return months ago, when the new tax year began on 6 April. If you can’t do it immediately, do it ASAP. Do yourself a favour: get it off your plate.
4 Give yourself enough time
You need to go through the Self Assessment tax return form thoroughly, paying due care and attention when entering data. The more you rush, the more likely you are to make mistakes that later need correcting. Often the reason why people rush is they’re battling the Self Assessment online filing deadline or they don’t give themselves sufficient time to complete their Self Assessment tax return.
5 Have all the necessary information to hand
As already explained, accounting software can take much of the legwork out of completing your Self Assessment tax return. Alternatively, have all relevant facts and figures to hand or at the click of a mouse, because having to go and find information, from hard-copy invoices, bank statements and receipts, etc, will mean that filling out your Self Assessment tax return takes much longer.
You’ll also need your UTR (ie the unique ten-digit reference number that enables HMRC to identify you), your National Insurance number, P60 if you’re also employed and paid via PAYE (it shows your earnings and tax paid in the tax year), records of earnings from all taxable sources (eg rental income, interest/investment income, pensions, state benefits, etc), details of expenses, etc.
6 Claim your rightful tax allowances and reliefs
Income Tax payers can claim a variety of tax allowances (upon which no tax is payable) and reliefs (which lower your profit and resulting Income Tax liability). Government website GOV.uk explains expenses you may be able to claim if you’re self-employed, as well as Income Tax reliefs and personal allowances. Do some research or seek professional advice to make sure that you’re claiming everything to which you’re entitled.
7 Consider using simplified expenses
“Simplified expenses” is an HMRC-approved way to claim business expenses using flat rates rather than working out actual costs, which can take much more time and effort. You can use simplified expenses for business mileage, operating a business from home or living at your business premises (eg if you run a B&B).
While saving you time when filling out your Self Assessment tax return, you should be sure that claiming simplified expenses won’t leave you out of pocket. GOV.uk offers an online simplified expenses checker toolthat enables you to find out.
8 Double-check your facts and figures
Once you’ve entered data into your Self Assessment tax return, double-check it all before submitting it to HMRC. Also take care when ticking boxes, as this is where mistakes can also occur. More serious errors can lead to a penalty if HMRC believes they’re the result of your being careless. Don’t let that happen. Don’t be sloppy.
9 Don’t miss the Self Assessment filing deadline
With so much to do, the run-up to Christmas can be a hectic, so, you may not manage to get your Self Assessment tax return done and dusted before the new year. Sometimes, that’s unavoidable. But still try to get it done early in the new year, so it’s out of the way. You don’t want to miss the online filing deadline of midnight on 31 January either, because this will result in a £100 penalty.
10 Reach out for Self Assessment support
In addition to HMRC’s online information resources, you can call its Self Assessment helpline (0300 200 3310 – Monday to Friday: 8am to 6pm). Make sure your personal details and address are up to date in your personal tax account, otherwise you could fail telephone security questions when asked. Also have your National Insurance number and Unique Taxpayer Reference (UTR) to hand when you call.
If the thought of completing and filing your first Self Assessment tax return or slogging your way through another one is all too much, you could always get an experienced professional to do it for you or at very least, check over one you’ve filled out. It may be cheaper than you think. Consider it a nice early Christmas present to yourself.
Income, Expenses and tax submission all in one.
GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.
The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way.
GoSimpleTax does all the calculations for you saving you ££’s on accountancy fees. Available on desktop or mobile application.
Which allowable expenses do buy-to-let landlords fail to claim?
Article by GoSimpleTax
There are about 2.66m private landlords in the UK and some of them could well be your clients. Although renting out property can offer excellent returns, it involves a wide variety of expenses, big and small.
Thankfully, as you know, many costs can be claimed as “allowable expenses”, which buy-to-let landlords can deduct from their profits, to help minimise their Income Tax bill. But many buy-to-let landlords fail to claim some allowable expenses, which can leave them overpaying hundreds if not thousands of pounds each year in Income Tax.
This guide provides a basic overview of allowable expenses that your landlord clients can claim, as well as ones that they may not be claiming.
Here’s what we’ll cover
- Why buy-to-let landlords often fail to claim some allowable expenses.
- Allowable expenses that HMRC allows landlords to claim.
- Allowable expenses that buy-to-let landlords often fail to claim.
- How property maintenance, repairs and improvements are considered.
- Things that buy-to-let landlords cannot claim as an allowable expense.
Why do buy-to-let landlords fail to claim allowable expenses?
A big reason why some buy-to-let landlords’ allowable expense claim is lower than it could be is poor expense management. Obviously, this commonly includes losing receipts for purchases for which they could otherwise claim. Other buy-to-let landlords deem a cost so insignificant that they don’t think it worth the time or effort to record. But such costs can mount up over the year, so, where allowable, they should be encouraged to claim them all.
Lack of knowledge is the other key reason why some buy-to-let landlords fail to claim their full allowable expenses. They simply don’t know that certain expenses are allowable for tax purposes. In some instances, they might suspect that they can claim, but don’t, because they fear breaking the rules and getting into trouble with HMRC.
In addition to your advice, some simple desk-based research can enable them to quickly find out which outgoings they can claim as an allowable expense. Some online sources of information are less accessible and reliable than others, which is why advice from a trusted tax professional can make a big difference.
What are “allowable expenses”?
For an expense to be allowable for tax purposes, as you know, it must be generated “wholly and exclusively” for the purpose of trade (in this case, renting out property). So, for example, a landlord cannot claim as an allowable expense a vacuum cleaner that they also use for cleaning their own home.
If they use something for business and personal reasons (eg their mobile phone), they can only claim allowable expenses for the proportion that results from renting out their property.
Some allowable expenses are more obvious than others. For example, a buy-to-let landlord may well know that they can claim for Council Tax, water rates, gas and electricity, if they pay these for the rented property (otherwise the tenant pays them, obviously).
They can also claim as an allowable expense ground rents and service charges, as well letting agent fees and management fees. Landlords’ insurance policies for buildings, contents and public liability can also be claimed as an allowable expense.
Need to know! The introduction of “Section 24” in 2017 removed a landlord’s previous right to deduct mortgage interest and other finance costs (eg mortgage arrangement fees) from their rental income before calculating their tax liability. Instead, landlords now get a tax credit of 20%.
Allowable expenses: what might landlords not be claiming for?
To maintain their property, a landlord may do some gardening, DIY or end-of-tenancy cleaning to save money, rather than paying someone else to do it. However, they can claim such services as an allowable expense, which could save them the trouble.
Landlords can also claim for some legal fees (eg for advice about pursuing a tenant for unpaid rent) and rather than doing their own bookkeeping or tax returns, they could hire an accountant and claim their fees as an allowable expense.
A landlord may be using their own landline or mobile phone for making calls that result from renting out their property. This proportion of their total bill can obviously be claimed as an allowable expense, and the same applies to vehicle mileage costs (eg if they need to travel to their rental property or make any other related journeys).
Some landlords may not realise that they can claim for advertising their property to attract new tenants, or that even relatively small costs, for example, stationery, can be claimed as an allowable expense. They may even be able to claim for costs incurred to dispose of old items of furniture or electrical appliances.
What about property maintenance, repairs and improvements?
Costs landlords pay out to maintain and repair a rental property to ensure that it retains its condition can be claimed as an allowable expense. Common examples include redecorating a property between tenants, fixing a broken window or mending a garden fence. If a landlord claims on their insurance to cover a repair, obviously, they cannot also claim it as an allowable expense. The same is true if their tenant pays for damage out of their deposit.
Replacing baths, washbasins and toilets is allowable, because they’re classed as building repairs, but only if the landlord replaces like for like (ie the quality isn’t superior).
Landlords cannot claim “capital improvements” as an allowable expense. Making capital improvements means upgrading, adapting or enhancing a property so that its value increases, which often involves making a structural change, for example, building an extension or converting a loft.
Need to know! Capital expenses aren’t allowable, so landlords can’t claim for them against their rental income, but they may be able to set them against Capital Gains Tax if they sell the property later on.
What can’t buy-to-let landlords claim for?
As explained on government website GOV.uk: “[Landlords] cannot claim the costs for replacing furnishings or equipment in a [rental] property. These are not allowable as costs of maintenance and repairs, but from 6 April 2016 they may qualify for Replacement Domestic Items relief.”
So, if the property is furnished or part-furnished, a landlord may be able to claim tax relief for replacing such things as sofas, beds, carpets, curtains, fridges, washing machines, sofas, crockery, cutlery, etc, as long as the quality is comparable – not superior.
Buy-to-let landlords cannot claim installing a security alarm system as an allowable expense unless they’re replacing one of a similar standard that was already there. If they’re in any doubt about what they as a buy-to-let landlord can and cannot claim as an allowable expense, you can add much value to the relationship by providing them with sound advice.
About GoSimpleTax
Income, expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.
The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you saving you ££’s on an accountant. Available on desktop or mobile application.
Try for free – Add up to five income and expense transactions per month and see your tax liability in real time – at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading and HMRC direct submission.
How To Grow Your Business Sooner Rather Than Later: A Starting Guide
All businesses will dream of growing and becoming more successful. Whilst it’s easy to dream, it can often be harder to make it a reality. Throughout this article, you will read about tips for growing in the short term, as well as the long term.
Hire Those Who Push You
Whilst this articles main priority is about looking to the future for opportunities to grow, it’s important to get the groundwork right. If the foundations of your business aren’t solid, then it’s likely that you will see your business struggle to grow.
That’s why it’s important to get it right about who you’re hiring from the beginning. Poor hiring can set you back, where you should be looking to hire people who not only can do the job but actually can help push you and the entire company into being better.
Work With Those Around You
Working with those around you is an effective way of helping grow your business. It could relate to your employees and workforce, where you work with them to get the best out of each other, as related to the point above.
Alternatively, it could more refer to your business to business relationships. These types of relationships are ones you get from working with businesses to benefit yourself. It could be a business that takes care of your IT support, or supplies you with raw materials to work with.
If you have parcels and products that need shipping to your customers, then it’s likely you’ll need to work with a delivery company to make it happen. Businesses such as Mango Logistics Group specialise in offering priority deliveries for the next day, both nationwide and internationally, allowing you to build a relationship with your customers.
Invest Into Early Opportunities To Become A Market Leader
When possible, you should be looking to invest in exciting opportunities before your competitors do. A market leader is someone who is leading their industry, either because of how unique they are or because they established themselves as top dog first.
If you effectively manage to invest in opportunities that benefit you, then you could see yourself becoming a market leader. Market leaders will have more space to grow, as the sky will be the limit for them.
These investment opportunities could see you adopting a new type of software that improves business practices, or it could be something more unique to your industry. It’s worth speaking to your team at all levels, to try and find new opportunities as soon as possible.
Seek Investors
Speaking of investment opportunities, you should also be looking at the reverse of this. That refers to attracting investors who can pump your business with money, money that you could use to expand and grow. There will be different types of investment opportunities, depending on if you’re a publicly listed business or not.
This investment is supposed to be good not just for you, but the investor too, meaning you will need to work to convince them why they should choose you to invest into, over competitors.
Simple ways that you can improve morale at your business
We all know how important our employees have been to our businesses since March 2020. Of course, we would never get anywhere without them, but we have had to rely on our staff in so many new and unexpected ways during the course of the pandemic. It has been an incredibly turbulent period of time with tremendous uncertainty, and we have needed to count on them for their resilience, flexibility, and trust as we have navigated a course through this storm.
It has also been a period in which we have had to support them in ways we may not have previously expected. As we head into the autumn, we still need to make sure that we are there for them, and we could all use a little morale boost as we head into the shorter, darker days with the prospect of tax hikes to come. Here are a few tips to help you boost morale.
Give Them Opportunities To Grow
One of the most difficult things to deal with during the pandemic was this sense of being stuck. Lockdown didn’t help, of course, as all the usual things we’d do to get away were closed off from us, but it was also hard to demonstrate growth in our businesses when we were working so hard to simply stay afloat. As we head into the autumn and we look for ways to bounce back, it’s important to remind your staff that they have a future in your business. Give them the opportunity to learn about emerging technology and promote from within where you can. Give them more responsibility and you will be rewarded.
Make Them A Part Of Your Plan To Give Back
Given that we are all looking for ways that we can give back to organisations and charities that need us right now, you might be thinking about how you can start making charitable donations through your business.
One of the simplest ways that you can do this is by making your employees part of the journey and setting up donations through payroll. This way, they can pick the charity of their choice and know that, by making charitable donations through an employer, they are contributing in the most tax-efficient way for the charity. Find out more about the benefits of payroll donations and how you can get it set up at your business by talking to PayCaptain.
Keep Showing Them You Have Got Their Back
Throughout the pandemic, we all had to learn to be flexible when it came to supporting our employees. Working from home made that easier in a lot of ways, as people could set up their own flexible hours to make sure they could look after other commitments such as home-schooling or caring for elderly relatives. It also made some things harder, such as looking after the mental health of our employees.
We’ve all read so much about the impact of the pandemic on mental health, and as we head into autumn and winter, we need to make sure that our team knows that we still have their back. Continue to offer support where you can and remember that they will reward you for it.
How will NIC increases to pay for health and social care affect you?
Article by GoSimpleTax
Boris Johnson wins Commons vote: Social care tax rise.
MPs yesterday voted 319 to 248 for a 1.25 percentage point rise in National Insurance for workers and employers to help fund health and social care.
From 6 April 2022, National Insurance contributions (NICs) for employees and employers will rise by 1.25 percentage points, as part of a new annual £12bn healthcare levy announced by Prime Minister, Boris Johnson, which he described as “reasonable and fair”.
Small-business organisations disagree and they haven’t welcomed the manifesto promise-breaking tax increase. However, the government says the increase in NICs and other measures are needed to tackle the “health backlog caused by the Covid pandemic”. Moreover, some of the money (reportedly £5.4bn over the next three years) will be used to improve the UK social care system, according to the government.
From 2023, the additional payment will become a separate tax on earned income called the Health and Social Care Levy, which will be calculated in the same way as National Insurance and detailed on payslips.
So what will it mean for sole traders?
Critics have been quick to point out that the increase in NICs will disproportionately affect lower earners and sole traders.
Sole traders pay two types of National Insurance: Class 2 (£3.05 a week) if their profits are £6,515 or more a year; and Class 4 if their profits are £9,569 or more a year.
Sole traders pay 9% Class 4 NICs on profits between £9,568 and £50,270 and then 2% on anything they earn above that. The changes when introduced will mean they will now pay 10.25% and 3.25% respectively on their profits.
What about employees?
According to government website GOV.uk:
- If you earn £20,000 a year, you currently pay £1,251 a year in NICs, which will increase by £130 a year from April 2022.
- If you earn £30,000 a year, you currently pay £2,451 a year in NICs, which will increase by £255 a year from April 2022.
- If you earn £50,000 a year, you currently pay £4,851 a year in NICs, which will increase by £505 a year from April 2022.
- If you earn £80,000 a year, you currently pay £5,479 a year in NICs, which will increase by £880 a year from April 2022.
- If you earn £100,000 a year, you currently pay £5,878 a year in NICs, which will increase by £1,130 a year from April 2022.
What if you’re a landlord?
Landlords must pay Class 2 NICs if their profits are £6,515 a year or more and what they do counts as running a business (ie being a landlord is their main job, they rent out more than one property and buy new properties to rent out, etc). If profits are under £6,515, a landlord can make voluntary Class 2 NIC payments to get benefits, such as a state pension.
But, as explained on GOV.uk: “You do not pay NICs if you’re not running a [property rental] business – even if you do work like arranging repairs, advertising for tenants and arranging tenancy agreements.”
Other tax changes announced
As well as having to pay higher NICs, directors of small limited companies who receive part of their income from dividend payments will pay more tax.
From April 2022, tax on dividend income will increase by 1.25%. So, after the £2,000 allowance, those in the basic rate for Income Tax will pay 8.75% on dividend payments (currently it’s 7.5%), while those in the higher rate Income Tax band will pay 33.75% (currently 32.5%) and those in the additional rate will pay 39.35% (currently 38.1%).
The 1.25% tax increase on share dividends as well as NICs at 1.25% NIC increase will seem particularly unfair to many small-company directors who received little or no government financial assistance to survive during the pandemic. And in some cases, there may no longer be a tax advantage, which could see some deregister as companies and operate instead as sole-trader businesses.
Reaction from business organisations
“An anti-jobs, anti-small business, anti-start-up manifesto breach” – was how the Federation of Small Businesses (FSB) described the tax increases.
FSB national chair Mike Cherry said: “These hikes will have business owners and sole traders feeling demoralised at the point when they’re trying to recover from the most difficult 18 months of their professional lives. For those thinking about starting up, they send completely the wrong message.
“Business owners who have done all they can to retain and support their staff during the pandemic are now being punished for that loyalty with an £11bn increase in NICs, which essentially serve as a jobs tax.
“This regressive levy hits employers and sole traders without meaningful regard for how their business is performing. And this increase will stifle recruitment, investment and efforts to upskill and improve productivity in the years ahead. At the same time, those running companies, many of whom were left out of pandemic support measures, face a fresh assault on dividend revenue.”
The British Chambers of Commerce (BCC) opposes the changes and believes that tax increases risk hampering the UK’s economic recovery. “Businesses strongly oppose a rise in National insurance contributions, because it will be a drag anchor on jobs growth at an absolutely crucial time,” said Suren Thiru, BCC head of economics. “This rise will impact the wider economic recovery by landing significant costs on firms when they are already facing a raft of new cost pressures and dampen the entrepreneurial spirit needed to drive the recovery.”
Income, Expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.
The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way.
GoSimpleTax does all the calculations for you saving you ££’s on accountancy fees. Available on desktop or mobile application.
Making Tax Digital for landlords
Article by GoSimpleTax
How much do you know about Making Tax Digital (MTD)? Well, if you’re a UK landlord you should know some basic facts, because MTD could affect you in the near future.
Making Tax Digital is an ambitious government initiative that will completely change how people and businesses keep their financial records and report data to HMRC.
MTD is being introduced to make it easier for people and businesses to manage their tax affairs and get their tax right. Making Tax Digital could also swell government coffers, as HMRC believes that using MTD-compatible software and apps will help to prevent avoidable tax mistakes. These are estimated to have cost the government more than £9.9bn in lost tax revenue in 2017-2018 alone.
Making Tax Digital will totally transform how financial records are kept and reported to HMRC. MTD for Income Tax will bring in a new way of reporting your earnings as a landlord to HMRC. This guide provides a basic overview of MTD and its implications for landlords.
Here’s what we’ll cover
- How MTD will change record keeping and reporting
- When MTD for Income Tax will be introduced
- How to voluntarily join MTD for Income Tax
How will Making Tax Digital for Income tax change things?
When introduced, you (or your accountant if they look after your books and tax returns) will need to use MTD-compatible software to maintain digital records of your income and expenses.
Your MTD-compliant software will summarise your figures, which you must send online via your HMRC digital account (you will get up to a month after every quarter end). You’ll also be able to see how much tax you owe, based on the information you’ve supplied, so you can budget for paying your tax bill.
At the end of the tax year, you’ll need to finalise your business income and submit a final declaration, confirming that the updates you have provided are accurate, with any accounting adjustments made. Then, you’ll soon receive your tax bill. You must submit your final declaration and pay the tax you owe by 31 January the following tax year.
When will MTD for Income Tax be introduced?
Landlords with annual business or property income of more than £10,000 must follow MTD for Income Tax rules from their next accounting period – starting on or after 6 April 2023.
You’ll still need to send HMRC a Self Assessment tax return for the tax year before you signed up for MTD for Income Tax. But after that, you can wave goodbye to completing an annual Self Assessment tax return and all the hassle and panic that can go with it. Having to record your expenses every quarter might also prevent you from forgetting and not claiming some.
If you’re already using software to maintain your financial records, HMRC recommends asking your provider whether they plan to make their software MTD-compatible. Government website GOV.UK already lists software that is compatible with Making Tax Digital for Income Tax. If you currently maintain paper records, you’ll need to find an MTD-compatible digital solution.
MTD for Income Tax pilot scheme
Some self-employed workers, landlords and accountants have already been part of a live pilot to test and develop MTD for Income Tax. You may be able to sign up voluntarily for MTD for Income Tax if:
- you’re a UK resident
- you’re registered for Self Assessment as a landlord and
- your returns and payments are up to date.
You can sign up now for your current or next accounting period. It could be a good way to get used to the requirements of MTD and make sure you have the right software and systems in place. If an accountant maintains your financial records and/or looks after your tax returns, they can sign up for MTD for Income Tax for you. If you need to report income from other sources (eg wages from working for someone else), you cannot sign up voluntarily.
Visit GOV.UK to sign up your business for Making Tax Digital for Income Tax. You’ll be asked for your:
- name
- email address
- National Insurance number
- accounting period
- accounting type (eg cash or standard accounting)
- Government Gateway user ID and password you use when you file your Self Assessment return. If you don’t have a user ID, you can create one when signing up.
MTD: What if I have more than one property for rent or let?
You only need to report your earnings and expenses via MTD for all of your properties together, you don’t need a digital account for each property. However, your should maintain detailed records for each individual property, for your own benefit, so you can better understand and compare income and costs.
Making Tax Digital: What if I co-own property?
If owned by a business partnership of which you’re a member, the partnership is responsible for Making Tax Digital obligations, which must be fulfilled by a nominated partner.
Quarterly summary information concerning share of the profit (based on ownership) can be pushed to each partner’s digital tax account. When the end-of-year declaration is made, the nominated partner must push each partner’s share of profits to their digital tax accounts. Individual tax liability will then be calculated.
In cases of jointly held property, for example, where a husband and wife own a property for rent or let, each person who has received income from jointly held properties must report that income separately, after registering for Making Tax Digital.
Where can I find more information about MTD for Income Tax?
- Head to government website GOV.UK for HMRC guidance on Making Tax Digital for Income Tax.
- HMRC has also created videos about Making Tax Digital for Income Tax and you can view a recorded webinar on Making Tax Digital for Income Tax.
About GoSimpleTax
Income, expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.
The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you saving you ££’s on an accountant. Available on desktop or mobile application.
Try for free – Add up to five income and expense transactions per month and see your tax liability in real time – at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading and HMRC direct submission.
Should you register as a sole trader or form a limited company?
Article by GoSimpleTax
COVID-19 helped to push UK business start-up figures to new heights in 2020. According to the Centre for Entrepreneurs, annual year-on-year UK business formations in 2020 rocketed by 13% to 772,002.
A key decision when starting a business is which legal structure do you choose when registering. The three most common options are sole trader, limited company and ordinary business partnership, although most people become a sole trader. Sole traders make up about 59% (3.5m) of the total UK business population of 5.9m, and they include many freelancers, contractors and agency workers.
Ordinary business partnership members make up about 7% (405,000) and basically these are sole traders who go into business together. The UK also has about 2m (34%) active private limited companies. So, why do so many people in the UK who work for themselves operate as sole traders?
Here’s what we’ll cover
- What is a sole trader?
- How much tax do sole traders pay
- The key advantages of being a sole trader
- Sole trader v limited company: what’s more tax-efficient?
What is a sole trader?
Being a sole trader is the same as being self-employed. In law, you and your business are the same thing, which makes you personally responsible for your sole trader business debts. If you don’t build up large debts and your business is successful, this won’t be an issue, of course.
To become a sole trader, you must register for Self Assessment (SA), the system (UK tax authority) HMRC uses to collect tax from sole traders. You’ll then pay Income Tax on your profits during the tax year (20%, 40% or 45% depending on your income/earnings). You work out your profits by deducting your expenses and any allowances from your income/earnings/sales.
Sole trader NICs
Most self-employed people pay their National Insurance contributions (NICs) via SA:
- Class 2 if your profits are £6,515 or more a year (£3.05 a week) and
- Class 4 if your profits are £9,569 or more a year (9% on profits between £9,569 and £50,270 and 2% on profits over £50,270 – all figures quoted are for the 2021/22 tax year).
Declaring sole trader earnings and VAT
Sole traders aren’t required to submit annual accounts to HMRC, but they must maintain accurate financial records (which can be checked) and submit details of their income and business costs in their annual SA100 tax return, which must be filed each year.
If your VAT-taxable earnings/turnover goes over £85,000 a year (the current VAT threshold) or you know they will, you must register for VAT. You’ll then have to charge VAT, collect it and pay it to HMRC. This also applies to limited companies.
Need to know! The UK tax system is being fully digitised under Making Tax Digital, which means Self Assessment will be replaced come 2023.
The advantages of being a sole trader
It’s very easy to register online for Self Assessment so you can start your sole trader business. There are no costs and the process is very quick (minutes not hours or days). The tax admin is much easier when compared to a limited company, which means it can be done quicker. This saves cost, whether you do it yourself or pay an accountant to do it for you.
The paperwork and financial record-keeping requirements when you’re a sole trader are minimal; completing your SA tax return is more straightforward and any losses you make can be offset against other income.
Many customers won’t care whether you’re a sole trader or not, as long as your prices, products and/or services meet their expectations. In any case, you can easily change to a limited company structure later if you wish. And sole traders can employ others and their businesses can grow and prosper.
Being a sole trader can give you much more flexibility and control over your business, because you’re not answerable to shareholders – and you won’t have to share your profits with them either. You will enjoy more privacy, too, because the annual accounts of limited companies must be published on the Companies House website, which means anyone can view them. Sole traders do not have to publish their annual accounts.
Sole trader v limited company: which is more tax-efficient?
Example 1
Sole trader profit = £50,000 Net income = £38,717
Ltd co profit = £50,000 Net income = £40,109
Difference = £1,392
Example 2
Sole trader profit = £100,000 Net income = £67,752
Ltd co profit = £100,000 Net income = £69,469
Difference = £1,717
Example 3
Sole trader profit = £150,000 Net income = £91,723
Ltd co profit = £150,000 Net income = £92,057
Difference = £334
These examples assume that all profits are extracted from the business, salary up to Secondary National Insurance threshold (£8,840) is taken and the remainder paid as dividends (2021/22 rates).
Conclusion
As the above examples show, operating as a limited company can reduce your tax bill. However, if you need to pay an accountant each month to look after your tax admin and complete your annual accounts and Corporation Tax returns, in reality, any financial advantage as the director of a limited company can be minimal or non-existent.
Each year, hundreds of thousands of people in the UK who decide to work for themselves register as a sole trader and many go on to establish and grow highly successful small businesses. In many ways, being a sole trader is the easier and cheaper choice and it need not hamper your business or your ambitions.
About GoSimpleTax
Income, expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.
The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you saving you ££’s on an accountant. Available on desktop or mobile application.
Try for free – Add up to five income and expense transactions per month and see your tax liability in real time – at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading and HMRC direct submission.
How To Start A Business In An Unstable Economy
How To Start A Business In An Unstable Economy
If you’re hoping to one day start a business, then you may be waiting until economic conditions are more promising. Unfortunately, you’re likely in for a very long wait.
Life is short, and there’s no time to waste. After all, the UK is currently in the midst of a very “fragile” economic recovery, and things could get better or worse at any given moment. Years of poor leadership and pandemics have destabilised everything, and the only route left is to take matters into your own hands somewhat.
You can still start a business now and have plenty of reasons to be hopeful. Keep reading for some guidance on these matters.
Identify Public Needs
An unstable economy is an unfortunate circumstance for many people. However, it can also be an opportunity for business leaders.
During times of crisis, it’s perhaps easier to read what customers need and best respond to. For instance, online shopping became more popular, giving people a way to peruse and purchase without risking their safety. Some customers may now prefer this experience overall, too.
The appetite for buying things is always present, with some people experiencing a newfound appreciation for shopping after years of lockdown. However, you should try to gain precise results through your market research. Where are other firms falling short in answering their customer’s needs? Has the pandemic changed what types of products and services people are drawn to?
Favour the Digital Economy
As the traditional economy declines, the digital economy arises. In this space, you can start making money more quickly and reliably than ever before.
The digital economy isn’t subject to the boom and bust of the traditional economy. Actually, the former can often be given a boost by the failings of the latter. Your venture also won’t be a prisoner of global events, thriving throughout any circumstances that occur. Obviously, the peace of mind you can be afforded here is unrivalled.
One great way to persevere in trying times is to start an online coaching business. Thankfully, there are many mentors in the industry such as those at Sell What You Know who can help you learn how to sell your expertise online. Your professional experiences in the past can be turned into moneymaking opportunities of the present, giving you certainty and confidence in everything you’re doing. It’s quick and easy to get started, and there’s plenty of room to grow your business too.
Utilise Let Go Talent
Unfortunately, many people have been released from their employment contracts in recent times. The majority of them will have been good, loyal workers, and they’re now ripe for the picking.
A startup requires dedicated workers who’re willing to go the extra mile. They’ll need to develop the business through its infancy and perhaps even be ready to be a permanent fixture on the payroll. Therefore, only the best workers will do.
In addition to posting job listings the traditional way, try to ask around your personal network about who’s been let go recently and needs a job. It might be that you’ll get access to a desperate good worker who’s fallen on hard times. If you can give them an opportunity to rebuild their lives, they may repay you with loyalty and hard work.
12 Ways Playing Board Games Improves Your Mental Health
We recently met Michael Adams from Mikko games. Here Michael shares some top reasons why we all need board games in our lives. We may be called The Business Womans Network, however many of our members are business men too. We would love to welcome you to our mastermind group events too. Thank you for sharing Michael. To read the full story head to Mikko Games website here
MAKES YOU HAPPY AND LAUGH
The first benefit of playing board games that most people probably think of is that they’re fun. They are a great way to pass the time and enjoy spending time with your friends and family.
A side effect of this fun is laughter. Laughing has been proven to trigger the release of endorphins, the body’s natural “feel-good” chemicals. Endorphins have the power to improve conscious and unconscious mind functions, leaving a person feeling cheerful, compassionate and ultimately content.
Action Tip – Don’t underestimate the power of laughing and having fun with your friends. Choose a game that encourages you to be silly and laugh, like Blockbuster or Scrawl. Anything that gets you to break out of your shell and just be in the moment, having fun. Remember, when it comes to having better mental health, time spent having fun is never time wasted.
NATURAL STRESS REDUCERS
According to an online survey of over 5000 people by RealNetworks Inc., a casual games developer, found that 64% of respondents said they play games with the primary intention to induce relaxation, and 53% play specifically to reduce stress.
Finding the time in your day to relax and enjoy yourself, such as by playing a board game, has a major impact on both your mental and physical health. Feeling stressed doesn’t just feel bad in the moment. If it isn’t properly managed, your stress can have serious implications on your overall health and life expectancy.
Playing board games can provide you with a much-needed release of energy after a stressful day of work. They help you to unwind, relax, and not let your mind be consumed by whatever negative things are going on in your life that may be leading to stress. Instead, you can have fun and escape into the world of a board game. There’s no need to worry about the trivialities of life for a few hours. Or perhaps the structure of a clear set of rules is a safe barrier against the chaotic world outside.
Apart from the distraction that playing board games can provide, a 2017 study on stress management found that playing certain board games can help train your body’s fight-or-flight response (the body’s natural response to stress). This means that by playing board games, you’re giving yourself healthy opportunities to practice facing stressful situations to develop your coping skills for when you feel stress in the real world.
Action Tip – If you find yourself stressed and unsure of how to handle it, try getting some friends together to play some games. It will help you relax and enjoy yourself and will take your mind off of whatever else is going on in your life and make you happy – even if only temporarily.
MAKES SOCIALISING EASIER, REDUCING ISOLATION
When you suffer from mental health issues like anxiety and depression, it can be extremely difficult to go out and socialise with others. Consequently, people who suffer from mental health problems tend to report increased loneliness, which is a contributing factor to worsening mental health. However, board games solve a lot of these problems as they offer a structured way to meet others and provide a social world in themselves.
Playing board games allows you to socialise with a group of people without having to worry about coming up with things to talk about. For people who have mental health problems such as social anxiety, playing games can be a great chance to work through their issues and socialise with others without the presence of any additional social pressures. Playing games also fosters positive relationships and can help fight off feelings of isolation by giving one a sense of community.
While you may not be an overly social person, and believe that you’re completely fine spending time by yourself, studies have shown that socializing with other people and experiencing more human connection is the most effective way to lead a happy and fulfilling life.
Action Tip – If you’re feeling lonely or isolated, reach out to a few friends and try to create a group you can regularly play board games with. Or, if you still live at home with your parents, start to play games with them so you begin to remember what it’s like to interact with other people.
GIVES YOU AN ENERGY BOOST
When you suffer from mental health issues like depression it can feel like you have no energy at all. Sometimes even getting out of bed feels impossible. This is understandable and not anything to be ashamed about. When you finally feel ready to break the cycle of doing nothing you may wonder where to turn to.
Real-life chores or work might still be too much for you but a board game can be a great place to start. It’s an activity that’s designed to be fun, and while you’re playing games you will naturally start to gain more and more energy. If you really focus and put your heart into it, you’ll find that being involved in something interactive gives you the boost you’ve needed.
Action Tip – Consider board games as the first step on your road to better mental health. When you feel low and don’t feel like doing anything, try playing a board game to give you the boost of energy you need to start feeling better again.
INCREASES YOUR SELF-CONFIDENCE
When you suffer from mental health problems like depression, you can lose confidence in yourself. You can struggle to believe in your abilities and feel useless. Board games can help more than you realise. Not only will board games make socialising easier, but they also help you to become more self-assured.
It really helps small businesses when you like, comment and share their articles and posts, so share away and feel free to tag us too!
Need some help getting started with blogging or your marketing failing? Join us on our mastermind group – it’s just £5 a month and gets you 70% off of our Founder Mandie Holgate’s courses too. Join here.
Key facts about tax for furnished holiday lettings owners
Author GoSimpleTax
The ongoing British “staycation boom” is welcome news for furnished holiday lettings (FHL) property owners throughout the UK. Although international travel restrictions brought by the COVID-19 pandemic have been a key driver in 2021, the UK furnished holiday lettings market has shown strong, growing demand for years. That is expected to continue.
The UK furnished holiday lettings market continues to attract many investors. Some are buying furnished holiday lettings for the first-time, to generate additional income now and/or in their retirement. Experts consider furnished holiday lettings to be a good investment. You may be considering investing in a furnished holiday lettings property of your own, so, what key tax facts should you know?
What qualifies as a furnished holiday let?
Properties that qualify for tax purposes as furnished holiday lettings are subject to separate tax rules. To be considered a furnished holiday let, from a UK tax perspective, the property can be in the UK or the European Economic Area (ie EU countries plus Iceland, Liechtenstein and Norway). And, as the name suggests, the property must contain sufficient furniture that visitors can use while staying in the property.
You must let out the property commercially with the intention of making a profit. If you build up a portfolio of furnished holiday let properties in the UK, they will be taxed as one. Properties within an EEA country will be taxed as one within that country – entirely separate to any UK furnished holiday lets in your portfolio.
Strict “occupancy conditions” apply. For a new let, they apply to the first 12 months after you start letting the property. Thereafter, they apply to the tax year (6 April to 5 April the following year). If you stop letting the property, conditions apply for 12 months up to the date you stopped letting.
Three occupancy conditions
Each property must satisfy three occupancy conditions:
- If you let out the property for 31 continuous days or more and total lettings are more than 155 days, the property will not be deemed a furnished holiday let for that year. It will be subject to different tax rules.
- The property must be available for letting as a furnished holiday let for at least 210 days in the year. Any days you spend staying at the property cannot be counted as part of this total.
- Your property must be let to the public commercially as furnished holiday accommodation for at least 105 days in the year. Lets to friends and family do not count, neither do longer-term single lets of more than 31 days, unless circumstances are exceptional (eg a guest cannot vacate because of illness or injury).
• Visit government website Gov.uk for more on occupancy conditions.
INsiders receive a 10% discount off GoSimpleTax all in one income, expenses and tax submission software.
Furnished holiday lettings allowable expenses
You can claim a range of allowable expenses that you can offset against income earned from your furnished holidays lettings property. Allowable expenses include:
- mortgage interest
- insurance (eg public liability, buildings and contents)
- maintenance and cleaning costs
- utility bills
- gardening
- refuse collection
- lettings agency fees
- cleaning products
- welcome packs
- advertising, stationery, related business calls
- accountancy fees.
You should record all allowable expense costs, as it will make life easier when completing your Self-Assessment tax return. To be allowable, expenses must result purely from commercial lettings – not from use by you, your friends or family. You must calculate and deduct all private-use expenses before claiming allowable expenses for commercial lettings.
If your furnished holiday let is closed for part of the year because you have no bookings, you can still deduct some expenses (eg mortgage interest) for the whole year, as long as you don’t live in the property during the period. If you let part of your property as a furnished holiday let or use the property privately for part of the year, you must apportion costs accordingly.
More good reasons to invest in FHL
- You can claim Capital Gains Tax trader reliefs (eg Business Asset Rollover Relief, Entrepreneurs’ Relief, etc).
- You can also claim Capital Allowances for furniture, equipment and fixtures, so these are paid for out of income, not your own pocket.
- Profit generated from FHL count as earnings for pension purposes, which can later increase your pension payments.
- You can split your FHL profit between yourself and your partner/spouse in whatever way you like, which can reduce tax liability.
- As self-catering accommodation, business rates are payable on furnished holiday lettings. However, if you let just one property and its rateable value is below £15,000, you may be able to claim Small Business Rate Relief (up to 100% in some areas).
Need to know! If income generated from furnished holiday lettings exceeds £85,000 a year, you must register for VAT, charge standard VAT to paying guests and pay it to HMRC after completing your VAT returns.
What if your furniture holiday letting makes a loss?
If your UK or EEA furnished holiday let makes a loss, you can offset it against profits for future years. However, if you have a mixed portfolio of UK and EEA lettings, you must maintain separate financial records for each and the losses of UK properties cannot be offset against profit on EEA properties (or vice versa).
Need to know! If you already have a mortgage on a property you are considering offering as a furnished holiday let, check first with your mortgage provider or an independent mortgage adviser. You may need to take out a different mortgage.
More information
- Visit government website Gov.uk for more guidance on the tax implications of owning a furnished holiday lettings property.
- There really is no substitute for tailored tax advice from an experienced accountant when it comes to furnished holiday lettings and tax. If you’re investing in property overseas, find a qualified local tax expert.
Income, Expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.
The software submits directly to HMRC and is the solution for the self-employed landlord, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you so there is no need for an accountant. Available on desktop or mobile application.