How To Prepare For The Tax Year Ending

The UK tax year runs from the 6th of April of one year to the 5th of the following – and for business owners, or anyone else who manages their taxes via self-assessment tax returns, it’s important to plan and ensure you have fulfilled your obligations ahead of time. This is prudent and can limit stress, maximise tax efficiency and avoid the dreaded late penalties.

But how does someone prepare for the end of the tax year? In this article, we will go over what records to gather, the allowances and reliefs, and how best to approach your self-assessment tax return.

The Key Dates Of The Tax Year

Whilst the end of the tax year date is arguably the main date to look out for, there are several more important tax year dates to consider, such as the following:

• 31st January – This date is the final deadline for two crucial aspects of the tax year:
  • Submitting your self–assessment tax return – You need to fill out your tax return online or via mail before the 31st of January if any of the following applies to you:
    • Self-employed Individuals – This can include freelancers, contractors, consultants and sole traders.
    • Non-taxable income – Income from a source that is non-taxable, such as rental properties, overseas income or savings interest.
    • High-income earners – If you earn over £100,000 per year, then regardless of your employment status, you’ll need to complete a self-assessment tax return.
  • Paying Tax Owed – Any tax that you owe, such as the remaining balance from your tax bill.
• 31st July – If you’re self-employed and making payments on your account, this is the deadline for your second payment.
• 31st October – This deadline is for filing your paper tax return. That being said, you have the option of filing an online tax return, which is far more convenient and expedient.

What Do I Need For The End Of The Tax Year?

When dealing with your tax return, you need to gather relevant documents for the end of the financial year. We recommend that you gather these documents ahead of time in one concentrated place, to ensure you can sort through and select the ones you need for the end of the tax year.

Income

Document all of your income sources to correctly determine your income tax:

• Employment income – This includes your salary, wages, bonuses and any other taxable benefits that your employer provides.
• Self-employment income – All income that comes in as a result of your business should be compiled, including card and cash payments, and any income from online platforms.
• Investment income – Your investment income could come in the form of income over the dividend allowance, interest from savings accounts etc.
• Pension income – Any pension payments you receive will also have to be included, whether it’s state or private.
• Property income – If you rent out properties for rental income, include that as well as any allowable expenses made to the property.
• Other income – Income from trusts, royalties etc. that come from sources related to your business.

Expenses

For the self-employed, and those claiming a qualifying tax-related relief, ensuring that you keep track of all of your expenses is critical. This is because you can significantly reduce your tax bill if you prove you’ve allocated money towards building your business:

• Allowable business expenses – Costs associated with your business, such as office material, rent, supplies, advertising, transportation expenses etc. The golden rule in determining whether an article is considered a fully tax-deductible allowable expense is whether or not the expense is “wholly and exclusively” for the business. A company car made available for both personal and business use, for example, would not be considered entirely deductible.
• Charitable donations – Giving charity is seen as a noble act by the government, and to incentivise the stimulus provided, you are eligible to claim back tax that the charity reclaimed on your donation. Typically, this is 20%, but if you’re in a higher tax bracket, you can claim back the difference on top of that.

Relevant Documentation

The following documents help reinforce the evidence already gathered:

• P60 – If you have received any employment income alongside your business earnings, this form will detail the total pay and tax deductions for the tax year. It’s especially useful for those who have multiple income sources.
• Dividend statements – These documents outline the dividends received throughout the tax year and are essential for company directors and shareholders. The income tax applied via this income is subject to specific rules and allowances, making these statements crucial for proper calculation.
• Bank statements – Bank statements are comprehensive records of financial transactions, especially for sole traders and partnerships, as they help verify income and expenses, as well as cash flow. They serve as a discrepancy check against reported income and expenses.
• Invoices and receipts – Invoices and receipts from various business transactions are some of the strongest primary evidence that you can provide. They substantiate claims for deductions and ensure the correct amount of income tax is being paid.

Allowances And Reliefs For Business Owners

The UK tax system, to reward revenue coming into the country via your business, offers several allowances and reliefs for your business. Understanding these options will further your ability to maximise financial efficiency.

Personal Savings Allowance (PSA)

PSA allows a certain amount of interest on your savings tax-free each tax year. The amount you can earn free of tax depends on income bands.

• Basic-rate taxpayers (20%): £1,000 tax-free interest per year.
• Higher-rate taxpayers (40%): £500 tax-free interest per year.
• Additional-rate taxpayers (45%): No allowance.

The PSA applies to banks, building society accounts and other types of savings interest – so long as it’s not earned within ISAs, as they are already tax-free.

Tax-Free Childcare

If you’re a working parent/carer, then you may be eligible for tax-free childcare, allowing you to claim up to £4,000 per year per disabled child, and £2000 on an annual basis for children who are not disabled. Every £8 you pay into tax-free childcare will be topped up £2 by the UK government.

Marriage Allowance

Marriage allowance allows for non-taxpaying spouses/civil partners to transfer £1,260 out of their allowance to their spouse/civil partner – so long as they are basic-rate taxpayers. Potentially, these can reduce the couple’s overall tax bill by £252 per year.

Other Reliefs

• Employment Allowance – This allows employers who are eligible to reduce their annual national insurance contributions allowance by up to £5000.
• Research and development – Limited companies that engage in innovative projects whose goal is to advance knowledge or technology within specific fields, such as artificial intelligence, renewable energy etc. You may be able to claim R&D tax relief to reduce your corporation tax bill.
• Annual investment allowance – Businesses can deduct the full cost of qualifying plant and machinery from their taxable profits, up to £1 million for the tax year of 2023 to 2024. This equipment includes computers, laptops, software, and other items not out of place in an office.

Who Needs To Fill Out Self-Assessment Tax Returns?

Business owners who fall into the following categories will have to fill out a tax return before the self-assessment deadline.

• Sole traders or partnerships – Including freelancers, contractors or individuals running a business.
• Director of a limited company – Any income that comes from the company, including earnings, dividends or other benefits, will have to be reported via a self-assessment – even if you receive a salary through PAYE.
• High-income earner – If your income exceeds £100,000 a year, you will always be required to file a tax return.
• Receiving income not taxed at source – Rental income, investment income etc.

Registration

You will need to register with the HMRC before being able to file a return. You can do an online registration via their website, or call HMRC’s number. Regardless, you will be issued a UTR (10-digit ID code), and an activation code will be sent to your address.

How To Fill Out A Tax Return?

There are two ways tax returns can be submitted:

• Online – Via HMRC website.
• Paper – Filling out a form and sending it off.

Online return

Most businesses and owners prefer to do it online. An online return is convenient as it allows you to return the tax return online at any time, from anywhere with an internet connection. Your tax liability is also automatically calculated, helping you spot and smooth over mistakes to prevent overpaid tax or falsification. Furthermore, the submission delivers the return immediately, making it by far the most preferred method.

Paper return

To file a paper return, you must complete a physical form named the (SA100). Then, you must mail it so that it arrives at HMRC by the 31st of October. Paper returns take longer to process; manual data entry can increase the likelihood of mistakes and take longer to proofread.

Paying Your Tax Bill

Submitting your tax return online typically means you’ll be able to view your tax bill within 72 hours, with the amount you’ll pay possibly even being available sooner. It may take much longer to get your bill with a paper filing, such as several weeks.

Regardless, when you receive your bill, there are several ways in which you can pay:

• Online or telephone banking – Making a direct payment from your bank through these trusted methods is the most straightforward way.
• Card payment – The HMRC’s online service offers a payment service for debit and corporate cards.
• CHAPS – Standing for the clearing house automated payment system, this same-day payment method is offered by many banks and building societies.
• Cheque – Old fashioned and traditional, a cheque is generally accepted but is much slower than electronic payments.

Conclusion

Overall, filing a tax return is an involved process, but one that is necessary for both you and your business. Incorrect tax filings can result in underpaid or overpaid tax, as well as possible legal concerns. To make the tax return process as easy as possible, it’s best to ensure that you keep all your relevant documents for safekeeping, making compiling them easier.

FAQ – Can I use unused allowances from the previous tax year?

This depends on the specific allowance:

• Personal allowance – Not possible – personal allowance is allocated for each tax year specifically on a use-it-or-lose-it basis.
• Personal savings allowance and dividend allowance – These also cannot be carried forward, as they only apply to the income earned within a specific tax year.
• Marriage allowances – This can be used from the previous tax year, or rather the previous four, but you must have been eligible for those years.
• Pension annual allowance – An unused annual allowance can be carried forward by three previous tax years, allowing for larger pension contributions in the current tax year, fully entitled to tax relief.
• Capital losses – If you made capital losses in the previous tax year you may be eligible to carry those forward to offset against future capital gains.

FAQ – What is the difference between a tax year and a financial year?

The difference between the two is distinct:

• Tax year – A tax year is the period used by HMRC to calculate a person’s income tax liability, running from the 6th of April to the 5th of April.
• Financial year –The 12-month period a business uses for accounting and financial reporting, used to prepare a company’s annual accounts. This includes profits, loss statements and balance sheets. A company’s financial year is set by the company itself, although many align it with the tax year. 

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