31/1/18 – a deadline not a target!
Paula Veysey Smith • 15 January 2018
31st January – dealing with personal tax affairs
It wouldn’t be January and I wouldn’t be dealing with personal tax affairs if I didn’t at some point write this blog.
For many the 31st of January does become a target rather than a deadline and some who haven’t yet started their returns are jokingly boasting about how close to midnight they may be able to get before filing. Be careful with this approach though as already HMRC systems are feeling the brunt of the January filing frenzy and the risk of them going down is ever increasing!
Here are some recommendations to help you avoid the January filing crunch:
- Have a separate bank account for your business. Many people still mix business with pleasure and we all know how well that can turn out! If you are still pushing the deadline you can download your records into a spreadsheet and quickly work through your transactions; this is far more time consuming if you have to first weed out personal expenditure.
- Use software even if your business is still quite small. I would recommend a cloud based system such as Xero as this uses bank feeds which will automatically update your records with the statement lines from you bank. You then simply tell Xero what these are for and, hey presto, your records are completed. There are also further functions in the software which streamline the job even further.
- Keep your records up to date each month. Yes, it is a discipline but will make life so much easier in January. Using software such as Xero will mean that, in a couple of hours on a Sunday afternoon, over tea and biscuits, you could get your books up to date for the month and treat yourself to a glass of wine to celebrate.
- Seek professional advice if you’re stuck. In a previous blog (2nd October) I explained about the Revenue’s simple assessment form which will already be part completed for you. Although this sounds like an answer to prayer there are already questions on how correct the populated data will be. This once again leads me back to a fundamental; you can’t beat the assistance of a professional who will know what your can claim, what you can’t . . . and what sometimes sits in the middle! Do seek advice from us, the professionals! There is no charge for an initial phone call which may be all you need.
With only a couple of returns to complete I’m pleased that my clients have, for the most, followed the advice above; I also know how grateful they are not having to complete the returns, as shown by the lovely gift I received just last week. If you are still in that position where your return looms over you then perhaps next year adopt a different approach and wear that halo of smugness while all around are once again aiming for the target.
If you are struggling to finish your return or are not sure on what to do please contact us urgently. There are sometimes good reasons why a return is filed late but it is far easier to deal with such situations in negotiation with The Revenue and this will also mean strict fines can be averted.
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Do you work from home? If you do, either full-time or part-time, you may be eligible to claim certain expenses either against your own taxes or your Limited Company ones. Many factors will determine what you can claim such as working location, employment status (employee, self-employed, company director), and how much of your home is used for work. What can I claim as an employee of a company? You can claim: A flat-rate allowance of £6 per week (or £26 per month) without needing to provide evidence of expenses. This is the simplest method and can be claimed via your tax code or tax return. The actual costs (if you don't use the flat rate) which can include a proportion of the following: Heating and electricity Internet and phone bills Water (if it’s metered and usage is clearly work-related) You cannot claim rent or mortgage interest unless you're self-employed. These expenses can be claimed via HMRC’s online portal if they have not already been reimbursed by your employer! What can I claim if self-employed (sole trader or via a Partnership)? Here you have two options: 1. Simplified Expenses (Flat Rate) Based on hours you work from home each month: 25–50 hours/month → £10/month 51–100 hours/month → £18/month 101+ hours/month → £26/month 2. Actual Expenses Method You can claim a proportion of: Rent or mortgage interest (not capital repayments) Utilities (gas, electricity, water) Council tax Internet and phone Cleaning and maintenance Home insurance (if work-related) You’ll need to work out the percentage of your home used for business, usually by the number of rooms (not including bathrooms, corridors, storage space) or square footage. One word of warning is never claim the whole use of a room for business as every room will have duality in use. This is also important if you own your home as a room declared purely an office could attract Capital Gains Tax when the property is sold. We suggest that any room should only be claimed at 90% for business. And only one room can be used, not a multiple! These costs should be included on your Self-Assessment tax return. Can I make a claim for these expenses in my Limited Company? Yes, you most certainly can. At MPower Accounting we not only recommend using the actual expenses method as set out above, we provide our clients with a bespoke spreadsheet to calculate these expenses, and others such as mileage, on a month-by-month basis. These amounts can then be claimed as expenses to the Company and paid out to you. It is one of the tax efficient methods of taking money from your business. Capturing and calculating monthly your regular working from home expenses is the best way of ensuring they are recorded correctly. To help you do this we are offering a free download of the spreadsheet usually only available to our clients; please use the link below to get this. Paying taxes is a necessary evil but I am a firm believer in minimising this liability for both individuals and companies. Correctly claiming working at home expenses is one way to reduce your tax bill. Please do contact us if we can help you further identifying all the expenses you can claim and also for further assistance in how to correctly use and populate the downloaded template.
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HMRC are starting to send out letters to sole traders and landlords in the initial steps towards Making Tax Digital for Income Tax. If you receive one of these letters do not panic, help is at hand. So let’s answer your most asked questions about Making Tax Digital. What is Making Tax Digital for Income Tax? Making Tax Digital for Income Tax (MTD for ITSA) is a UK government initiative aimed at modernising the tax system. It will require individuals and businesses to keep digital records and submit tax information to HMRC using compatible software. It is part of a broader initiative to digitalise tax returns and follows on from the changes already implemented for VAT reporting. Will Making Tax Digital affect me? MTD for ITSA will affect individuals who: Are self-employed (e.g. sole traders) and/or landlords (earning income from property). Have a total income over £50,000 per year (combined from self-employment and property). Are currently required to complete a Self-Assessment tax return. From April 2026 , MTD for ITSA will be mandatory for those earning over £50,000. From April 2027 , this threshold will reduce to £30,000. What will I have to do if my earnings are over the threshold? You will need to keep digital records for income and expenses which will mean using MTD compatible software. This will be a major change for those of you still keeping paper records. Instead of submitting an annual self-assessment return you will need to submit quarterly updates 4 times a year to HMRC. At the end of the tax year an End of Period Statement (EPOS) and a Final Declaration will need to be submitted which essentially replaces the current Self-assessment return. All of these will be required digitally, paper records and manual calculations will no longer be accepted. This means that instead of 1 annual return you will need to make 6 submissions! So what software do I need to use to keep digital records? Acceptable software include: QuickBooks Xero FreeAgent Sage or, HMRC-recognised spreadsheet tools with bridging software ( not highly recommended ) No more shoeboxes of receipts or manual books — everything must be digitally recorded. When will I need to register for MTD? You’ll need to sign up for MTD for ITSA before April 2026 . This is a deadline and not a target, signing up early is always advisable. HMRC will provide a service for you to do this but having the guiding hand of an accountant will make this a much easier task.
