Planning on filling in a self-assessment tax return? Read this first!
Most of the time I love my job, but there's one aspect to being a freelance journalist that I detest -- self-assessment.
I'll spend some of this weekend rifling through my filing cabinet to find the necessary documents and piles of receipts to complete my tax return for the year 2007-08. Paper returns must now be filed by 31 October, though if you file online the date remains 31 January.
At least I'm not alone. Almost 10 million of us are now forced to suffer the agonies of self-assessment, whether you're self-employed, have a second property or simply some extra income from investments, for example.
Getting help
I enlist a professional to help complete mine. While I could do it alone, it's comforting to have an accountant cast an eye over my expenses and tackle any queries from HM Revenue & Customs on my behalf. Whether HMRC has developed a system which most people can manage without help is open to debate!
There are various ways to find a decent accountant, such as searching for a chartered accountant at the Institute of Chartered Accountants in England and Wales (www.icaewfirms.co.uk). However, word of mouth worked for me, and I reckon is usually the best way.
Make sure you have the right return pages
If you are filing a paper return you need to ensure you have all the relevant sections. HMRC tries to send you the right bits, but sometimes it doesn't know the whole story.
If you made a capital gain, for example, then you need the capital gains pages. If you had rental income then you need the income from property pages. If you were self-employed then ensure you have the self employment pages.
The easiest way to obtain a missing set of forms is to print them off the HMRC. Or you can ring and ask for them on 0845 9000 404.
The most common are the SA101 forms for employees, the SA103 form for those that are self-employed and the SA108 form for those that have realised capital gains.
Filing online vs filing on paper
I prefer filing on paper. But I think I will one day switch to filing online because there are added benefits to doing it this way. You can easily undo a mistake on the form and the website will tell you exactly which pages you need to fill in. Plus, at the end, it will calculate for you immediately how much tax you owe.
To file online for the first time, you must register with the Revenue and wait to receive some codes in the post, so it's worth doing this as soon as possible.
Go to www.hmrc.gov.uk, and on the left hand side click on the self-assessment heading under `do it online'. Then click register and follow the instructions.
If you are sending a paper tax return, ensure you photocopy it; if you are filing online then make sure you save a copy to your hard-drive, or print a copy.
Locate all the relevant paperwork
Get all the required information together before you start to complete your return. This could amount to quite a pile of paperwork, and should include:
- Details of all the income you received over the year, including earnings from your main employment plus any additional work undertaking during the year.
- This income also includes any derived from savings, investment, pensions, property, trusts and some state benefits; most providers are happy to provide this information over the phone if you don't have it.
- Any capital gains, such as details of shares, investments, property and other assts you've disposed of or sold.
- If you've been employed at any point, you'll need your P45 if you've changed jobs, and P60 as a summary of your payslips, along with details of expenses and benefits.
- Details of anything you can claim for, such as charitable donations, pension contributions and enterprise scheme investments.
- Remember, you do not have to include details of any tax-free accounts, such as ISAs and certain products from National Savings & Investments.
Cutting your tax bill
Around £69 billion was raised from income tax in 1997, and in the year ending April 2008, this is expected to rise to almost £150 billion. So it pays to use any methods to mitigate your liability in our ever-more complex tax system.
If you work from home it may be possible to claim money towards heating, lighting and cleaning bills.
Also, you can claim for any expenses that are incurred "wholly, exclusively and necessarily in the performance of your duties". This may include buying computer equipment, subscription to professional magazines and any travel costs that are work-related, for example.
Remember it is always advisable to keep receipts as HMRC may need proof of any expenses you are claiming.
Paying the bill
Once you've worked out your tax liability, you have until 31 January to pay the tax due on earnings for the year 2007-08, as well as a first payment on account for the following tax year. A second payment on account is then due by 31 July next year.
Ignoring tax bills will not make them go away. You will have to pay penalty fees, surcharges and interest rates, and these will quickly snowball if you continue to avoid payment.
If you file after 31 January you will have to pay a penalty charge of £100. Interest on the outstanding tax is charged from 1 February at 7.5%. If you fail to pay before 28 February you will face a 5% levy on the money you owe, plus another 5% on 31 July.
Visit the HMRC website for more information.