Calculating your business income for Self Assessment
Are you self-employed and preparing your tax return? Do you keep accounts to 5th April each year to coincide with the end of the tax year? Are you unsure about what figure you should put in the box for ‘business income’ in the Self Employment pages of your Self Assessment tax return? If so, here are some useful tips to help you make sure you include the right amount of income on your tax return:
1. Check the dates
Most self-employed businesses prepare accounts each year to match the date of the tax year. That means that for this tax year, you need to include all your business’s income that was earned between 6th April 2013 and 5th April 2014.
2. Declare income earned (not received) in the tax year
If you’re not using the cash basis to prepare your accounts, you must include income in the tax year you earned it, not the tax year you received it.
So, if you issued an invoice for work done in March 2014 and your customer paid you on 30th April 2014, that invoice has to be included in your income for the tax year to 5th April 2014 because that was the tax year in which you did the work.
3. Declare income earned (not invoiced) in the tax year
If you’re not using the cash basis to prepare your accounts, you’ll need to include income in the year that you earned it, not the year that you invoiced it.
If you’re selling services rather than goods, you need to work out your income on the basis of when you did the work. So, if you completed a piece of work in March 2014 but you didn’t invoice your customer for it until 30th April 2014, you have to include that income in the tax year to 5th April 2014 - because the work was done before the end of the tax year.
It's the end of the tax return as we know it! Find out about HMRC’s Making Tax Digital plan and how it will affect you with our free guide.
If you had partly finished a project before the tax year ended but there was still some work to do in April, then you need to include the income that would have been due on the work completed before 5th April.
This is a bit complicated, so if you are in any doubt, you should seek further advice from an accountant.
4. Include business income only
When you’re filling in the Self Employment pages of your tax return, make sure you only include trading income from your business.
This means you that you shouldn’t include the following sources of income on the Self Employment Page:
- Employment - this refers to employment from any job you have in addition to running your business (remember your own business does not count as employment), and should be declared on the Employment page of your Self Assessment tax return
- Rent of a personal property - this should be declared on the Property page of your tax return
- Transfers into the business bank account from a personal account
- Bank interest (even if it’s earned on a business account) - this should be declared on the Main Return page of your tax return
- Money that you put into the business
This list is not exhaustive, so do seek advice from an accountant if you are still unsure about what qualifies as business income.
5. Exclude VAT
If your business is registered for VAT, remember that the figure for trading income will be your sales exclusive of VAT. If your business is on the flat rate scheme, however, then this figure would be your sales net of flat rate VAT.This blog post was first published on 5 December 2009 and was last updated on 27 November 2014.
- Turning over a new leaf: tips for organising your bookkeeping in autumn
- MTD for Income Tax: next steps for sole traders
- Hack to the future: how hack days inspire creativity at FreeAgent
- Video: self-employed business expenses by HMRC
- Finance Bill 2017-19: Making Tax Digital back on the agenda