General Self Assessment Tip
Marriage Allowance – many forget about this allowance especially as it is quite complex to understand. Conditions do apply, so you’ll need to read the small print here https://www.gov.uk/marriage-allowance, but if you qualify you can transfer £1,100 of your Personal Allowance to your husband, wife or civil partner.
Child Benefit – a high income Child Benefit Tax Charge could be applied if you or your spouse earn over £50,000. In fact it may be beneficial to stop receiving the child benefit if this occurs. Again this is a complex area; so it’s worth reading the full detail at https://www.gov.uk/child-benefit-tax-charge if you think that this may apply to you
Rent a room Scheme – with the rise of web sites such as Airbnb renting a room is on the increase. A Rent a Room Scheme may be used but as always conditions apply to this scheme and the detail is contained within handy help sheets at https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet. The threshold for this scheme increased to £7,500 from April 2016. For the 2015 to 2016 tax year, the threshold was £4,250. It’s worth noting that this scheme is not applicable for those renting out driveways.
E-Trading – with the advance of digital technology not only are more and more people selling on E-Trading channels such as Ebay and Amazon but HMRC has more tools at its disposal to track E-Trade. So if you are trading then you should register as self employed and complete a self assessment tax return to declare your profit (income less your costs). It should be obvious if you are carrying on a trade but if you are uncertain then HMRC has some guidance here https://www.gov.uk/working-for-yourself
Declare all income – no matter how much or how little you receive, make sure that you include all income on your self assessment. The tools available to HMRC for finding income sources get more sophisticated each year. Not declaring income, or claiming for non allowable costs and expenses, is tax evasion which is a criminal offence.
Tips for Sole Traders
- If you run your own business (as a sole trader) you must register with HMRC regardless of the level of profit that you make; there is no “earnings exemption” to doing this
- Make sure that you claim for all of your allowable business costs i.e. costs incurred wholly and exclusively for your business such as things you intend to resell, business travel costs, stationery, IT and broadband etc. Be scrupulous about this as you may have to explain to HMRC exactly what the costs were and how they relate to your business
- Don’t forget your Class Four National Insurance. This often trips people up and they find that their tax bill is more than they thought it would be. Class Four National Insurance is due on profits from self employment over £8,060. The rate is 9% on profits between £8,060 and £43,000 and 2% on profits over £43,000.
- Payments on Account, being advance payments towards your tax bill, often catch people out. You have to make a payment on account (on 31st January and 31st July) towards your next tax bill unless you’ve less than £1,000 tax due or you’ve already paid more than 80% of all the tax you owe. You can read more about Payments on Account at http://www.cheapaccounting.co.uk/blog/index.php/what-is-a-payment-on-account-poa/
Tips for Limited Companies
- The introduction of the new dividend tax from April 2016 (read more here http://www.cheapaccounting.co.uk/blog/index.php/you-will-pay-thousands-more-with-the-new-dividend-tax) means that most everyone in receipt of dividends from a company will be worse off. Now is a good time to review your position. Look at your pension contributions, use of home as office, salary payments and check that you are claiming all allowable expenses especially travel and those odd costs incurred during the course for your business.
- Companies House have introduced a new form to complete; the Confirmation Statement. This replaces the Annual Return (which was often muddled up with the Annual Accounts but was in fact very different). You can watch a video on how to complete the Confirmation Statement at https://www.youtube.com/watch?v=vHbaDIJUQRc Do make sure that you file the Confirmation Statement on time as failure to do so could result in your company being struck off.
- Do file your accounts and tax returns on time. Failing to do so can result in very hefty fines up to £1,500. If you are file late in the following year too then the fines double!
- Make sure that you have a clear salary and dividends strategy. It is also useful to take into account your planned exit strategy from your limited company as this may affect how you reward yourself. This is probably an area where input from an accountant or tax professional would be of benefit.
Changes to be aware of in the current tax year 2016 / 2017
Class Two National Insurance – there are some proposed changes to Class 2 National Insurance coming down the track which could result in some having to pay a much higher voluntary (Class 3) National Insurance if you want to claim benefits such as Maternity Pay.
Personal Savings Allowance – this was introduced in April 2016. If you are a basic rate tax payer the first £1,000 of interest on savings is now tax free (£500 for higher rate tax payers and £0 for additional rate). See here for more details https://www.gov.uk/apply-tax-free-interest-on-savings/how-much-tax-you-pay
Dividend Allowance – from April 2016 the first £5,000 of dividends received will not be subject to tax. However there is a sting in the tail with this allowance; as mentioned above the new Dividend Tax will see most in receipt of dividend worse off. See here for more details https://www.gov.uk/tax-on-dividends
Changes coming soon
VAT Flat Rate Scheme – In the 2016 Autumn Statement changes to the Flat Rate Vat Scheme were announced which will eliminate the benefit of using this scheme for many. The changes are due to come in from April 2017; watch out for them.
Making Tax Digital – This will be the biggest and most disruptive change to hit the tax system ever. Under publicised, it is a project that will impact all businesses and those completing a self assessment tax return. Although the Government promised to eliminate the annual filing of a self assessment what they failed to mention is that figures will need to be submitted FOUR times a year instead! Businesses and individuals will pick up the cost burden for this extra administration. Watch out for this coming online in 2018.