How do I keep my tax affairs in order?
As a contractor or self-employed independent, you will be responsible for reporting your income and expenses and declaring these on your Self Assessment tax returns.
Whether or not you use an accountant or bookkeeper to help you with your accounts and tax, you must keep all your business records in apple-pie order. I would advise all self-employed people to do two things: firstly remember that you – and only you – are responsible for keeping your records and reporting your accounts on your tax returns. It is not the responsibility of your accountant, bookkeeper or anyone else. If anything goes wrong with your paperwork or accounting calculations, it is down to you. Secondly, always assume that one day soon you will get an Inland Revenue enquiry. Sooner or later (and the law of sod says it will be sooner) the Taxman will want to examine your tax returns and accounts to see if you are declaring the right amount of profit and paying the right amount of tax. If all your invoices and receipts are stored neatly and in an orderly fashion, you should sail through an enquiry. If your records are in a mess and do not easily correspond with the figures reported on your tax return you will have a serious problem.
If you are just starting out as an independent, contractor or self-employed professional, invest some quality time at the beginning so that you ensure you are well organized right from the start. It is worth having a good look at the Inland Revenue's website to see which bits of tax law apply to you and your particular situation; talk to a couple of accountants and bookkeepers to see what free advice they can provide and consider which – if any – of them you want to help you keep your accounts and tax affairs in order; read as many publications as you can about tax for self-employed people (many good firms of accountants publish excellent guides). It is much better to be on top of the situation at the beginning rather than trying to unscramble a year's worth of data and paperwork at the last minute just as the Self Assessment deadline is looming.
Have a look at a copy of a Self Assessment tax return form and examine the format in which the Inland Revenue require your accounting information in. It is much easier, and less time-consuming, to keep your records in a corresponding format. Remember, every hour or day you spend on your tax return or sorting out a mess if your records are not fastidiously tidy and in order, is time away from the work you do for which you get paid. Without holidays and sick pay (as enjoyed by the employed) your "down" time is precious and must be used wisely and efficiently.
Article by Angela Brooks Wong