Filling out a tax return for your business is an inevitable yearly occurrence. But it doesn’t have to be painful - if you record your earnings and expenses as you go, and maybe add a splash of colour to your spreadsheet. Here are some tips to make a tax return as joyful a task as it can possibly be.
Understand your tax bracket
After your personal allowance – £12,500 for the 2019/20 tax year - you start paying 20% income tax on the rest of your earnings. You will pay 40% tax on anything you earn over £50,000, and 45% for earnings over £150,000. These tax brackets can change as often as every year. You can estimate how much tax you will pay with this handy calculator.
Set aside at least 30% of your income
It always makes sense to set aside more than the bare minimum, especially if you’re self employed. If you’re a Starling customer, the Goals feature allows you to put aside money for this purpose, separate from your everyday balance. You will also pay for National Insurance (Class 2 or Class 4) depending on how much profit you make (find out more info on the Gov.uk website), as well as possible student loan repayments.
Don’t forget your P60 form
When you fill out your tax return, HMRC allows you to enter the total amount of earnings and tax you’ve already paid. At the end of the tax year, get your P60 from each of your pay as you earn (PAYE) jobs - if you have any - so you can see the breakdown.
Expenses can be used to offset your taxable income and cover things such as petrol, stationery, printing and even a proportion of your rent and bills. There is sometimes no exact science to calculating expenses – but if you get audited, the trick is to prove that the figures are within reason. A nice little three-minute HMRC video is here. And keep your receipts!
Calling all landlords
If you have a rental property, you need to register for self assessment and disclose any income you make on it and expenses - even if the property is making a loss.
File on time
Every year there will be plenty of self-employed people running around at 11pm on 31 January. If you do miss the deadline, you might receive a fine. So plan ahead, and keep at least a whole evening aside.
Hire an accountant
Sometimes it’s best to delegate. You can expect to pay as little as £100 to £200 for an accountant, if it’s an easy end-of-year job. Accounting software can be integrated with Starling technology, making that admin task even easier.