If you're receiving untaxed income, you almost certainly need to declare it in a tax return. So, if you're making money from a startup or side project, be it selling cakes at a market, selling your clothing line from your website, leading walking tours around your city, or running auctions online to make a profit, here's what you need to know to get you ready to do your first tax return.
When do you need to register?
You need to register for self assessment by 5th October in your second financial year of trading. That means, if you start your side project on 1 June 2018, you should have registered by 5 October 2019.
What's a financial year again?
A financial year runs from 6 April to the following 5 April. So the financial year 2018/19 ran from 06/04/18 - 05/04/19.
How do you register?
You need to register online through HMRC's website. You'll be asked for some details and then you'll receive an activation code in the post which you can use to access online services.
Do I need fancy software?
No. You can file your tax return online using HMRC's website. Some software does integrate with HMRC's online filing service and will pre-populate some of the tax return fields for you. If you're using an accounting system which does this, you might prefer to use it rather than type numbers in to HMRC's site, but there's no need to buy software to complete your tax return.
Can I do my tax return on paper?
Yes, if you really want to. But, this method is prone to errors, and you won't know your tax bill until HMRC confirm it. It might also be phased out under Making Tax Digital (MTD) in a few years time. At But the Books, we generally think it's much more straightforward to submit your tax return online, you can see your tax bill immediately and easily go back and make changes if you get something wrong.
What will I need?
You'll need the accounting records for your business which show your income and expenditure. You'll also need documents which back up income you've received from any other sources. Some of the more common ones are your P60 if you're employed, bank statements which show interest received, if you've given to charity in the year you'll need to know how much and whether you ticked the gift aid box, dividend certificates if you received dividend income, and records of rental income and property expenses if you rented out a property or room.
Are there any times I don't need to do one?
If you earn up to £1,000 in trading income from self employment or casual services (like babysitting or gardening), you might not need to complete a tax return, but we would advise that if you're unsure, you should check with HMRC.
When should I ask for help?
Some people are happy to do their own tax returns, others don't know where to start, and others decide that it's something they don't want to have to think about. You might be interested in reading other posts on this blog.
There are a lot of free resources on HMRC's website to help you through the process, and HMRC are always really helpful on the phone, but if you find you're unsure about what a particular question on the tax return means, whether you're entering the correct information, or if you're just feeling completely overwhelmed by the whole process, reach out to a qualified bookkeeper who will be glad to help.
My top tip is to reach out soon... there's nothing like trying to do your tax return on 31st January and getting stuck when it's too late.