Income Tax Advice for the Self Employed
Taxes are the price we pay for a civilised society. We all have to pay our fair share, whether employed or self employed. However, you need to know how to comply with the special requirements if you are self-employed. The self assessment system has been with us for a few years now. Here is a brief summary of self assessment as it affects self-employed people.
Getting a Tax Return
If you have not filled in a tax return before, and you have a source of income that is not taxed at source, you must notify the Inland Revenue by 5 October following the end of the tax year in which you received that source of income (The tax year runs from 6 April to the following 5 April.) If you have sent in a tax return before, then you should receive a tax return shortly after 5 April each year. If you do not receive a tax return, and you continue to receive income liable to tax, then you must notify the Inland Revenue, by 5 October following the end of the tax year.
It is best to notify the Inland Revenue when you first become self-employed. They will then send you a notification form . This is used by them for registering you as a self-employed person, and it is also used for National Insurance contribution purposes, and for VAT purposes, although it is not a VAT registration form. You have to apply for that separately.
Keeping Records
The law requires you to keep such records as are needed to allow you to make a complete and correct tax return. For self-employed people, this specifically includes records of:
- all amounts received and spent in the business, and a description of the receipts and expenses
- all sales and purchases of goods in the trade (where the business involves trading in goods).
The legal requirements are obviously not a complete guide to what you need to keep to provide an adequate record of your business transactions. Although not a legal requirement it is a good idea to have a separate bank account for the business.
Self-employed people must retain their accounting records for five years from the latest date for filing your tax return which includes the business accounts concerned. There are penalties for not producing adequate records if required by the Inland Revenue, and for failing to retain them for the required period.
Filling in the Tax Return
When you get your tax return, it consists of the 'core' return, plus any additional pages which the Inspector of Taxes thinks you need. Additional pages relate to different sources of income, such as employment income, self employment income, partnership income, income from abroad, etc.
First, make sure you have all the pages you need. If you have a source of income, but you do not have the correct pages, phone the order line for them.
Next, collect together all the information concerning the income from all your sources, and all the claims for allowances and reliefs. Then go through the return and additional pages, filling in all the details of your income and claims. There is a guide booklet which comes with the tax return, and gives you advice about how to fill in the boxes.
When you have filled in the boxes, decide whether you want to calculate the tax yourself or get the Inland Revenue to calculate it. You may ask the Inland Revenue to calculate the tax only if you send the return back by 30 September following the end of the tax year. If you send it in after that date, or if you choose to calculate your own tax, there is a tax calculation guide. Work your way through this, and enter the tax payable in the appropriate box in the tax return.
Finally, sign the tax return where indicated. This confirms that you certify that the tax return is correct and complete. Then post it off to the Inland Revenue. It must reach them by 31 January following the tax year at the very latest.
