Tax returns are not high on our list of fabulous ways of spending our life. Being a tax return coach for cake-loving freelancers doesn’t mean that I magically love doing my own return, but it does mean that I practice what I preach and include cake and an occasional kick up the bum to make it as easy as possible.
So get yourself a cuppa and a slice of cake, put your feet up and read on, as I show you how to make your life easier, by avoiding some of the most common mistakes people make when doing their own self assessment tax return.
Capital Items Are Not Capital Gains
One of the first questions you’re asked is whether you’ve made a capital gain. The answer is almost certainly a no.
What’s a capital gain?
A capital gain is money you make from selling an asset. Say you sell your Louboutin collection and make a profit, you sell shares and make a profit, you sell your business and make a profit. Very simply, those things are capital gains and you need to pay tax on it. (It’s a lot more complicated than that so if you have done any of those things, you need advice). It’s a good idea to know about capital gains so educate yourself.
It’s easy to get confused between capital items in your business and capital gains. A lot of my clients made this mistake and it’s easily sorted before you submit your return.
What are capital items and where do I put them then?
Capital items are the longer term ‘stuff’ in your business. It’s often called plant and equipment. For my clients it’s their laptop, camera, printer, audio and video equipment like microphones and recorders for doing videos, tools (e.g. photography props that’ll last a while), brand and website design, and software purchases like buying Photoshop instead of getting a monthly licence. Your Smythson business iPad case is also a capital item (and tax-deductible).
In the self-employment section you add up your tax-deductible capital items and put them in the Annual Investment Allowance (AIA) box, once you’ve checked that the total isn’t over that year’s AIA limit. Not all capital items are tax-deductible so get help with what is if you need it.
Yup, you don’t get to dodge the bullet of me not mentioning it. Procrastination is a tax return mistake.
Why? Because while we all do some putting off – me included – any more is a fear nasty you’re allowing to suck time out of your life. Do you want your tax return to be taking up that much of your emotional energy? Really?
If you need help knowing what to do, get help. Get the support you need, that’s what communities like The Right Stripes are about. Get help. If you don’t it’s fear talking. Acknowledge it and take action. Have the time of your life building a successful business and allow no-one to put you in the corner, including yourself.
Losing Your Log-In And Activation Code
Which leads me onto your online self assessment log-in. Keep this safe.
It’s a complete pain to get this re-sent out to you so if you aren’t one of life’s natural organised types, remind yourself what it means in stress terms not to prioritise keeping this safe and accessible.
If you have a new log-in and are sent your activation code, take action immediately you get it. Your code is time-dependant and will expire, at which point you have to ask them to send it to you again. It’s not instant online access for security reasons (it’s sent to your physical registered address) so don’t put off dealing with it. It’s not worth the stress believe me.
A tax penalty because you couldn’t submit in time because you lost your code is a waste of money you could have spent on shoes.
Working From Home
Now for some good news. A lot of my new clients are delighted when I tell them this one!
Do you work from home? If you do, even if not all the time, you can claim some expenses. There is a way of claiming that is super simple.
Work out how many weeks you have worked from home in the tax year you’re doing your return for. Multiple that by 4 (it’s a fixed rate of £4/week). Add the total to your tax-deductible expenses.
You don’t need to keep any records although you do need to actually work from home! You can claim ore than this for working from home expenses. I don’t have space here to go into the details of how you can decide which method is best for you and there’s more information on my blog.
Not Understanding What Your Accountant Did On Your Behalf
Do you have an accountant doing your tax return? Make sure you understand what they’re doing on your behalf. After all, it’s your finances and your business and your legal responsibility.
Tax-Deducting Entertainment Expenses
You’d be surprised how many expenses are Entertainment which is not-tax deductible. (Tax-deductible means you can take the cost off your business income so the amount of income you pay tax on is less).
Taken a client to lunch? Entertainment. Working in a cafe? Entertainment. Networking lunch and lunch wasn’t included in the event price? Entertainment. Meeting a prospective client for coffee? Entertainment.
It can add up to rather a lot of money. It doesn’t mean you don’t do any of these things, it means don’t claim them as tax-deductible expenses on your tax return and make sure you’re getting value for money.
Losing The Opportunity To Get A Tax Refund
I love a tax refund. But it’s easy to miss an opportunity to get a tax refund if you’re starting out in business or if you have a loss that year and don’t know enough to know to ask for help.
If you’re working for an employer while also freelancing or making money from your blog, or you left a job in the last year, that’s a great opportunity for a tax refund. It’s time limited so don’t procrastinate about this one!
Getting In A Flap
Are you in a panic by this point? Feeling overwhelmed? Anxious? Feel you can’t do this, it’s too much, you can’t do numbers?
It’s ok. It’s called a learning curve and welcome to having your own business. You’ll get used to it (that’s a good thing, as one reason we love business is that we’ll never get bored).
Your flap is your fear trying to protect you. Your fear doesn’t know you’re safe. You do. Quietly observe your reactions, give them a cuddle and then do what you need to do.
Tax-Deducting Clothing Costs
Clothing is nearly always not tax-deductible.
Unless it is costume (think a dancer’s stage outfit, judge’s robes), uniform (when you’re required to wear it, tricky if you’re trying to prove you’re self-employed and not employed) or for health and safety (think a caterer’s apron and not thermals if you’re doing a fashion shoot in winter) it’s not tax-deductible.
You can tax-deduct clothing if it has your logo on it. The clothing is them marketing and not clothing, if that makes sense(!). You can only do this up to a point, so you could logo your top with your yoga brand and that would be ok but your socks, bottoms, pants and bras would be pushing it.
Not Using Your ISA Allowance
This one is more of a saving tax tip.
Do you know about ISA’s? They’re a kind of savings account where you can save up to an annual limit (currently around £15k) without needing to tell HMRC, putting the interest on your tax return or paying any tax on it.
You’re missing a trick if you aren’t using your annual allowance.
Not Rewarding Yourself For A Job Done
Finally, do you reward yourself for a job well done?
Do you create a lovely ritual for yourself you can enjoy when you sit down to do your tax return paperwork? (tea, cake, candles) Do you reward yourself and say ‘well done me’ when your tax return is submitted for another year?
It doesn’t matter if you do your own or your accountant does it, the legal responsibility is yours, get your reward!
It’s not all about mistakes. It’s about you learning to do a good job and kicking business ass. I know you can do it.