Insights

There are just 7 days to go before the 31st January self-assessment tax returns deadline and Taxtalk's Paul Webb outlines some very useful advice for those still needing to get organised. With trading conditions so tough at the moment for many small business owners, many people have had no option but to leave their Self-Assessment tax returns to the last minute and need to complete them in a rush.

Personal tax returns might be something of an administrative burden, but with HMRC out in force to collect as much revenue as possible, it is important to make sure yours is accurate and filed on time. Apart from resulting in an immediate £100 penalty (which will apply even if no tax is payable) and possible daily penalties of £10 per day, it’s never a good idea to fall under the tax officer’s spotlight. It could result in being targeted for an enquiry should HMRC’s officers start to wonder whether your business record keeping is being maintained diligently and whether there might be a tax shortfall to detect.

Taxtalk's top tips for completing Self-Assessment tax returns

1. Understand whether or not you need to submit a Self Assessment tax return.

If you are an ordinary employee, you usually need to be earning a certain level of income or benefits or have income that is not taxed at source before it is necessary to complete a personal tax return. This is not the case for business owners. If you have a business, either operating as a sole trader, partnership or as a limited company whereby you are an employee and director, you generally must complete a return. This applies even if you earn less than the personal allowance threshold, and it needs to include details relating to all income you might have received during the relevant tax year.

2. Leave enough time to get your taxpayer reference information from HMRC.

To obtain this it is necessary to register online before the 21^st January, which is the last date to be able to meet HMRC’s January 31^st filing deadline. If you use an accountant, they will most likely be filing the return on your behalf but make sure you check that well in advance. You don’t want to be left with a nicely completed return and no Unique Taxpayer Reference details to be able to file it online.

3. Complete the information accurately and precisely.

It is tempting to use approximate values and giving roughly the right figures, but this could attract unwanted scrutiny from HMRC.  If rounded up numbers must be used the return should be noted accordingly and these figures should then be adjusted as soon as the correct values are obtained.

4. Include all the relevant forms of income required.

Many different types of income should be included on a tax return including rental income, capital gains, dividends from shares and bank interest received. Note that interest received on ISA savings accounts or some types of National Savings bonds are tax-exempt.

5. Account for losses.

If losses are incurred ensure that the relevant claims are made to offset the losses against your  various sources of income to reduce your tax bill.  Remember it may be  possible to offset losses, from investments as well as business losses, made in previous years.

6. Offset allowable expenses against income.

There are a variety of expenses that can be offset against income provided they are allowable by HMRC. Eligible expenses include business expenses incurred for the purpose of the trade, pension contributions,  and capital allowances.

7. Have enough money to pay your tax bill available.

You will need to pay your tax for the relevant tax year plus an amount on account for the following year. If your financial circumstances have changed it, is important to review the position to see if a claim can be made  to reduce the amount of tax payable on account.

If you do all the above you will be in good shape to comply with HMRC’s requirements, but what about next year? When your tax bill is finally totted up, you might get rather a surprise at the amount owing, especially if you are affected by the top rates of tax.

The benefit of hindsight - looking ahead

Straight after the January 31st filing deadline is one of the best times to formally review your personal and business tax affairs for the coming year. Virtually all of the changes for the 2012-2013 financial year have now been confirmed by the Treasury and the sooner you put measures in place to limit your tax liability, the better.

Although tax planning opportunities are becoming less accessible as the Government looks for new ways to increase its revenues, there are still ways to legitimately reduce your tax bill.  As an entrepreneur, it’s especially important to consider ways to limit your tax liabilities. In particular tax planning offers the chance to:

-            Completely avoid 50%, or higher, income tax rates

-            Use strategies such as income equalisation to balance your bill

-            Optimise the way you take income from your business

-            Give equal consideration to business and personal tax.

It is worthwhile seeking professional advice to implement some of the above tax planning strategies and to ensure you are taking full advantage of the many new tax relief opportunities launched by the Government, many of these will begin to take effect from the coming tax year.

To contact Paul Webb, email pw@rjp.co.uk

www.rjp.co.uk