How to prepare for tax season in the UK

It’s that time again where we have to remind ourselves how to prepare for tax season in the UK. Ever since I started earning money from this blog, I have had to register with HMRC and completed my self assessment every January after the tax year ends but no more. I intend to complete and submit my self assessment as soon as this tax year ends and I am current preparing my business expenses tracker.

Speaking of business expenses, did you know that you can claim part of your utilities bill as a business expense? After all, your business is conducted in your home where you utilise the internet to carry out your business. You also use the facilities on the premises, water, electricity and gas. I did not know all this until this January I started reading about what is considered a business expense and what isn’t.

Disclaimer: I am not a financial advisor, all opinions shared are my own.

How to Prepare for Tax Season in the UK

One of my favourite quotes reads, “there are only two certainties in life, death and taxes – Benjamin Franklin”. Paying taxes may not be the most fun thing to do but I think of it as a privilege because I am able to support my community with those taxes and give back in a way. I know that most countries are not able to enjoy the kind of healthcare system we enjoy in the UK, sure it has its faults but it’s better than most where you need to pay before treatment or have insurance already. But this isn’t about the NHS but rather how to prepare for tax season in the UK and how you can get your ducks in a roll.

Speaking of keeping one’s ducks in a roll, we are only a few weeks away from the 2020-2021 tax year from ending and its time to make sure you are on top of your bookkeeping as well as keep a percentage of your earnings for the tax man. Back in January I shared tips on how influencers/small business owners can file their taxes geared towards those who had just recently started their businesses. Whilst I am not an expert at that and my dad still files my taxes, I thought I share with you how to prepare for tax season in the UK and in fact anywhere in the world using a few tips that I follow.

Start early and Track everything

I have been blogging for over 7 years and been filing taxes for the last 5 years and one thing I learned is that preparation is keep. Back when I started, I did not know what I was doing, I didn’t know what expenses I need to claim or submit as business expenses and what not to. There is so much I have had to learn along the way but I am thankful that my dad does the taxes for me. One thing he always says is keep all your receipts and track all your business expenditures. I didn’t use to have a tracker but now I do, I have tracker where I listed all expenses outside of the invoices for my business.

For example, when I bought my MacBook Pro last year to replace my old MacBook I kept that receipt and entered this purchase in my business tracker. For all my business invoices I use PayPal and Xero to track my accounting and every single invoice I make I remove 20-30% in tax and keep it separate. I also keep another list of expenditures but these are for my home expenses like the internet, electricity and the like and a percentage of that is deducted as business expense but only a perfect not all of it.

Open a Business Account or Keep Business Money Separate

When I started making money from the blog, I must admit I spent all of it the minute I made it and when it came to tax season I withdrew from my main income to pay for it. I did not learn this lesson for a number of years, I always considered money I made from the blog as my ‘travel money’ and this funded my many escapades around the globe. Over the last few years however, I saw the smartness in keeping my business money separate from my personal money and the only way for me to do that was to open a business account for my business.

The system I currently have in place now works for me, it might work for you too or it might not. My business account is used purely for business reasons and every statement from my business helps me track all my business expenses. I am slowly but surely transitioning from using my personal account to pay for various subscriptions I have for my business to my business account. It helps to have the majority of your expenses tracked in one place and this is why I love Xero and PayPal because they keep it in one place for me and I am able to download a statement for a specified period and able to know how much I made, what I spent the money on and makes it readily available for tax purposes.

Keep the cash receipts

Although I had not done this for a number of years, I recommend keeping the receipts you get from purchasing business related items with cash. These days it’s rare for my to purchase something with cash instead of just swiping the card. But I know there are still businesses that operate fully using cash and it makes sense that some business expenditures will be purchased with cash so, its important to track those as well, note them down on your spreadsheet, write business expense on it or snap it up and upload to an accounting software of your choice.

Complete your self-assessment and file your taxes

Although I have only ever completed that self-assessment form once, I remember almost pulling my eyes out. There is so much to complete but once you get a hang of it its actually quite easy although I still prefer my dad completing it for me incase I made a mistake. I recommend completing your self-assessment as soon as your tax year ends, I learn a big lesson for the previous tax year. I submitted my taxes 2-weeks before the deadline, found I owed £5,000 and had only those 2 weeks to pay it off. If I did not have savings I would have been owing the tax man which is not a possible I ever want to find myself it. This year we are going to attempt to complete my business taxes as soon as the tax year ends.

I am excited to have gather all the information I need in one place and can not wait to submit my taxes for the ending tax period. How do you prepare for tax season?