Can you balance the books?

Gas engineers don’t just have to be experts on gas appliances: if you’re self-employed, you also need to navigate the tax rules to make all your hard work worthwhile. Here’s what you need to know.

Limited companies and selfemployed traders must submit accounting records of sales, profits and expenses to HMRC every year. Many choose to work with an accountant to do this, but even if you’re not dealing with HMRC yourself, you should still understand when you need to pay and what’s involved so that you make sure you’re paying the right amount of tax.

Sole traders

If you earn more than £1,000 from self-employment in any single tax year, you’re considered to be self-employed and must register as a sole trader. Then you’ll need to file a tax return every year.

The current tax year, for example, runs from 6 April 2022 to 5 April 2023. Once registered for self-assessment, you must submit a paper tax return by 31 October 2023 or, if you’re submitting online, by midnight on 31 January 2024.

Any tax owed must then be paid by 31 January 2024. There’s usually a second payment deadline of 31 July to make advance payments towards your next tax payment – equivalent to half your previous year’s tax bill – known as making ‘payments on account’.

You can find out more at www.gov.uk/income-tax

Making Tax Digital

The biggest change to the way sole traders and limited companies pay tax in recent years is Making Tax Digital (MTD), an initiative to move to purely digital records instead of notebooks or spreadsheets. The government says this will help minimise errors and ensure everyone pays the right tax.

MTD has been introduced gradually since April 2019, and currently applies to all VATregistered businesses in the UK – those with a taxable turnover above £85,000. From 6 April 2024, MTD will apply to incometax returns as well, and all self-employed businesses and landlords with an annual business or property income above £10,000 will have to follow MTD rules.

MTD requires that you must keep your VAT records digitally, using MTD-compatible software to submit VAT returns to HMRC. Submissions must be made to HMRC every three months, but any taxes due will be paid annually. Invoices and any expense receipts must be kept for six years but these can be kept as paper copies.

VAT information that must be kept digitally includes, for each supply of goods or services, the time of supply (tax point), the value (net, excluding VAT), and the rate of VAT charged. It should also include information about your business, including the business name and principal business address, your VAT registration number and details of any VAT accounting schemes you use.

MTD-compatible software

HMRC considers that MTDcompatible software must be able to: • Record and preserve digital records • Provide to HMRC information and returns from securely via an

API (application programming interface) • Receive information from HMRC via the API.

Some compatible software may be able to carry out all these functions, while others may need to be used alongside other programs. If you use spreadsheets to keep business records, you’ll also need MTD-compatible software so that you can send your VAT returns to HMRC and receive information back from HMRC. Bridging software may be required to make spreadsheets MTD-compatible.

A key aspect of MTD is to ensure that, once a digital record is created, any further transfer of that data must be done digitally, via linked software. Transferring data manually (ie, re-typing, or copy and pasting information from one place to another) will not be allowed.

You can find a full list of MTD-compatible software, many of which are paid for, at: www.gov.uk/guidance/softwarefor-sending-income-taxupdates#VAT

Learn more at www.gov.uk/government/ publications/making-tax-digital

Claim back your expenses

There are always costs involved in running your business, from parts and materials to additional costs such as work clothes, accountancy fees and vehicle costs.

Some of these are allowable expenses that can be offset against your profits to reduce the amount of tax you pay, but what you can claim depends on whether you’re self-employed or operating as a limited company – and some expenses can’t be claimed.

Office costs: You can claim for stationery, phone, mobile or internet bills, postage, printing, printer ink and cartridges, and computer software or licences. You can also claim for property insurance, utility bills, security and rent for business premises, or for using part of your home as an office. Travel costs: Claim for vehicle insurance, repairs and servicing, fuel, parking, hire charges, licence fees, breakdown cover, hotel rooms, or train, bus, air and taxi fares, as well as meals on overnight business trips. You cannot claim for non-business travel costs, fines or commuting. Clothing: Claim for uniforms or protective clothing needed for your work, but you cannot claim for everyday clothing, even if you wear it for work. Staff costs: Claim employee and staff salaries, bonuses, pensions, benefits, sub-contractor fees and employer’s National Insurance. Things you buy to sell on: You can claim allowable business expenses for goods you buy for resale, raw materials, or any direct costs incurred from producing goods. You cannot claim for depreciation of any equipment. Financial costs: Claim for any accountancy, solicitors, surveyors or architects’ costs. You can also claim professional indemnity or any business insurance premiums. You cannot claim for the legal costs or buying property or machinery (instead claim these as capital allowances). Also claim for bank, overdraft or credit card charges, or for interest on bank and business loans.

Advertising or marketing:

Claim for any advertising costs such as in newspapers or directories, direct mail, or any website or social media costs. You cannot claim for entertaining clients, suppliers or customers. Training: Claim for any training course that is related to your business and helps you improve your skills and knowledge. You cannot claim for training courses that help you start a new business

Limited companies

If you’re the director of a limited company, you must pay corporation tax on the company’s profits, as well as paying any income tax you owe separately if you are taking a monthly salary as an ‘employee’ of the company. You need to register for PAYE to do this. You can then extract any additional profits from the company as dividends every year – although these will be subject to a separate dividend tax.

At the end of the financial year, you must prepare full annual accounts and a company tax return, which must be filed with both HMRC and Companies House.

Your accounting period for corporation tax is the time covered by your company tax return – normally the same 12 months as the company financial year covered by your annual accounts. Find out more at:

www.gov.uk/browse/business/business-tax

or expand into new areas. Capital allowances: If you use traditional accounting, you can claim capital allowances when you buy equipment, machinery, or business vehicles such as cars or vans.

Find out more at: www.gov.uk/expenses-if-youreself-employed

If you’re operating as a limited company different expense rules apply. You can find out more at: www.gov.uk/running-a-limitedcompany ■

* The information in this article is intended only as a guide. Always check with an accountant or at www.gov.uk for advice that is specific to your business.

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