Completing your first self assessment David Hinshelwood

Completing your first self assessment David Hinshelwood

Understand AIMS AND OBJECTIVES Understand HMRC requirements What should be included in the records What records should be kept and for how long How to keep financial records Prepare an example Cash Analysis Record that would meet HMRC requirements Ask Questions!!

Bookkeeping Why Keep Books Legal requirement HMRC, Company Regs (up to 3,000 fine!) Financial Control track expenses & cash flow Accounting Costs keep to a minimum Borrowing accessing finance Sale of business Pay correct tax not too much Working Tax Credit

Records What records should you keep Records and receipts of all expenses Records and invoices for all sales and income Bank & credit card statements Paying in slips, cheque book stubs Petty cash account detailed and analysed Information regarding private money introduced or removed from the business

Records Simplified Expenses What records should you keep for these items Business mileage records Use of home as an office hours worked at home per month Use of business premises as a home number of occupants per month Keep all for 5 years from Jan 31 st following the tax year end in essence 7 years!

Business Records HMRC Options Income Tax calculations Cash Basis - New 2013 (not Ltd companies) Or Traditional Accounting

Income Cash Basis Business Income Received during the period Deduct Expenses Business Expenses Paid during the period = Business Profit (subject to income tax & NI)

Traditional Accounting Traditional Accounting Additional to cash items Invoices issued but not received payment Invoices received but not paid Monies received before doing the work Payments made for following financial year Details of assets used for the business (e.g. car, machinery and equipment, van)- Capital Allowances Ltd Companies Assets & liabilities (Balance Sheet) Stock on hand at year end Value of work in progress

Cash Basis - restrictions Business turnover under 83,000 Not a Company or Limited Liability Partnership Cannot offset losses against other taxable income (non farm income) Wish to claim more than 500 interest payments (loan, overdraft) Certain specific sectors excluded e.g. farming with herd valuation basis Farming profit averaging in last financial year

Cash Basis Cash Basis - Benefits Simpler to understand compared to traditional accounting Simpler Records No need to understand capital allowances No need to pay tax on money that you have received during the tax year

E.G. Income Traditional Accounting Sales and takings (cash received) relevant to the financial year Plus The value of services provided or good sold during the financial year but for which the payment has not yet been received (debtors) Excluding cash received for invoices carried over from previous year

E.G. Expenses Traditional Accounting Invoices - cash paid Plus Outstanding monies owed by the business - invoice received but not yet paid (Creditors) Excluding cash paid for invoices received during previous year Adjustments for payments made that do not relate to the tax year that they were made in

Examples of Income Sales income for sales of goods or services provided Interest receivable (!) Grants receipts Sale of assets - machinery, equipment

Examples of Expenses / Outs Accountancy, & other professional Fees Marketing and promotional costs Bank Interest and Charges Vehicle and travel expenses Office costs & telephone Goods bought for resale or use in the business Rent, Rates, Utilities, Insurance Repairs and Renewals Staff wages & NI Capital purchases machinery, vehicles etc

Simplified Expenses Can use Flat rates calculations: Business costs for vehicles Working from home Living at your business premises (B & B)

Bookkeeping Differing Systems Cash Analysis Book Double Entry record both invoice and payment Patent Systems paper based Computerised Spread Sheet Accountancy packages such as SAGE, Quicken, etc. Cloud such as Xero, Free Agent, Quickbooks, Sage

Cash analysis records Not just cash Cash Cheque Credit Card / Debit Card Standing Order Direct Debit Bank Transfer Bank Charges

Bookkeeping Cash Analysis Cash Analysis System Why Simple Flexible Meets standard HMRC will accept Meets standard VAT will accept Can be analysed to provide financial information for business decisions

Cash analysis records Left Hand Side money taken IN Right Hand Side money paid OUT 2 entries for all transactions 1 for the total amount 1 under the specific column (the analysis)

Cash analysis records Record Date Description Cash / cheque Total amount What it was spent on / received for VAT? If you are not registered, include VAT If you are registered exclude VAT separate column

Cash analysis records Example woolshop figures Enter the sales income that have been received Enter the payments that have been made

Self Assessment Self assessment Return Full return in year 1 Short in year 2 if turnover below 83,000 Partners a partnership return Designated partner to submit

Self Assessment Following the year end Submit in paper form by following Oct 31 st Submit online by Following January 31 st Partners a partnership return Designated partner to submit

Self Assessment Example Timetable Start to trade Sept 2016 Prepare Books to April 5 th 2017 Deadline for paper self assessment form Oct 31 st 2017 Deadline for on-line self assessment form Jan 31 st 2018 31 st Jan 2018 pay tax and NI due for Sept 2016 April 2017 plus pay 50% of above amount on account 31 st July 2018 plus pay 50% of above amount on account

Self Assessment Example Timetable April 2018 self assessment form issued for 2 nd year Prepare Books to April 5 th 2018 Deadline for paper self assessment form Oct 31 st 2018 Deadline for on-line self assessment form Jan 31 st 2019 31 st Jan 2019 Balancing payment due pay tax and NI due for April 2016 April 2018 (less the payments on account already made) plus pay 50% of above amount on account 31 st July 2018 plus pay 50% of above amount on account

Tax & NI rates Personal tax allowance 10,600 (will be 11,000) Tax levied at 20% - up to profits of 43,000 Class 2 NI if profits above 5,965 annual amount 145.60 If profits below 5,965 can opt not to pay class 2 (pension?) Will cease in April 2018 Class 4 NI if profits between 8,060 (lower profit limit) - 43,000 NI Levied at 9% of profits

Tax & NI example Taxable Profit 15,000 Deduct Personal Allowance 10,500 Taxable amount 4,500 Tax due @ 20% of 4,500 900

Tax & NI example Class 4 NI Total Profit 15,000 Deduct lower profit limit 8,060 Amount of income subject to NI 6,940 Class 4 NI due @ 9% of 6,940 624.60 Class 2 NI due 145.60 Total NI Due 770.2

Tax & NI example Tax and NI example Tax due @ 20% 900 Total NI Due 770.2 Total tax and NI due for the year 1670.2

Tax & NI example Payable on January 31 st 2018 Total tax and NI due for the year 1670.2 Deduct any on account payment already made (previous year) say 1,200 Balancing payment due - 1670.2-1,200 = 470.2 Add On Account payment due for next tax year (50% 0f 1670.2) 835.10 Total Payment to be submitted 470.2 + 835.10 = 1,305.3 Followed by:- Payable on July 3st on account payment - 835.10

HMRC - Tax HMRC ready reckoner available - https://www.gov.uk/self-assessment-readyreckoner Can make budget payments to avoid having to find a lump sum

Bookkeeping If employ staff must have PAYE Records (Employers Liability Insurance)

VAT Bookkeeping Standard rate 20% Zero rated Exempt Lower rate 5% - domestic fuel MUST HAVE SUPPLIERS INVOICE Keep copies of VAT 100 Send in form on time Repayments on 12 th month following Keep for 7 years

Filing Bookkeeping Accounts to be paid Accounts paid Bank statements Bank file details of standing orders, direct debits etc. Sales Invoices Copies of VAT 100 & working sheets

Bookkeeping Start a new file each year Cross reference to cash analysis book Mark on invoices payment date and amount Do it daily If papers in separate file note where it is e.g. lease, hire purchase

We have looked at a system that will enable you to: - Accurately recording income and expenditure. Make life easier for the person who prepares the end of year accounts. If this is your accountant, his fees should be less! Comply with legislation and requirements of the HMRC. Give your bank manager the assurance he needs that the business is well managed and in good hands. Keep control of cash flow and budgets Ensure that your records agree with the bank statements.

AIMS AND OBJECTIVES Understand Understand HMRC requirements What records should be kept and for how long How to keep your records Prepare an example Cash Analysis Record that would meet HMRC requirements

What Next? 1-2 -1 sessions business advisor 1 hour meeting no fee HMRC e-learning and webinars www.hmrc.gov.uk/courses HMRC E-mail information You-Tube HMRC You-Tube Others

www.bipwestdevon.biz team@bipwestdevon.biz Free Phone 0330 1000338 BIP, Okehampton Business Centre, Unit 10, Higher Stockley Mead, Okehampton, Devon, EX20 1FJ

Bookkeeping Bank Reconciliation Add figures in pencil until agreed Check statement to ensure all items are in the cash book Start with the balance per statement State if overdrawn or in credit Tick off items both on statement & book O/S uncleared items B to confirm balanced