Here’s how to avoid Self AsSTRESSment
This article was first published on 19 January 2017 and was last updated on 18 January 2018.
If you currently find yourself with a bundle of receipts, an eye on the calendar and an impending sense of doom, you’re not alone - but there’s no need to panic!
Pour a cuppa (something stronger optional) and we’ll run through the steps you can take to avoid a penalty of at least £100 for missing the January 31st deadline. You can find all of these steps and more in our handy Self Assessment checklist.
Gather your paperwork
First things first - you should dig out everything you’re going to need before you tackle the actual tax return. This might take a bit of rummaging, but think of it as good motivation for implementing an easier filing solution in 2018!
Here are the documents and information from the 2016/17 tax year that you should have to hand as a priority:
- your P60
- interest from your bank account
- your business’s income and expenses (if you are a sole trader or in a partnership)
- the value of any dividends you’ve received on shares that you own
Know what you’ve earned this tax year
If you're a sole trader and you're preparing your business's accounts to match the tax year end, the next step is to add up all your income from 6th April 2016 to 5th April 2017. This includes any sales that you completed the work for between these dates (even if you hadn't invoiced the customer or been paid for the work before 5th April 2017). If you’re using the cash basis of accounting (meaning that you work out your business’s profit based on when money comes in and is paid out, rather than on when income is earned and costs are incurred) you should calculate your income by adding up the payments that you received from customers during the tax year.
Round up your expenses
Now that you know your income, it’s time to dig out those receipts! You’re looking for any costs that you incurred as part of running your business. All of these costs will reduce your accounting profit, and some will also reduce your ‘taxable profit’, which also lowers your tax bill. When you record a cost that reduces your taxable profit, it’s often called ‘claiming’ a cost or expense.
Knowing what expenses you can and can’t claim for is sometimes a bit complicated - for example, you can only claim the cost of food and drink while you’re out and about and even then, only in certain circumstances. Don’t forget that if you work from home then you can include some of your home running costs as part of your business costs. You can check your proposed expenses against the info on HMRC’s website or our A-Z of business expenses checklist.
Even when you’re done with your receipts, don’t chuck them! Hard or soft copies of your receipts need to be kept until 31 January 2024. If you use FreeAgent then you’re sorted - you can take a snap of your receipt on your smartphone, upload it to your FreeAgent expense entry, then throw it away, safe in the knowledge that the cost will show the next time you log in. And yes, HMRC will accept the scanned receipt as proof of the expense! Just make sure you take a picture of both sides if there’s any information on the back of the receipt.
File online and feel fine
The end is in sight. Once you’ve collected up everything you need, it’s time to file - just visualise the sweet, sweet peace of mind afterwards! For more detailed help with filling and filing your tax return, don’t forget to download our Self Assessment checklist, which takes you through each stage of the process and provides lots of additional hints and tips.
Finally, visit HMRC’s website and work your way through the tax return section by section, reading all the instructions carefully and taking care to avoid mistakes. If you’d prefer not to go it alone, take a look at how using FreeAgent can help you file your Self Assessment return easily and take the fear out of tax time in the future.
- We'll be ready for MTD for VAT, will you?
- Introducing the Spring Statement
- Share the self-employment love this Valentine’s Day!
- Introducing the Customer Sales Report
- Five stages of Self Assessment stress