Self-assessment: sorting out your expenses

If you are self-employed you'll be familiar with the date of 31st January looming on your horizon. For the un-initiated this is the deadline for filing your tax return with HMRC.

If you are very organised (or a bookkeeper like me) you'll have submitted your tax return shortly after the financial year end in April. If you're a normal business person you may well be hoarding a box of receipts which will need sorting through in January :-)

This year take the stress off and get yourself ahead of the game by sorting out your receipts now. It's a good investment to get a bookkeeper to work through them for you. Many of my clients find that I've saved them money by pointing out receipts which are missing. Or you can tackle the work yourself by setting up a simple spreadsheet or making use of an online accounting package.

Here's how to manage your own expenses (if you are not VAT registered):

1) Get all of your invoices and receipts together and make piles for each month. Remember the financial year usually runs from April-March unless you have a different financial year for your business.

2) Set up a spreadsheet with the columns 'date', 'description' and 'amount'. Then further to the right you can add a few columns for type of expense, eg 'travel', 'stationery'.

3) Type in your expenses one by one. Type in the amount in both the column for amount and also the type of expense. For example, if you paid £10 for some printer paper type in 'amount' £10 and 'stationery' £10. You can then total your expense type columns to see where your money is going.

4) Once an invoice or receipt has been entered put a tick in the corner. Then you can file them away in a folder.

5) Make a list of all of the things you have not got a receipt for. Did you make any business trips which had online tickets that you didn't print out? Have you claimed for mileage? What about claiming for using a home office? Print out any documentation you may have for these items and add them to your spreadsheet. HMRC has some guides for what can be claimed for home offices and mileage etc.


If you are VAT registered then you should ideally be inputting this data into an accounting software package so that you can claim the VAT portion of your expenses. Cloud based software is expanding rapidly and allows you to enter details from anywhere, including on your smart phone. I use Sage One for my business and I usually recommend it to my clients.

Let's get organised!

Submitting stats to the Government

For the past few months our business (Serenity Baby) has been sent questionnaires from the government's Office of National Statistics. According to the letters we are required by law to submit these figures.

So far the questions usually ask for our monthly retail turnover, and how much of that was generated by online sales. They once asked for the number of employees, part and full time as well as the breakdown by gender.

I have found it a bit annoying to have to fill in this data, especially as they want the info really soon after the accounting period (I've just submitted the figures for July), and so this forces me to do our monthly accounts sooner than I would have otherwise. But, now I'm feeling a little bit pleased that our small business is being recognised as a part of the economy, and is providing data which will help the Office of National Statistics to monitor the progress of the retail sector and ultimately could inform policy decisions.

Filing your VAT return

We recently registered for VAT and I had to file my first quarterly return. It was quite a headache and I had an accountant to help me. So how does it all work?

Your business must register for VAT if the goods you are selling pass a threshold set by HMRC. The VAT threshold for 2014 is £81,000. It goes up each year so be sure to look it up on HMRC's website: http://www.hmrc.gov.uk/vat/forms-rates/rates/rates-thresholds.htm#2

Sounds simple enough. But as our business sells online mainly via Ebay and Amazon we came across all kinds of problems. Firstly we were only counting the income which Amazon passes on to us every fortnight. But, the sales income has to be what is being charged to the customer. Therefore our accounts now show what the customer paid (including postage) and then the portion that Amazon takes in seller fees.

The next challenge we had was that from everything we read on HMRC's website we understood that sales outside of the EU are exempt from VAT. Whilst this is true, those sales still count towards the threshold. So, if you sold £81,000 worth of goods, and £10,000 were to the USA you would still need to register for VAT but only pay VAT on the £71,000 sold here in the UK or in the EU.

Just to clarify, you pay VAT on goods sold within the UK and also goods sold within the EU. At the moment the VAT rate is 20%, so you need to factor that into your sales price.

Our final challenge was that some of the items we sell are zero rated for VAT. We sell baby clothes and items on which VAT is not charged. You do not include those sales in your calculation of the VAT threshold. So if our overall sales were £81,000 but £10,000 of those were of baby clothes then we would not need to register for VAT.

As it turned out we were well past the threshold and because of this misunderstanding about including our worldwide sales we registered late for VAT. We had to fill in a form to explain why we were registering late, and we were liable for a penalty or a fine. Thankfully HMRC accepted that this was a genuine mistake and we did not have to pay a penalty.

Remember, when calculating the VAT threshold you need to use a rolling 12 months figure. So whilst your accounts might show what you made during 2013, you need to look at what you made in the previous 12 months from now.

So what has registering for VAT done for our sales? We have had to put the prices up, but not by 20%. On the items for which we charge VAT (usually maternity clothes) we are already paying VAT to our suppliers when we purchase the items. When you do a quarterly VAT return you have to calculate what you have already paid in VAT to any of your suppliers.

Sales have definitely been affected by us registering for VAT but we diversifying in order to compensate. We are increasing our products which are exempt from VAT and also working harder to make sure our prices are as low as possible and that we offer sales all across the world.

Register as self-employed

As soon as you get started it is vital to register as self-employed with HMRC (in the UK). This is a very quick process - either a short phone call or filling an online form is all it takes. Please be aware this is a legal requirement and really cannot be overlooked.

You might be unsure whether you need to register, but if you are trading at all then you should be registered even if you are making a loss or have no income from your self-employment.

There are 3 main types of self-employment:

Sole trader
If you are working alone then this is you. It could apply to a plumber, market stall trader, ebay seller, accountant or consultant. There will be a tax return to fill in at the end of the year in which you report everything you earned and everything you spent. If there is any profit then this is liable for taxation.

Partnership
If you are working with another person, eg your spouse or a friend, then you should register as a partnership. This means you are jointly responsible for the business and can share the profits. You set the percentage that each partner is entitled to. Each partner needs to fill in a personal tax return at the end of the year, and you also need to fill in a partnership tax return.

Limited company
This is a more complex mechanism and involves more paperwork. If you register as a company then you create an entity which is separate from you. You become a 'Director' of the company rather than being a sole trader and this can have some savings when it comes to paying tax.

Find more info at http://www.hmrc.gov.uk/selfemployed/

Don't neglect the paperwork!