A guide to filling in your self-assessment tax return for Folksy sellers
Unsure how to do a Self Assessment tax return? Let’s be honest, filing your tax return is probably not what you got into craft for. That’s why we’ve asked Mike Parkes from GoSimpleTax to deliver a simple Self Assessment guide for your handmade business. Below are his top Self Assessment tips, consisting of official HMRC Self Assessment guidance and personal tricks to speed up the process.
1. Register for Self Assessment online
If you truly want to know how to do a Self Assessment tax return, start by rejecting the paper submission method. While it may fall more in line with your way of working, it restricts you by at least three months. The Self Assessment paper submission deadline is 31st October and the online submission is 31st January.
Not only this, but the physical storage of receipts and invoices can get complicated. Remember, you need to store certain records for five years after your Self Assessment by law. By using traditional methods, the likelihood of retaining such documentation is significantly reduced.
Don’t worry, moving from paper to online is simple. All you have to do is create an online account through the government gateway and locate your Unique Taxpayer Reference (UTR) number. This is a 10-digit code you would have received upon registering initially.
However, if you’re filing online for the first time and have yet to create an account with HMRC, you can start the process by registering here. Once completed, HMRC will send you a letter that includes your UTR code, and set up your account for the Self Assessment online service.
Should you need help with the Self Assessment form, HMRC will be able to walk you through the process.
2. Store the relevant paperwork securely
You need to make sure that you’re logging all the information you need for a compliant Self Assessment tax return. There are certain things you absolutely need to submit, as well as other information that’s less important but can easily stall your progress.
Business records that you’ll need to log include:
- Sales and income information
- Business expenses (more on this later)
- Personal income information
- Your P45 if you left employment to go self-employed in the same tax year
Business records that are unlikely to affect you, but will need to be included if relevant, are:
- VAT information – only if you earn over £85,000 (the VAT registration threshold as of 2019/20)
- PAYE information – if your self-employment has grown beyond just you and involves members of staff
These records are absolutely vital if you want to stay on the right side of the taxman. They allow HMRC to tax you accurately and help prevent you from being accused of tax avoidance. Should you lose the relevant information, you will be expected to provide estimations. This could cost you more in the long run if you’re found to owe more tax (and therefore will need to pay any missed contributions plus interest).
3. Get savvy about expenses
There are still some sole traders who throw out the idea of keeping business expenses, believing the effort required outweighs the cost, but business expenses are perfect for building on and enhancing your self-employment. They allow you to claim back on purchases you make for the sole purpose of supporting your freelancing and craft sales.
For example, any stationery you purchase for your business is considered a business expense. Likewise, if you need display boxes for your craft stall or materials for a craft workshop, they too can be classed as an expense.
A large part of how Self Assessments work is deciding on whether or not the purchases you claim as expenses are legitimately in the interests of your business. This can be done easily if you’re seen to provide all your necessary receipts when it comes to filing your Self Assessment – and that’s a feature common in most accounting software solutions.
4. Use accounting software
Now, if you want the Self Assessment tax return made easy, look no further than accounting software (like the software we provide at GoSimpleTax). Good accounting software doesn’t simply collate and submit your self-employed tax return, it also allows you to log business records and expenditure as you go. So not only will you have peace of mind that you’re compliant, but you’ll also be able to see what you owe HMRC in real time. You’ll also be able to recognise areas where you may be able to further reduce your tax liability.
Accounting software also removes the need for an accountant. While we understand that some taxpayers enjoy having a dedicated individual overseeing their documentation, accounting software teaches you to do that yourself, often at a far reduced cost, and gives you complete oversight of your own tax responsibilities.
By choosing to use accounting software, you’ll be able to effectively track your income and expenditure, spend less time rooting around your home for essential paperwork, not to mention your dependency on HMRC or an accountant to check what must be included, and enjoy an invaluable education in tax law and compliance.
5. Refine your Self Assessment process
Once you have submitted your tax return, you’re in a great position to reflect on and refine your approach. Many small business owners struggle to find the motivation to hone their Self Assessment tax return submission process. Instead of being proactive, they push any thoughts of tax returns to the back of their mind until the deadline comes around again.
But not you! Assuming you have now decided to use accounting software, you’ll be able to effectively track your income and expenditure, learn more about tax law and compliance, and make the most of your accounting software to explore ways of reducing your tax liability throughout the following tax year.
Remember, the key to an easy Self Assessment is proper preparation, accurate expense claiming and then using software to its full potential. Before you know it, you’ll be submitting well ahead of your January deadline.
Everything you need to know about tax if you sell craft online – https://blog.folksy.com/2016/03/15/tax-tips-for-selling-craft-online
About the author
Mike Parkes is the Technical Director of GoSimpleTax, a software that helps you to submit your Self Assessment and identifies where you can be making tax savings and saving money. He has over 30 years of experience in taxation, working for HMRC for a big portion of his career.