The Tradesman’s Guide to Tax
Simple Tips for Tax Season
The most common response to having the government cast its vigilant eye on your finances is stress, especially if you’re not as diligent about admin as you’d like to be. We spoke to UK based tradesman tax specialist Roger Garcha and found out just how easy it is to get organised for tax season. Read on to get up to speed on self employment tax.
Getting Started: The Tax Year
A tax year covers a period of 12 months, starting on April 6th and ending on April 5th the following year.
How to submit your self-employed tax returns
- Via paper return, or hard copy, which must be in by midnight on 31st October
- Online, though you must register in advance, by midnight on 31st January
‘A tax return is a legal obligation and must be completed each year’, says Roger, ‘all income must be recorded on a tax return including, but not limited to, employed and self-employed income, benefits, inheritance, lump sums and interest. It also details any and all legitimate expenses incurred and any tax paid in that tax year’.
So, what does that mean for a self-employed tradesman?
It means that from day one, no matter how small your operation is, it’s important to maintain an up to date and comprehensive list of expenditures and purchases throughout the year.
Get Organised Now
Even if you despise admin there’s no escaping it during tax season, and errors or false entries can cost hundreds and sometimes even thousands of pounds in fines. ‘Organisation is key’, says Roger, ‘so keep a diary with details of all jobs worked, where the job was based, how much you were paid and evidence of all your work related expenses’.
If you have the data available, it’s a good idea to start filling in your tax return 8 weeks before the deadline to avoid missing it. Find out more about tax deadlines from Gov.UK
4 Ways to Keep your Records Manageable
- Even if you’re self-employed, ensure you receive a regular payslip
- Update your records every month
- Implement a system that allows you to keep earnings, receipts, bank statements and other expenses safe and organised – a 12-slot expanding file is one of the easiest ways to do this
- Set up a separate bank account to record work income and purchases
In the UK, tax law states that you must keep records of anything submitted on a tax return for a minimum of 5 years. Click here to find out what to do if your records are lost, stolen or destroyed.
Fines for Missing the Tax Deadline
‘When you miss the deadline, penalties will automatically be issued on your account even if you don’t owe any tax’, says Roger. ‘Initially you'll be fined £100 and if you still fail to complete a tax return 90 days later a f urther £300 will be levied against you.
Then it’s a fine of £10 per day up to £900 with Interest accumulating on the whole amount. If you're still late and go beyond six months there will be a penalty of £300 (or 5% of the tax owing if this is greater). If you're 12 months late, you will be charged another £300 (or 5% of the tax owing if this is greater). In exceptional circumstances a higher penalty of up to 100% of the tax due is also possible’
Meet the Deadline
There is no leeway for missing a tax deadline, however, if you have evidence and a reason for missing it, like a medical emergency, then you may be eligible for appealing the fines. ‘I fell in with the wrong crowd’ or ‘my pet ate my tax return’ just won’t cut it – not that people haven’t tried. Click here to read the Top 10 of Terrible Tax Excuses.
Bad Tax Habits to Avoid
- Leaving your tax returns until the last minute
- Not keeping invoices and receipts
- Not putting an adequate amount of money aside for tax each time you get paid
- Spending tax money with the view of topping it up at a later date
- Overestimating expenses
What can a Tradesman Claim on Tax?
Roger says the rules are complex and differ greatly for those that are self-employed versus those who are employed under PAYE. ‘As a general rule of thumb, the guideline is to account for that which is incurred wholly and exclusively for the job’, he says, ‘and if your expenses can’t be justified under this banner then you’ll have a hard time substantiating a claim.’
File, File, File
Rather have too many receipts than too few – it’s better to account for everything and then consult with an expert to find out what’s worth claiming for and what isn’t.
Ask an Expert
Don’t underestimate the value of expert advice when it comes to tax season. HMRC constantly conducts both random and targeted compliance checks and investigations. ‘The consequences can be extremely stiff and in some cases quite draconian’, says Roger. His company,
The Bettertax Organisation, specialises in tax specifically for tradesmen and can assist with everything from basic returns to the processes surrounding tax back on tradesman’s work wear. Alternatively, HMRC has a comprehensive step-by-step process online that you can read to find out more about tax in the UK.
Uniform tax rebate
If you need to wear a uniform as part of your job, you may be able to claim a uniform tax rebate to clean, repair or replace them- this includes uniform such as work overalls, work trousers and safety boots. Also, you are able to claim tax back on tools that you use as part of your job, such as electric drills.
Check if you can claim uniform tax by clicking here.