With a damp squib of a summer drawing to a close, now is the perfect time to start preparing your 2020/21 tax return (if you haven’t already).
Self-assessment season gets under way this September, with around five months left to file a tax return on or before midnight on 31 January 2022.
This year, it’s more important than ever before to get on top of your tax returns early as 2020/21 was the tax year of the pandemic and unprecendented levels of Government support.
The National Audit Office said £372 billion has been spent on Government support schemes since last February, including for the self-employed.
As such, any income you received via the self-employed income support scheme (SEISS) will be taxable for the 2020/21 tax year. More on this later.
Despite the challenges introduced by the pandemic, 407,510 startups were formed in 2020 – a record number of new businesses in a calendar year.
Depending on the business structures of those new firms, 2020/21 will mean many of those will be going through self-assessment for the first time.
If you launched a startup between 6 April 2020 and 5 April 2021, and operate as a sole trader or in a business partnership, your obligations begin now.
You have until 5 October 2021 to register for self-assessment. This involves signing into your business tax account and adding self-assessment.
You run the risk of a fine should you miss this deadline to register for self-assessment.
Paper, online & MTD for ITSA
Only a handful of self-employed taxpayers continue to file paper tax returns via self-assessment on or before midnight on 31 October.
Paper tax returns are living on borrowed time, with Making Tax Digital for income tax self-assessment (MTD for ITSA) due to start from 6 April 2023.
Self-employed businesses with accounting period end dates between 31 March and 5 April 2023 are set to be the first to go through MTD for ITSA.
This should not affect most of these sole traders and business partnerships as the majority submit their returns online and work to these tax year-ends.
The current timeline suggests all self-employed businesses will be keeping digital records and filing digital tax returns from 6 April 2024 at the latest.
Self-employed income support
The elephant in the room as far as 2020/21 tax returns are concerned is the SEISS.
You will need the claim reference number and records of the amounts you claimed via taxable grants that were available in the 2020/21 tax year, ready to include in your tax return.
For the first two grants, you will need to show evidence of how your profits were adversely affected by the pandemic. This could be a drop in turnover, dates you had to close, or details of any COVID-19 business loans.
For grants three, four and five, you also need to report how you were affected by reduced activity, capacity or demand as a result of the coronavirus pandemic.
HMRC’s guidance indicates this could be anything from fewer invoices or records of cancelled appointments, to test-and-trace results or letters from your child’s school.
Our personal tax planning service can handle all of this on your behalf. However, we are encouraging all of our self-employed clients to file their 2020/21 tax returns as early as possible. Not just to make our lives easier, but to reduce the burden on HMRC near the 31 January deadline.
Contact us on firstname.lastname@example.org or call 01363 773191 for expert help.