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Completing your self assessment tax return is no easy feat, especially if it’s your first time. The difficulty faced by sole traders and contractors affected is made no less challenging by the confusing jargon and technical terms.
Anyone unsure about whether to register for Self Assessment, you can find a multiple-choice questionnaire on the .gov website.
Accounting year –The accounting year refers to the year that is covered by your business’s accounts. It should be noted that the accounting year differs between sole traders and limited companies.
Allowable expenses – HMRC allow the deduction of certain expenses from your overall profit. This reduces your resulting income tax bill. These expenses are only those essential to the running of the business. For further details on expenses, see the ‘Basic guide to expenses for the self-employed’.
Balance sheet – A financial statement, in other words a report made of a business’s assets and liabilities at a given time. This tends to be produced by an accounting software and sometimes is done at the end of the trading or tax year.
Capital allowances – When buying capital assets that you keep for use in your business (for example, machinery or vehicles), you can claim capital allowances in order to reduce your profits and income tax bill.
Capital Gains Tax – If you sell an asset and make a profit on what you bought it for, details of this should be provided via your Self Assessment tax return to ensure tax is paid dependent on the amount gained.
Gross profit – Your turnover minus the day-to-day cost of running your business and those costs linked directly to the production/supply of specific goods or services.
Income – The money received by your business for the services sold to customers. The money you receive from that is your personal income.
Late-filing – Those who fail to submit their Self Assessment tax return before the deadline pay a late-filing penalty of £100 if their tax return is up to three months late, this increases the longer it is left.
Marriage Allowance – Enables a married person to transfer £1,260 of their personal allowance to their partner. This would in effect, reduce their tax by up to £252 per tax year.
Net profit – Total profit, otherwise known as gross profit, minus indirect costs and expenses.
NINO – Stands for National Insurance number, this makes sure that any National Insurance Contributions are recorded against your name.
Ordinary partnership – Two or more self-employed people forming a business, there is no legal separation between the business and the individuals so the partners are both liable for the debts of the partnership.
Personal Allowance – The amount of income that can be earned before tax is paid. A standard personal allowance is £12,570 (per the 2022/23 tax year).
SA100 – The name of the main Self Assessment tax return that individuals need to fill out and file. Many sole traders have to file supplementary pages in order to provide further details about income or expenses.
Simplified expenses – Certain business expenses can be calculated quicker with the use of simplified expenses. By using a flat rate rather than calculating the actual cost.
Tax relief – Essentially, reduces the amount of tax you pay to the Government. You get some types of tax relief automatically, but must apply for others. It enables the deduction of certain payments made during the tax year from gross income to cover money you’ve spent on business expenses or costs, or to get back tax or have it repaid in another way (e.g., into a personal pension).
Tax year – Refers to the 12-month period covered by your Self Assessment tax return. It spans from April 6th until April 5th the following year.
Trading allowance – The first £1,000 of income earned through self-employment isn’t subject to tax, it is referred to as your trading allowance.
UTR – Stands for Unique Taxpayer Reference – HMRC uses this 10-digit code in order to identify self-employed businesses for tax purposes. This number will be used in your Self Assessment tax return.
Self Assessment tax returns don’t have to be so stressful. Services like those offered by GoSimpleTax make it simple to keep up to date with deadlines by doing the legwork for you.
Complete Self Assessment on the go with automated tax calculations and the option to submit directly to HMRC.
Find out more about Qdos’ partnership with GoSimpleTax and what the service includes here.
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