Self-employed tax returns can be daunting, but they don't have to be! This weeks I Hate Numbers podcast takes you through how to fill in your self-employed tax return for the year 21-22.  I'll explain everything you need to know, so you can be confident in completing your return.  Plus, I've got some handy tips to help make the process as smooth as possible.

Let's get started!

Self-employed individuals have to file a self-employed tax return each year. This document is used to report your income and expenses so that the government can correctly assess how much tax you owe.

Filling in your self-employed tax return can be confusing, but it's important to get it right.

Using an accountant

Choosing If you're a business owner, one of the most important decisions you'll make is choosing an accountant. But with so many options available, how do you know which one is right for you? In this blog post, we'll outline some tips for choosing an accountant and share some of the benefits of working with one. So read on to learn more!

Online Calculators

As a business owner, you’re constantly dealing with numbers. Whether you’re crunching the numbers on what to charge or trying to figure out how much tax to pay,  using a business calculator makes the process easier. Check out our resource page and take away some of the number heavy lifting.

Conclusion

In this podcast episode, I have focused on the self-employed tax return.  What are the responsibilities that come with being self-employed?  How you go about preparing your tax return if you’re self-employed? And how can you make sure that you’re paying the right amount of tax? Dealing with the self employed grant and claiming simplified expenses.

I answer these questions and more, so be sure to stick around until the end.  If you want to find out more about preparing your self-employed tax return, or if you need help filing your taxes this year, then contact us.  Head over to our website and use our free online tax calculator.  It’s quick, easy and best of all – it’s free! Thanks for listening.

There you have it. Four key things that you need to know in order to prepare your personal tax return for 21/22.  Check out one of out previous blog on this topic, more words, and details.

Are you ready to have an easier and more rewarding relationship with your numbers?  My book, I Hate Numbers helps you get there.

This book will show you how to have a rewarding, productive relationship with numbers and your business.  Furthermore, my book will help with that battle between the ears, that all business owners experience.

Grab your FREE cashflow guide Make your own Future Cash Story Plan with Numbers Know How.  Get in touch with us to help make your life easier and stress-free. Contact us if you need help figuring out and sorting your numbers, creating your future financial story plans, your tax, payroll and other accounting and business matters.

Thanks for listening!

Working for yourself is a wonderful thing, certainly, in my opinion. Being self employed gives you the opportunity to control your destiny, to work with the people that you want to work, to make money, deliver your why and all those other wonderful things that running your own business involves. Obviously, it has its responsibilities that you have to take on. And today one of the responsibilities I'm going to be talking about is when you have to do that thing that millions of people would rather watch paint dry, poke their eyes out with a stick, is actually preparing your self-employed tax return. I am going to be focusing on this podcast on the UK, but the lessons that we take away from this podcast can apply to any tax jurisdiction in the world. Obviously, with one or two exceptions on the specifics.

You're listening to the I Hate Numbers podcast with Mahmood Reza. The I Hate Numbers Podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi, folks. My name is Mahmood. I'm an accountant, I'm an educator and a mentor, and I'm author of the book I Hate Numbers. This book is a recommended read, not just my words for it, but those people who bought the book and used it to help understand what to do in their businesses, look at planning, look at their mindsets, and help them power their businesses to where it should be. There's a link in the show notes if of interest. In this podcast, I'm going to be looking at the self-employed tax return in the United Kingdom,

what you need to think about before you start entering those numbers, the key numbers that you need to put in your self-employed tax return, and then what you need to do at the end of that process. My mission in life has been to help businesses earn more money, deliver their why, increase their financial awareness, and help them win more battles than they lose between their ears, and ultimately to make profits and have the business they aspire to. Let's crack on with a podcast. Now, in last week's episode, we looked at the composition of the United Kingdom tax return and as a reminder, it was made up of two key elements.

There's the core return, which pretty much everyone has to complete. It can feel quite daunting and overwhelming, but if you follow it and your affairs are relatively straightforward, it should be an okay DIY job to do. If you feel overwhelmed by that, you value your time and you rather hand it over to the professionals, by all means, do that. And check out my show notes, by the way folks, if you haven't used an accountant before about what to look for when you adopt a new accountant. Let's stay within the framework of what this week's podcast is all about.

Now, when it comes to completing the self-employed, and in the United Kingdom, by the way, the tax office considers self employed individuals to be those who are individuals, not running through their businesses, through companies, but individual sole traders, freelancers. Take the term that you feel best fit, but in technical terminology it's called the self employed pages. Now, one of the first questions we need to consider is on what's the basis on which we're entering the numbers into our tax return. Now you have two choices. In the context of a tax return, you can either enter information based on what's called the traditional method or you can use what's called the cash basis. And if you sitting there thinking what are those two methodologies?

Surely numbers are numbers. Not quite so in the context of accounts and especially in the context of a tax return for a UK business. Now, traditional accounting, let me illustrate this by way of example. Let's assume in your business you have clients by which you give credit terms to. So you do work for them, you sell a product, you provide something that they want and you give them time to pay their bill. So if, for example, you've delivered goods or delivered a service on the 1 February you've done that work, you issue the invoice out to the customer, but they delay and don't physically pay you.

That money doesn't go into your bank account until, let's say, in a couple of months' time. Then you've got two time events. In traditional accounting that income has been generated, that profit hopefully has been earned on the day that you deliver the product, on the day that you deliver your service i.e. on the 1 February. In the context of the tax return though, the cash has actually been received in April, and if we say, for example, it's been received at the beginning of May, end of April, then in tax terms that receipt, that money coming in is recorded later.

So cash basis is purely based on physically when does that money land in your bank account, when does that money leave your bank account? And whatever that cash profit may be, that's the principal and that's the figures that go into the tax return for 21/22. Under traditional accounting basis, we effectively prepare accounts on when the activity has occurred and we use that basis to enter the figures into our tax return. Now you might be thinking, well, when should I use one, when should I use the other? Let me give you a brief overview now and a future podcast will look at the cash basis in much more detail.

Now, if your affairs are relatively straightforward, you don't have any inventory, for example, you don't have any significant time delays between money coming into your bank and the work being done. If it's relatively straightforward, if you don't have any interest or bank charges more than £500, if you don't need to use your account to go for a loan, to go for a mortgage if you don't need to use your accounts to claim any losses against your self-employed business, then cash basis may be suitable for you. For our clients by those, a footnote folks, we always use the traditional basis. It gives a much more accurate picture of profitability

and it irons out those fluctuations between cash coming in at one point in time and cash going out. You can have volatility in the cash profits that you have. So use the method carefully. Again, check the show notes where there's a link for more details on that cash basis. Now, having made that decision, we are now in a position to put the figures into our tax return and typically the self-employed section - it's a lovely sort of orangey, sort of yellowy colour - we'll ask you the details about your business. So what is the name of your business?

In what time period are you preparing the account? For the vast majority of self-employed businesses, sole traders, their accounting year, especially if it's ongoing, will be made up to the 5 April of the tax year. And we're focusing here, folks, by the way, for what's called the 21/22 tax year. That sounds odd, doesn't it? And that's the tax year that runs between the 6 April 2021 up to and including the fifth of April 2022. So if your business is established already and it's been trading before the 6 April 21, then you need to enter the information for your account and made up typically to the 5 April 22.

You also need to make sure your business details are correct. And if you have moved house, you've changed address for the last twelve months, make sure you mark the box. It's box three, by the way. Put an X in that box. X marks the spot and that enables HMRC to update your tag records. The last thing you want is information sent by HMRC go to the address you no longer have contact with. In the context of self-employment, you have two choices. You either have something called the short pages, which I'm going to be focusing on in this podcast, or you go for the much longer form.

How do you know which one to use? Well, if your levels of income i.e. your turnover is less than £85,000, which by the way, is the current threshold, then you use the short pages. If your business has started part way during the year, let's say, for example, six months into the year, June 21/22, and your income, your turnover, is 50,000 on an annual basis, that's 100,000. So you can't use the short pages. Now when you enter in your turnover, and that's affecting the value of the goods that you've sold, the value of the services you provided, it's not the profit, it's the actual level of turnover.

Some people call it revenue. Then the box nine is that income, excluding any grants that you may have received due to COVID and under no circumstances put your self-employed grant in that box. Now, box ten, if you've received a lockdown grant or any other COVID related support from your local authority or the like, then put that into box ten. Typically you may have staff that you're employing, you may receive a furlough grant and that goes into box ten. Again, there will be a link in the show notes by those folks to a more visual representation. It's always a challenge talking numbers over in a podcast. Just like people's face for radio, this is numbers in a podcast form. Hopefully it's making a lot of sense.

Now, having put the turnover in there, we then look at the expenses that we're claiming. Now the key thing is the figures that we enter into the boxes, boxes eleven up to and including 20 represent the business component of the cost only. So if, for example, you've got a mobile phone, and let's say for example, the mobile phone bill for the year is £600. Of that £600, what proportion, what amount is business usage? Unusual to make it 100%. So if you say it's 80% business use, then effectively £480 is the figure that goes into the requisite box, typically box 18, which is made up of phone, telephony, stationery and the like.

Again, a link in the show notes to show you the breakdown of what those boxes represent. Now each of the boxes is a summary of the expenses that you've had for the year that we're looking at. And we go from box eleven, which is made up of for a retailer and manufacturer, items that you've purchased in, you've manufactured, goods, physical goods that you've sold on, goes into box eleven. Box twelve is anything to do with transportation costs. So whether you're using your bicycle, your car, your motorbike, public transportation, train, tubes, even planes, all those figures going to box twelve.

And remember, it's the business component only. If you want to check back to last week's episode, we talked about choices, whether you use what's called a simplified expenses methodology for claiming travel expenses. So if you're using a car, your choice is either look at the actual cost of running the vehicle, take the business proportion and use that one, or use a flat mileage rate. Once that choice is made, you cannot chop and change each year. Box 13. If you've got staff on PAYE, their figures go in there. If you're using freelancers, then freelancer costs also go into box 13.

Do not under any circumstances include money that's paid out to you with an accounting world, the tax world we call drawings, that does not go anywhere on the personal tax return. We may call them wages, but they are not tax deductible. As we move down, we might be working from home partly or fully, and you can claim for the use of your premises working from home. Again, you can either claim a flat rate or you can look at the actual household costs and attribute a proportion of that to your business usage.

Also put in things like insurance costs as well. As we move through the boxes, boxes 15 covers any repairs and maintenance that you might have. Now remember, these aren't new items that you've acquired, these are maintaining those items in a good state of repair. Box 16 is anything you've got. So if you've used a bookkeeper or you've got an accountant who's doing this for you, then their fees will go to box 16. When it comes to box 17, bank and interest charges, flagging up from last week, remember, we have to put the amount that's attributable on our business account. If you've got a mixed account issues for personal and business it's going to be problematic i.e. you can't do that to actually put the bank charges and the interest charges in there because you cannot calculate accurately how much is attributable to your business bank activity.

As we move forward, we've mentioned about telephony, communication costs. Again, reinforcing make sure we only put the business dimension, the business component in. Any personal amount must be disregarded and cannot be claimed. Box 19, if there's a cash there that doesn't fit what you've got, then put it into, I was going to say dump it in, put it into box 19. All those can be added up to give you the total allowable expenses. Now, some people perfectly acceptable, just put one single figure which you're allowed to do. My personal preference with myself and my clients is always to break that number down and to spread it amongst the different categories.

The more disclosure you have, the less likelihood HMRC will pick up and say what's going on here? So for me, I prefer to take the front foot and actually have that level of transparency. Now, if you've acquired any capital assets to your business, so any equipment, new computers, machinery and the like, you are allowed to claim 100% of the cost of that item, but only claim it on the business element. So if you bought a brand new PC and you are saying that 80% of it is used for business, then 80% of that purchase cost can be claimed as an allowance.

Now, whether you should do or not depends on a number of circumstances, but as a default position, if you're making profits you don't need to worry too much about what profits you disclose, then the general recommendation is to claim the maximum you can. Now lastly when we come to the last section is your self-employed support grant. Now when COVID kicked off, when it started for the self-employed, there was strict terms called a self-employment income support grant or SEISS. There were potentially five grants that were made in the normal situation. Two of those grants would have been paid in the 21/22 tax year.

Now for many businesses who were fortunate enough to get this support grant here. It's great as in terms of a financial contribution, but it's still taxable and it's still subject to national insurance. So put that figure in, check your bank statements, check your tax accounts, and put what you physically receive into boxes 27.1. Now, similar straightforward situation, no losses from previous years, no losses for the current year, etc. then that should be all that you need to compute.

Now, the only thing I can't help you with is actually physically paying the tax. Get that return completed, check it, make sure you're happy, get it submitted, and then the tax is for you to sort out. If you can't pay that, as I said from last episode, check the show notes for the link, then make sure you get into a diner with HMRC as quickly as possible. They are very receptive to doing that, to having those conversations, to come up with payment plans.

So folks, I hope you got some value from this episode. So we talked about the self-employed pages. Make sure you've assembled the correct data, think about the methodology that you're going to be using. Is it traditional or cash based? Think about what you're going to claim for. Put that in there and then that's your task done for another year. If you feel that's getting too much for you, a better use of your time and you want to seek some additional support, some help getting somebody to do your tax return, then there's a link in the show notes as how to choose your accountant. Always happy to hear from our wonderful listeners. And until next week, folks, happy tax returning.

We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.