With tax season upon us and the self assessment tax return deadline looming, Della Hudson, accountant and founder of two businesses, explains what new self employed practitioners need to know when registering and filing their tax returns.
For many people new to self employment, this will be the first time they’ve had to do a tax return. And with the cosmetic market’s compound annual growth rate at 7.5 per cent and new aesthetic practitioners entering the sector, it is likely that there will be a significant number of self employed aesthetic practitioners filing their tax return for the first time this year.
If you’ve registered with HMRC as self employed then you will already have received a couple of reminders to complete your 2020/21 tax return by 31 January 2022.
If you haven’t yet registered with HMRC then you can do that at GOV.UK.
Use your government gateway, or set one up, to access your business tax account.
Once you have registered for self assessment you can complete your tax return any time after 5 April 2021 using your government gateway or you can pay a small amount for simple tax software that will make the task much easier. The final date for submission and payment is 31 January 2022 but you don’t need to wait.
Your tax return is made up of information about you and a section for each type of income you have. Your self employment will be one section and, if you have NHS employment too, this will go in the ‘Employment’ section.
There are sections for investment income including bank interest, property income, overseas income etc. You will also find sections for claiming certain costs such as pensions, charitable donations, etc.
You will also need your latest tax code letter from HMRC to see if they have made any adjustments.
Did you know? If your employer doesn’t pay for your uniform to be laundered then you can claim either the actual cost of laundry OR the fixed allowance at GOV.UK.
In the ‘Employment’ section you will need to complete one page per employment. You should have received a P60 statement from each of your employers, or a P45 if you left them during the tax year. You may also have received a P11D if you received benefits of any kind from your employer such as a company car or gym membership.
Your employer is legally obliged to provide you with these forms so, if you don’t have them, start chasing your employer early.
The numbers from these forms can be entered directly onto your tax return.
There is a separate section for ‘Self Employment’. Ensure that you keep copies of all your invoices and bills throughout the year in case you are selected for an HMRC enquiry.
You should also have a separate bank account for your business as it will make things much simpler when it comes to identifying your business income and costs.
Using some simple software such as Xero, Quickbooks Online or Freeagent will help you to raise professional looking invoices, chase payments, or process your card payments and direct debits with the minimum of fuss.
If you keep your records up to date each week then you will be able to see how much you need to set aside for your tax bill.
Having the information ready for your tax return is just an added bonus. As a sole trader you can claim costs that are wholly, exclusively, and necessarily for the purposes of business.
The tax return form has several categories for costs so try to use the most suitable one but don’t worry if it is unclear, as long as you are consistent.
If you don’t have separate business premises then you can claim a portion of your home as business use. There are two main ways of doing this:
If you are claiming part of your home as permanent business premises then you may need to pay additional capital gains tax when you sell your home. In practice you will probably find that you only use the room for business five days out of seven so 5/7 of the costs of the room are business expenses, 2/7 are personal expenses, and you should be able to claim full tax relief when you sell your home.
If you operate through a limited company rather than as a sole trader, then the company submits a separate corporation tax return and you will probably have two pieces of information to report on your personal tax return. You will have employment income for your salary and dividend income which is reported along with investment income.
Other payments to reduce your tax include payments to registered charities.
Many of the good causes that we donate to are not actually charities so do check that your donations are eligible for tax relief by searching the charity by name or number on the Charities Commission website.
It’s important to remember that if you are not a UK taxpayer NOT to gift aid your donations or you will personally need to pay the tax on these.
You can also claim pension payments where tax relief is not already given at source. You can check with your pension company whether this is the case.
How much to set aside for tax will depend on whether you have employment income. While your income + taxable profit is below £50,000 you should set aside 30 per cent of your profits to cover your tax and national insurance. If your combined income will be above this level, then you should set aside 45-50 per cent.
You will also need to make a payment on account for the tax year 2021/22 so, if your 2020/21 tax bill is £10,000 then you will actually pay £10,000 for this tax year + £5,000 towards next year (minus any payments already made) by 31 January 2022.
You will pay the second £5,000 payment on account by 31 July 2022 and then the balancing amount or refund by 31 January 2023.
If you’re not comfortable with numbers then you may be much happier just paying a professional to complete your accounts and tax return for you, leaving you to relax and focus on your aesthetics business.
Did you know? Your accountant’s fees can be claimed as a business expense.
Accountant, founder of two businesses, mother of two teens and author of two books. Della Hudson knows her stuff so was voted one of Tide’s ‘20 female entrepreneurs to watch in 2020’. Her passion is to help business owners to understand the handful of important numbers that will help them to grow their business.