An Accountant's Tips For Self Assessment Tax Returns
With the Self Assessment Tax Returns quickly approaching, our Practice Accountant James Powell shares his tips for submitting them:
Know what kind of income you’re receiving!
If you’re a shareholder of your own company, make sure to decide whether you’re paying yourself a salary, dividends, or a mixture of the two, as different tax rates apply for each. A salary will often attract higher personal tax, but will reduce your company’s corporation tax bill, whilst dividends might reduce your personal bill but can only be paid out of post-tax company profits.
Mixing the two is often the best strategy, allowing you to maximise the various exemptions and reliefs available to you as an individual whilst easing the final bill for your company.
Watch out for tax on director loan accounts!
A director receiving a loan from their company generally doesn’t pay tax on the amount borrowed, on the understanding that it will be paid back, but this can also be a difficult area. On the individual end, HMRC have been cracking down on such arrangements where they’re used as tax avoidance (see our blog post on the loan charge for more about this), and these loans can also be classed as benefits in kind, particularly if they’re interest-free, which is often the case.
You should also be aware that director loan accounts which are unpaid after nine months of the company’s year end may trigger a special kind of corporation tax called S455, details of which may be covered in a future article.
Claim your capital allowances!
Capital allowances are well-known ways to reduce a company’s corporation tax bill, but they can also be claimed by sole traders and partnerships. If you buy plant and machinery for use in your business, such as a van, you can claim for these as though they were trading expenses to reduce your taxable profit for the year.
Unless your capital spending is above £1m, you can claim the full value of most items in the year you buy them, so spending, say, £20k on machinery will allow you to deduct the full £20k for tax purposes. Note, however, that you specifically can’t do this with cars. Cars need to be claimed for over time, at a rate dependent on their CO2 emissions.
Maximise your working from home allowances!
Many of us have been working from home this year, for understandable reasons, and you may well be aware of some of the allowances that are available to claim in this situation. But before you finish your SATR, make sure you’re aware of all of them, as well as what portion of your living expenses (water, heat & light, even council tax) you’re able to claim for.
Different methods can be used for this, but an example given by HMRC themselves is to have one room in your house that you use as an office, and then apportion your expenses between ‘personal’ and ‘business’ based on how many rooms are in your house overall.
If you'd like some more detailed support with your taxes, we may be able to help. You can get in touch with us at firstname.lastname@example.org.