How to Prepare Tax Returns

No matter how much you’re reminded of filing deadlines or your good intentions of keeping on top of your accounts throughout the year, preparing a tax return can often be an unwanted, time-consuming burden. There are ways to make it easier, however.

Why do I have to file a tax return? 

Quite simply, filing a tax return will ensure you pay the right tax. While as an employee, you’d pay tax automatically through PAYE, as a sole trader, freelancer or other small business owner, you need to tell the government how much you earned in the latest accounting period. This is done by filing a self-assessment tax return. Your tax return will include key information, including how much you made in the tax year and what expenses you had to cover. This information will dictate how much tax you pay. You must file your return by midnight on 31 October each year if you’re using a paper form, and by 31 January if you’re filing online.

Who has to file a tax return? 

If you’re self-employed as a sole trader, you must complete a tax return if you earn more than £1,000 before deducting anything you can claim tax relief on.

There are other situations in which you may also have to file, such as if you’re a partner in a business partnership, you earn money from renting out a property, or you earn income from investments. 

There are other situations in which you may also have to file, such as if you’re a partner in a business partnership, you earn money from renting out a property, you earn income from investments, and some other scenarios. See HMRC's website for more details.

How do I prepare my tax return? 

While you may think completing your tax return is something you do in January, just in time to hit the submission deadline, preparing for it should be something you do year-round.

You can do this by keeping clear, accurate records of any income and expenses so that you can transfer this information to the self-assessment form when the time comes. It should also be noted that you can file a return any time after the end of the tax year (5 April) it applies to, so if you know January is a busy time, factor this into your planning and prepare your return in advance.

When preparing your return, you’ll need to have some key information to hand, including your Unique Taxpayer Reference, National Insurance number, details of your income and expenses, and evidence of any contributions to charity or pensions that might be eligible for tax relief. 

There are two sections to the self-assessment form:

• SA100 deals with income in the form of dividends and interest, pension contributions, charitable donations and benefits.

• If you’re self-employed, you’ll also have to complete SA103, where you’ll record your self-employed income and expenses.   Of course, filing your tax return is only the first step, and your preparations throughout the year should also include tracking your finances so that when the time comes to pay your taxes, you have a good idea of how much your bill will be, and you have the finances available to pay it. As a rough guide, aim to put 20-30% of your income aside for tax and remember you’ll also likely be expected to make a payment on account towards your next tax bill, so factor that into your calculations.

What expenses can I claim? 

By claiming the correct expenses, you can be more confident you’ll pay the right amount of tax, but HMRC’s rule of allowable expenses being ‘wholly and exclusively for business use can seem unclear.

Put simply, you can only claim expenses for business costs, not for anything that is used for personal reasons. So you can claim back travel for business, not leisure, and not for travel to your usual place of work. Machinery, equipment and other IT accessories, marketing and advertising, are all allowed. HMRC offers a detailed overview of what is acceptable, or you can contact the self-assessment helpline if you’re still unsure.

If you have costs associated with things that are used for both business and personal reasons, such as your car or mobile phone, you can claim for the part related to the business. 

If you work from home, you may also be able to claim for a proportion of costs such as heating, electricity, Council Tax, mortgage interest or rent, and internet and telephone use. HMRC even offers simplified expenses to cover these, so you don’t have to determine how much of the costs are associated with work.

How do I file my online self-assessment tax return?

Filing your self-assessment online is much easier than a paper return, and you benefit from the later submission deadline. You can do this by logging into your Government Gateway account, navigating to Self Assessment and clicking on File a Return. You then have to fill in various bits of identifying information before you begin to add the details of your working activity.

You will then have the opportunity to check this information, view how much tax you’ll have to pay and file or save the form. 

How can I make doing my tax return easier?

If you’re doing your own self-assessment, the best piece of advice is to be prepared. However, we all know this can be difficult when running a business as there are always more urgent tasks that need doing.

Using accounting software can be a considerable time and confusion saver. By automating payments, setting up recurring invoices and using other time-saving tricks accounting software offers, you can be sure your finances are always up to date and accurate. With tools like AccountsPortal, you can connect directly to your bank account so that your business transactions are automatically synced with the software. You can also quickly generate reports, such as your profit and loss statement, and view all transactions in real-time, so you’re always up to date with your financial situation, and this information can be easily transferred to your self-assessment form.

If you decide to employ an accountant to handle your tax return you can both log into the system simultaneously to resolve any issues or review your financial position with a professional wherever you both may be. Both options can be huge time-savers and, crucially, minimise the risks of any mistakes creeping onto your form that could cause further issues in the long term. Using an accountant should remove the worries of any late penalties or uncertainty about whether you’ve supplied the correct information in the right way. An accountant will have filed countless tax returns and will be aware of any changes to forms, processes or deadlines, so you can get back to focusing on the day-to-day running of your business instead.