Sole traders: filling in your tax return from FreeAgent
Ms Stuart has appeared on HMRC’s website which can only mean one thing...
It’s that time of the year again!
By 31st January (that's a week today!) all tax returns for the year ended 5th April 2010 must be filed with HMRC, or they’ll issue a fixed £100 penalty.
And because we’re now into January, that has to be done online (the deadline for paper returns is 31st October, unless HMRC have told you you can’t file online).
How would you do this if you’re a sole trader using FreeAgent to keep your books?
Can’t I do it automatically?
I’m afraid not. We’d love to have FreeAgent talk to HMRC’s self-assessment portal and populate these boxes for you, but it can’t do that yet.
OK. Where do I start, then?
Firstly you need to make sure you’re registered with HMRC to file your tax return online.
If this isn’t the first year you’ve been in business, you’ll almost certainly have already done this.
But if you’re new to this whole self-assessment lark, then you’ll need to register - and I’d recommend you do that pretty quickly, because HMRC have to send you an activation PIN code through the post as part of the registration process. That can take up to 7 working days to arrive even without a return of the snow.
I’ve got my activation PIN and I’m registered.
Put some time aside to complete your tax return.
It’s not a good idea to wait until this weekend (29th / 30th January), because HMRC’s filing software has been known to get overloaded and not let returns through if too many people try and file at once.
This is also one time of the year where it’ll come in really handy to have a second screen for your computer. That’ll let you have your FreeAgent account open on one screen and HMRC’s website open on the other, and you won’t have to keep minimising and maximising different browser windows to see the different sets of figures, so it’ll reduce the risk of mistakes.
Log into HMRC’s website and put that browser window on the screen you like to use for typing, because you’ll be entering figures into this browser window. I usually like to have that on my main screen, the one directly above my keyboard.
Work through their online filing software for self-assessment tax returns until you reach the “Self-employment” pages. This is where your FreeAgent Self Assessment figures go.
Full or short?
Depending on your business, you may be able to fill in the short self-employment pages.
Some businesses have to use the full pages.
HMRC say that you have to use the full pages if:
- your turnover was £68,000 or more (or would have been if you had traded for a full year – more information about that later)
- you have changed your accounting date
- you will be paying tax for figures covering a period that’s different from your business’s accounting period*
- if you stopped trading during the year to 5th April 2010, your accounting period does not start on 6th April 2009
- you have already declared on a previous tax return the results of your accounts made up to a date in the year to 5th April 2010
- you provide services under contracts for professional or other services and these contracts span your accounting date
- you are a practising barrister (advocate in Scotland)
- your business is carried on abroad
- you wish to claim agricultural or industrial buildings allowance, or other capital allowances for items apart from equipment and machinery
- you wish to claim ‘overlap relief’ (this is usually because your accounting period has changed, or because you have stopped trading)
- you are a farmer, market gardener or a creator of literary or artistic works, and you wish to claim averaging
- you want to make an adjustment to your profits chargeable to Class 4 NICs (for example, because your profits include earnings as an employee).
*Translation: Your “accounting period” is the period of time for which you prepare accounts. For most sole traders in 2009/10 this will be 6th April 2009 – 5th April 2010.
If you don’t fall into any of these categories, you can fill in the short self-employed pages, and we’re going to look at businesses who can do just that.
If I haven’t been trading for a full year, does that mean I’m not allowed to use the short self-employment pages?
What you’d need to do is to work out how much your income would have been for a full year, depending on how long you’ve been trading.
So if you started trading on 1st August 2009, and you made sales of £40,000 between 1st August 2009 and 5th April 2010, you’d work out how many days in the year you’ve been trading (31 + 30 + 31 + 30 + 31 + 31 + 28 + 31 + 5 = 248), then multiply your sales by 365 and divide them by that number.
£40,000 x 365/248 = £58,871. This figure is under £68,000 so you can use the short self-employment pages.
OK, I can fill in the short self-employment pages. Please tell me how to do that.
Keep HMRC’s online filing software open in your main browser window.
Open your FreeAgent account in a new browser window, and put that window on your other screen. You need to be able to see this but you won’t need to enter any data into it.
In FreeAgent, go to Taxes > Self Assessment, and make sure you have the right user (you) and the right tax year (2009/10) selected.
Look at your self-employment figures.
You’ll see that the names of these boxes correspond to the box names that HMRC give you in their online filing software.
So put the figures from FreeAgent into the matching boxes in HMRC’s software.
If you have some non-taxable income, don’t put that on to your tax return. Use the “Taxable Turnover” figure.
Or, even easier, you can just put your sales into box 8 of the tax return, and your total allowable expenses into box 19.
Where do I find my “total allowable expenses” figure in FreeAgent?
Take your total expenses figure here...
...and then deduct your disallowable expenses figure here.
The resulting figure is your total allowable expenses.
What expenses would be disallowable expenses?
One common disallowable expense is business entertaining. By decree from HMRC you can’t claim tax relief on that.
Another common disallowable expense is depreciation on your business’s capital assets. This doesn’t form part of your allowable expenses because you have to use capital allowances instead.
Capital allowances are figures prescribed by HMRC to allow businesses to claim tax relief on the value of their assets over time. You’ll need to put this figure into HMRC’s online filing software.
Can I get that figure from FreeAgent?
FreeAgent has a simplified capital allowances calculation. If your business has a lot of capital assets, or isn’t entitled to claim the full annual investment allowance on any of its assets, you might be wise to take specific accounting advice on how to work out your capital allowances.
What if my business made a loss this year or last year?
Dealing with losses is outside the scope of this article I’m afraid.
If your business’s tax affairs are relatively simple, filling in the self-assessment pages of your tax return really isn’t as difficult as it sounds!
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