Self employed business in the UK is required to produce a set of financial accounts for a 12 month trading period. The format of the accounts is the personal decision of the proprietor and can be a full set of annual accounts including profit and loss account and balance sheet including using control accounts and cash and bank records and the self assessment tax return.
An appropriate accounting system for many self employed business would not be to prepare a full set of annual accounts but instead to prepare a simple income and expenditure account. Preparing an income and expenditure account allows a much simpler accounting or bookkeeping system where simple accounting software can be used.
The objective of any bookkeeping software being to maintain accurate financial records and produce the accounting records and totals required to complete the inland revenue self assessment tax return each year. Financial control is very important and the bookkeeping software should also produce regular financial statements showing the profit and loss of the business throughout the accounting trading periods.
The financial tax year varies depending upon which country business is conducted. In the US accounts are prepared during an accounting period from 1 January to 31 December each year. In the UK the standard financial year adopted by the inland revenue is from 6 April each year to the 5 April the following year.
In the UK tax rules are set for each financial year and by adopting the standard tax year a small business can benefit by preparing the financial accounts under a single set of tax rules and preparing the self assessment tax return accordingly. Adopting a different financial period involves straddling the official tax year and more than one set of tax rules might be applicable to the tax calculation resulting from the net profit being declared.
After choosing the April to April financial tax year accounts are required to be submitted by the submission deadline of 31 January the following year. Earlier submission is recommended as by submitting the final accounts and tax returns online by 31 October each year the inland revenue will calculate the income tax and national insurance payable.
When a self employed business has been in business for two or three years and has chosen a different 12 month accounting period to the financial tax year the 12 month tax is calculated according to a basis period. Up until that point the accounts may be subject to apportionment to calculate the tax due.
The basis period under which the business tax is calculated is the 12 month accounting period ending in the specific tax year. A business which has a 12 month trading period ending 31 December 2007 would be taxed under the basis period 2007 to 2008 being the basis period 6 April 2007 to 5 April 2008. The same rules apply if the accounting periods are shorter or longer than the standard 12 month period.
If the accounting date is changed by a sole trader the inland revenue are informed of the change on the self assessment tax return and the re3asons for the change. If as a result the self assessment tax return arrives late the tax will be assessed on the previous basis period.
Changing an accounting date that overlaps two basis years results in the business being taxed twice for the same accounting profit as the business would be taxed under both basis years. The extra tax paid can be highly unwelcome but can be reclaimed at a later date through the self assessment tax return.
The penalty for late submission of the self assessment tax return in the UK is 100 pounds and interest is also charged on any outstanding income tax and national insurance from the first day after submission was due.
Related Articles
Accounting Periods and Basis Periods for Self Employed Business
By: Terry Cartwright | 25/03/2008 | Finance
Accounts are required each year for tax and financial control purposes with preset dates by which those accounting records must be submitted and penalties for failure to deliver on time. While in the UK self employed business can use its own accounting period the tax position can become more complex if the accounts use a basis period rather than the standard financial tax year.
Explaining Income And Expenditure Sections Of The Self Assessment Tax Return
By: Terry Cartwright | 26/11/2007 | Taxes
Every self employed businessman in the UK is required to complete a self assessment tax return form and requires accurate accounting records to support the tax return. These notes explain how those accounting records should be entered in the income and expenditure section of the self assessment tax return form.
Registering Self Employment And The Self Assessment Tax Return Form
By: Terry Cartwright | 26/11/2007 | Taxes
If you start a business and become self employed in the UK you are required to register the self employment within three months of starting up the new business. Having registered as self employed you will then be required to complete the inland revenue self assessment tax return form each year.
Self Assessment Tax Return Form and Capital Tax Allowances
By: Terry Cartwright | 02/12/2007 | Business
The capital allowances section of the self assessment tax return form is the most difficult for people who are self employed and not conversant with at least a minimum knowledge of accounting and the tax system. Completing the self assessment tax return requires the self employed businessman to understand the tax system as applied to capital allowances that can be claimed against fixed assets.
Self Employment Registration and the Self Assessment Tax Return Form
By: Terry Cartwright | 04/12/2007 | Finance
Everyone who starts a business in the UK is required to register that business within three months of starting up the new business or receive a penalty fine for non registration. Having registered as self employed the trader will be required to complete the Inland Revenue self assessment tax return form each year.
Filling the Self Assessment Tax Return Detailed Profit and Loss Account
By: Terry Cartwright | 05/12/2007 | Finance
Sole traders and self employed business in the UK are required to complete a self assessment tax return. Accurate accounting records are required to complete the self assessment return with income and expenditure of different types being entered against specific box numbers. These notes explain how those accounting records should be entered in the income and expenditure section of the self assessment tax return form.
Capital Tax Allowances And The Self Assessment Tax Return Form
By: Terry Cartwright | 26/11/2007 | Taxes
To accurately complete the self assessment tax return requires the self employed businessman to understand the tax system as applied to capital allowances that can be claimed against fixed assets. A potential difficult area for the non accountant these notes explain what capital allowances are and briefly how to calculate the capital allowances which reduce the net tax payable.
Company Tax
By: Terry Cartwright | 04/10/2007 | Business
Corporation Tax is a tax on a company
Got a Question? Ask.
Ask the community a question about this article:
Q&A Powered by:
Latest Taxes Articles
10 Best Charity Car Donation Tax Deduction Tips
By: Helen Hecker | 19/08/2008
These are some of the most important and best charity car donation tips you'll need to consider before donating your car, truck, van or other any other vehicle.
Do You Need Information on Tax Auditing?
By: Uchenna Ani-Okoye | 19/08/2008
This is a topic almost everyone you speak those words to, would like to avoid. No one wants to experience an audit first hand; however, tax audits do not have to be the 'monsters' we've made them out to be. There are audits for personal returns, corporate returns, and small business returns.
My Guide to Self-Employment Tax
By: Uchenna Ani-Okoye | 19/08/2008
If you are a self-employed individual, you will have a Schedule C to attach to your Form 1040, and self-employment tax is computed on Form 1040, Schedule SE.
4 Ways To Reduce Your Tax Bill
By: David De Souza | 14/08/2008
Four ways to save on your tax bill.
Capital Gains Tax Loopholes Shrinking
By: Carol Freyer | 14/08/2008
Seems the new 2008 housing bill was not a savior for all of us - like a scorpion there is a little kick in the tail! However, struggling home owners can breathe easy, the kick is not directed at them, in fact, it is aimed at real estate investors.
The Importance Of Your Tax Return
By: Geoff Hibbert | 11/08/2008
An explanation of the consequesnces of not filing HMRC returns on time.
Roni Deutch Discusses the 10 Biggest Tax Evaders in US History
By: Roni Deutch | 11/08/2008
By definition, tax evasion is the conscious effort to avoid paying taxes through illegal means. So when taxpayers knowingly misrepresent or conceal the truth from tax authorities about their financial situation in order to reduce tax liability, they are committing tax evasion. To help put tax evasion into perspective, The Tax Lady Roni Deutch has compiled the following list of the biggest tax evaders of all time.
How High Gas Prices Affect United States Taxpayers
By: Roni Deutch | 11/08/2008
Everyone who has a car is already feeling the effects soaring gas prices are having on the economy. However, in addition to extra out of pocket expenses at the pump, high gasoline prices are having a wide range of affects on the American public.
More from Terry Cartwright
Advertising Home Bookkeeping Services in the UK
By: Terry Cartwright | 18/08/2008 | Finance
Internet and local media advertising are useful sources to start up and promote home bookkeeping services. By setting a financial budget for each sales channel the bookkeeper can manage the results to build the bookkeeping services.
A Bookkeeper Can Boost Bookkeeping Services by Networking
By: Terry Cartwright | 17/08/2008 | Finance
Networking by personal contact with prospective clients is undoubtedly the best way to start up and promote home bookkeeping services. There are a number of ways in which networking can be achieved by bookkeepers. In addition the range of bookkeeping services offered, qualifications and experience have an impact upon the success of each strategy.
Accounting for Dividend Tax Credit and Income Tax on Dividends
By: Terry Cartwright | 11/08/2008 | Finance
Calculating the dividend tax credit and understanding the position with regard to income tax on dividends.
How to Declare a Dividend and Produce the Dividend Voucher
By: Terry Cartwright | 11/08/2008 | Finance
Procedures in declaring dividends are contained within the articles of association the formalities of which need to be observed in recording the transaction and preparing the dividend voucher.
The Revenue Budget Is An Essential Management Information Tool
By: Terry Cartwright | 03/08/2008 | Management
The revenue budget is an essential business management accounting tool monitoring actual financial performance against the approved financial targets. Fixing a budget produces few tangible improvements in financial performance unless it is structured to reflect the financial performance of individual activity areas and management responsibility within the business.
A Revenue Budget is an Essential Management Information Tool
By: Terry Cartwright | 30/07/2008 | Business
The revenue budget is an essential business management accounting tool monitoring actual financial performance against the approved financial targets. Fixing a budget produces few tangible improvements in financial performance unless it is structured to reflect the financial performance of individual activity areas and management responsibility within the business.
A Balance Sheet is a Financial Statement of Assets and Liabilities
By: Terry Cartwright | 28/07/2008 | Finance
The balance sheet is a financial statement of the assets and liabilities of a business or organisation at a specific date. The main balances reported being separated between fixed and current assets, current and long term liabilities to provide a snapshot of the financial standing of the business.
Choosing Outsourcing Payroll Compared With Payroll Software
By: Terry Cartwright | 26/07/2008 | Finance
Every business that employs people is legally bound to run a payroll system. The three alternatives to satisfy the requirements are outsourcing payroll, using a payroll software package or calculating the payroll manually. The choice for business depends upon knowledge of the payroll system and the time and potential costs involved.
Finance 
