Getting into books
You can read the signs, like the pages of a predictable novel; the calm, then the storm and, finally, the regrets. Perhaps it’s time to write a new chapter in your bookkeeping
Some people think tax returns are easy and can complete theirs with a merry skip and a jump. For others, it strikes fear through every sinew, causing hysteria and panic right up until it’s filed. The contrast is startling, but entirely foreseeable. Perhaps what is truly surprising is that many of us fail to improve our approach to good bookkeeping despite being starkly reminded each year that this is the crux of our problems; the three Ps (p*** poor preparation) raise their ugly heads when our accounts are due! Most of us travel through our careers having the payroll department of our employer worry about all that ‘tax’ stuff. We just look forward to payday, pick up our payslips and vaguely glance at the figures, only really focusing on the final figure that tells us what actually gets paid into our account, and don’t give it a second thought. After all, it’s Friday and payday. But when you become an ADI, all that changes. The security blanket provided by PAYE disappears, and you’re left with an extra job to do, and one you probably hadn’t bargained for.
On the 5th April, the 2017-2018 financial year will end, so let’s remind ourselves of our responsibilities and, if we have any sense, get up to speed and ahead of the deadlines. When you became an ADI, you will have registered with HMRC as self-employed. You are now obliged to tell HMRC exactly how much income you’ve generated within the financial year, your professional costs and, therefore, your total profit. You then need to file this information with them, and ensure you pay the tax you owe before the 31st January deadline. Contrary to popular belief, you don’t need an accountant to do this for you, but most people, including me, choose to employ the services of one. I’m not worried about being able to log my income and expenses properly, nor deducting one total from another, but I am worried about not understanding the intricate rules that surround claiming for tax-deductible expenses. And, you want to ensure you claim as many tax-deductible expenses as possible, because it means less overall profit, which means less overall tax to pay. You also need to get it right, accuracy being the key word; the tax man takes a dim view of those who estimate or guess. It can be complicated, and further confused by mitigating circumstances which have pros and cons according to your own personal situation, but you don’t want to miss out on opportunities to pay less tax.
One thing I would strongly recommend, if you’re not doing it already, is to run a dedicated bank account for your business-related transactions. Mixing them with your day-to-day personal current account will make it a lot more difficult when going through and checking work related incomes and outcomes, and when it comes to sending your statements to your accountant, a business-only account will ensure they only see what you want them to see!
But how do we avoid the annual panic and keep it simple? Well, first of all, you can be preparing your records as you go throughout the year, rather than shoving all your receipts in a bag and tackling it all in one go. You do this by recording your income and expenses when they occur, which provides two key benefits:
Visibility – You have up-to-date details on how you’re doing with your business, and how much tax you need to save for, as you go. That means there isn’t a nasty multi-thousand-pound tax fund to miraculously find come year end. Rather, you simply pay into a specific savings each month, for example, before you take money for your bills and yourself. This is your own PAYE system that means you have a lump sum to pay your tax and National Insurance bill at the end of the financial year. It also allows you to monitor your income levels and head off any potential problems that may ruin your annual performance.
Peace of Mind – Rather than letting the tension build throughout the months, come the 6th April, you can package everything up and send it to your accountant straight away, and you’ll have a good idea how much tax you’ll need to pay a couple of weeks later when they’ve completed their job. But just try to hide that smug grin when others scrabble through bags of receipts and diaries while tearing their hair out!
If you’re not comfortable doing your own tax return, source an accountant. The cost of accountants varies, but you can expect to pay anything from £250 to £400 per year for a self-assessment tax return, depending on your personal circumstances and any value-added services you want thrown in, such as tax investigation insurance. For example, our own in-built tax return service within MyDriveTime, which is in partnership with the industry accountancy firm FBTC, will set you back £275. But do your own research, ask for recommendations from others, both ADIs and other self-employed people, and then get the level of service provision appropriate for you.
The Grand Finale
As one year ends, another begins, and it’s the perfect time to think about the processes you use, and whether they can be improved to make your admin tasks easier and less of a chore. Tax is an essential ingredient and provider in life and society, so embrace it and make the most of it. In the words of the great children’s book ‘We’re Going on a Bear Hunt’: “We can’t go over it. We can’t go under it. Oh no! We’ve got to go through it!”
Dan hill – https://www.mydrivetime.co.uk/