Tax & admin · 11 January 2017

Micro business owners pushed to register for self-assessment tax returns

tax returns
The self-assessment deadline falls on 31 January 2017

Britain’s freelancers and micro business owners who haven’t yet registered with HMRC have been urged to do so to ensure their self-assessment tax returns are processed in time.

With just 14 days left until this year’s self-assessment deadline on 31 January, business leaders have warned the country’s smallest company owners that failing to register business names and submit tax returns on time will result in fines.

Micro owners and freelancers who fail to submit their self-assessment tax return before the 31 January will automatically be slapped with a £100 fine.

In order to complete self-assessment returns online, micro business owners must include a “unique activation code”, which HMRC sends out via post once an owner has registered their firm.

Since post can often take days to arrive, chief accountant at online small business accounting platform FreeAgent, Emily Coltman, advised micro owners to act quickly to guarantee fines would not be incurred.

“It’s a relatively straightforward process [to register] but as you’re relying on snail mail to get your code, it can take a while to receive the information you need, and you simply cannot file your return without this,” she explained.

“If you leave it too late, you won’t get your code in time to be able to meet the 31 January deadline.”

The government doesn’t accept failure to register in time as an acceptable excuse for filing a late self-assessment tax returns. Coltman highlighted that last year, HMRC collected £87m in fines from freelancers and micro firms across the country that left it too late.

She added: “If you don’t pay your tax you’ll also face extra financial penalties which can quickly escalate. So it’s better to act quickly and register with HMRC now than risk leaving it until it’s too late.”

Three other common mistakes freelancers and micro business owners make on their self-assessment tax returns

(1) Failing to declare all income

When filling out your tax return, you must remember to include all the income you’ve earned during the year – not just what you’ve received via your main employment.

This includes any income that you had invoiced, or for which you’d done the work, before 5 April 2016, but which your customers did not pay you for until after that date (unless you’re using the cash basis to prepare accounts).

It also includes any other source of income – for example from another job, interest on a savings account or rent earned from property. You must have all of the relevant paperwork for this income (such as your forms P60 and P11D from your employer and your bank interest certificates) and remember that these will all have to relate to the tax year 2015/16.

Tax-free income – such as interest earned on an ISA – should not be included on your tax return.

(2) Leaving out other important information

You have to include important information about expenditure that you have made for your business on your tax return. Failure to include these could result in you paying an incorrect amount of tax.

These include all of your business costs, including anything you paid for yourself rather than from your business’s bank account. Any business costs incurred before the business started to trade should be included, as long as you spent the money no more than seven years before the start of your business and the cost could have been included if you had incurred it after the start of your business – for example, costs like getting business cards printed before you made your first sale.

Unless you’re using the cash basis to prepare your accounts, you need to include any large pieces of equipment or capital assets that you bought for your business.  These don’t go in as day-to-day running costs, but you may be able to claim capital allowances on them.

(3) Including “unclaimable” expenses

If you don’t get all your expenses correct, you won’t pay the right amount of tax. So make sure you follow the correct rules around business clothing, entertaining, food and drink and business use of home and travel expenses, as there are many common mistakes that small and micro owners make with regard to these.

Either check HMRC’s website or look for an alternative source of small business accounting information to find out which expenses you can and can’t claim tax relief on before you tackle your tax return.

How to reduce corporation tax as a small business owner

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Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.

Tax & admin