Registering with HM Revenue & Customs
Selecting the right form
If you believe you need to complete a tax return, you must inform HM Revenue & Customs (HMRC). There are mainly two forms to use; selecting the right one will depend on your reasons for needing a return:
If you’re newly self-employed, use form CWF1
For any other reason, such as you have become a Buy to Let Landlord, you’re likely to need form SA1
Most HMRC registrations can now be done online on their website https://www.gov.uk/register-for-self-assessment.
The information required in these forms is fairly straightforward, such as full name, date of birth and address. You will also need your National Insurance number. If you’re registering as self-employed, you will also need to provide details about your self- employment, such as when you started, your address, the nature of your work, etc.
If you’re completing the registration process using paper forms, the address that you need to send them to once complete can be found on the form. You should always keep a copy of the form and note the date that you sent it.
What next
HMRC will send you a confirmation of registration and provide you with your unique taxpayer’s reference, or UTR. This is a unique reference for your tax affairs. You should quote this on any payments you make or any correspondence to HMRC. They will also ask you for this or your National Insurance number if you ever phone them with a query.
The basics of the tax return
A tax return should disclose your taxable income and gains for the relevant tax year. A tax year starts on 6 April and ends on the following 5 April. Also note that all of your taxable income and gains must be declared on a tax return – even if they have been taxed before you received them ( or ‘taxed at source’), such as employment income or bank interest.
Submitting the tax return
Following the end of the tax year, tax returns must be submitted to HMRC. You can submit your return on paper; this must be done by 31 October following the end of the tax year. Alternatively, you may chose to file your return online, in which case the deadline is extended to the 31 January, following the end of the tax year.
Failing to file your return on time will result in an automatic £100 fine, with further penalties depending on the length of delay. Last year, the penalty rules changed. Previously, if the tax you had to pay on 31 January was less than £100, then your penalty would be reduced to whatever was owed. But this has been scrapped and the £100 penalty is now fixed and automatic.
Record-keeping
Hairdressers should keep their records and documents for six years in case HMRC want to examine them in the future.
HMRC is not very precise about the format of records a business should keep. They are indifferent as to whether you should use a manual cashbook or sophisticated bookkeeping programme. Many of our clients simply add up their receipts and enter their transactions directly on to our online forms which are used by us to complete their tax returns, some upload their spreadsheets to their own client login on our website.
When starting out, you may want to begin with simple spreadsheets, a basic book to record your income and expenses or a cashbook and very quickly you should be able to identify what format your business needs its records in.
Other sources of income
If you have other sources of income, these are the sort of items you need to keep:
Bank interest certificates • Dividend vouchers • Portfolio statements • P45s/ P60s from pension providers or employers • P9Ds/ P11Ds from employers • Notifications regarding any state aid such as the State Pension or Job Seeker’s Allowance • Paperwork regarding pension schemes being paid into • Receipts for donations made under the Gift Aid scheme • Paperwork for any assets you have sold, such as shares, land etc. • Income and expense receipts for any land or property you received income from- in the UK or overseas
Again, this list is not exhaustive, but hopefully it gives you a good idea of the type of paperwork it is necessary for you to keep and which will be required for the completion of your tax return.
Claiming business expenses
Below is a comprehensive list of the most common expenses you can claim.
Beauty & Hair products
Consumable equipment
Insurance
Protective clothing & Uniforms
Courses attended
Computer for work
Laundry & Cleaning
Telephone Landline – Business use
Mobile Phone – Business Use
Internet
Advertising
Postage & stationery
Use of home as office (See notes below)
Chair Rent in Salon (If applicable)
Computer consumables
Bank charges on business account
Accountancy fees
Wages (See notes below)
Fares & Travelling expenses
Other sundry items
Vehicle running costs (read notes below)
Fuel
Repairs & Maintenance
Road tax, insurance & MOT
Cleaning
Parking & Tolls
Please note : If you use your vehicle for your own personal use then you need to factor this in when any expenses are claimed. For example if you calculate that you use your vehicle 20% of the time for personal or family use, then you would need to reduce any relevant vehicle running expenses by 20%.
An alternative to claiming the vehicle running costs is the HMRC’s Fixed Scale Mileage Rate which is currently 45p per mile for the first 10,000 and 25p thereafter. This includes a depreciation allowance (capital allowance) for the vehicle but does not include interest on any loan to purchases the vehicle. This can be claimed in addition to the mileage allowance
CAPITAL ALLOWANCES
Capital Allowances can be claimed for vehicles used for work which can be up to 100% of the cost (normally 18% per annum for cars) and any other assets used for the your business. Any assets you owned before you started the business may also be claimed if you use them for your business.
NOTES ON EXPENSES
Use of home
If you work from home, you will be able to put through a portion of the running costs of your home. It could include household bills such as gas, electricity, telephone, broadband, rent, council tax, mortgage interest, insurance, etc.
Training
There are harsh rules about what training costs can be offset for tax purposes if they are for the proprietor.