There is no strict definition of self employment as opposed
to not being self employed however the basic rule is if you
have income other than is taxed under the paye system then
you may be self employed. If this income is irregular and
not part of an ongoing business then you are probably not
self employed as such. An alternative to registering as
self employed would be to request the Inland Revenue to
issue a tax return and declare the additional untaxed
income under the category of any other income.
The first action by anyone self employed in business in
regard to his self assessment tax return is to register
that self employment with the Inland Revenue. Self
employment must be registered within three months of
starting business to avoid a late registration penalty fine
of 100 pounds. Not all income outside the paye system is
considered to be self employment.
If the income is received on a regular basis or is income
from a recognisable business or repeated activity then it
is likely that business would be classed as self employed.
And being self employed you do need to register for self
employment within three months as a consequence of which
you would receive an inland revenue self assessment tax
return to complete each year. If you have any doubts about
the status of the income being taxable as any other income
or under the self assessment tax return then you should
contact the Inland Revenue helpline for further advice.
Completing the self assessment tax return is not difficult
although many people who are self employed prefer to leave
the task to a tax accountant. While many items on the self
assessment tax return involve details of income and
expenses which require little knowledge of accounting there
are areas which require some understanding of the tax
system.
The inland revenue self assessment tax return can be
completed if the accompanying notes are read thoroughly and
those notes that are sent out each year with the tax return
are understood and changes from the previous year noted.
Most of the notes are quite straight forward although to
anyone inexperienced in tax matters the sections on capital
tax allowances can appear daunting.
The self assessment tax return form consists of 4
supplementary pages which are attached to the main annual
tax return. The return is broken down into various sections
of business details, capital allowances, income and
expenditure, tax adjustments and finally a balance sheet
section which is optional.
The business details section of the self assessment tax
return form is quite straight forward registering the name,
address, description of the business and the relevant
accounting dates. It is recommended that new start up
businesses submit their first accounts from the date of
commencement to the end of the tax year being 5 April.
If you are self employed then you can choose not to adopt
the standard financial tax year of 6 April to 5 April
although this is not recommended. By choosing a different
tax year to the standard financial year the accounts will
cross over more than one tax year and in doing so if the
tax rules have changed which they do frequently then more
than one set of tax rules could be applicable. And if more
than one set of tax rules is applicable then individual
entries in the accounts become time sensitive.
The capital allowance section of the self assessment tax
return form involves maintaining records of fixed assets
purchased and applying the tax rules relating to fixed
assets. These tax rules involve claiming a first year
allowance on most non vehicle assets in the year they are
purchased and writing down allowance thereafter. Commercial
vehicle purchases are also subject to a first year
allowance while non commercial vehicles can receive writing
down allowance of 25% in the first year restricted to 3,000
pounds.
The income and expenditure section is straighter forward
for the non accountant requiring a statement of the income
and expenses incurred during the financial year. Accurate
records should be maintained including receipts for
everything to support the figures being declared.
The next sections of tax adjustments do require at least a
minimum knowledge of the tax system. Knowledge of what is
allowed and disallowed and what adjustments can be made
regarding apportionment of net profit to produce an annual
net taxable profit plus adjustments for previous years
losses.
The final section of the self assessment tax return form is
the balance sheet. Only those self employed businesses that
produce a balance sheet need complete this section which is
optional. And even those businesses that have produced a
balance sheet need not complete this section if they do not
wish to.
----------------------------------------------------
Terry Cartwright, qualified accountant and CEO at DIY
Accounting, designs accounting software that automates the
Self Assessment Tax Return
http://www.diyaccounting.co.uk/selfemployed.htm producing
an excel copy of the Tax Return at
http://www.diyaccounting.co.uk/Selfemployed/selfassessment.h
tm
No comments:
Post a Comment