Getting Ready For The End Of The Tax Year.

Hints and tips to help you get everything ship shape for the tax man

Are you a UK-based crafter? Have you been dreading the tax season? Fear not; with a little bit of planning and some smart tips, you’ll be able to breeze through the tax season with ease.

First things first, let’s talk about tax obligations. As a crafter operating in the UK, you’re likely classified as self-employed. This means that you must file a self-assessment tax return annually by the 31st of January, covering the previous tax year. The tax year runs from the 6th of April to the 5th of April of the following year. Your tax return should account for all your income sources, including sales, commissions, and other earnings related to your craft business.

Now, let’s talk about the basics of tax preparation. Good record-keeping is key to making the tax season as smooth as possible. You should ensure that you have meticulously recorded all your transactions over the tax year, including income, expenses, and investments. This includes materials purchased, venue hire for markets or fairs, equipment costs, and other business-related expenses.

Digital accounting software can be a game-changer for helping you keep track of your income and expenditure, allowing you to keep track of your finances efficiently. There are lots of different accounting software options available. At the moment, it is still possible for you to keep all of your accounts on something simple, such as an Excel spreadsheet, but at some point in the not-too-distant future, Making Tax Digital will come into force. This will require everyone filing a tax return to use one of the many digital accounting software options that have been approved by HMRC. Remember, well-organised records can simplify filing your tax return and help you identify allowable expenses that reduce your taxable income.

Speaking of expenses, it’s essential to understand what you can claim as allowable expenses. These are costs directly related to running your craft business. Common examples include raw materials, studio rent, utility bills for your workspace, marketing expenses, and costs of attending trade shows. You can also claim for the Crafters’ Insurance that you have in place to protect your business.

Claiming these expenses can significantly lower your taxable profit, reducing your overall tax bill. However, ensure that the costs are justifiable and well-documented to avoid any issues with HM Revenue and Customs (HMRC). It is also possible for you to claim a working-from-home allowance. This can either be a flat rate (which you can find on the HMRC website), or it can be calculated on a per-room usage basis. If you choose the latter, it can be a good idea to speak with an accountant to ensure you are calculating this correctly.

Where possible, you should ensure that you keep all receipts and bills that relate to your business. If you are using accounting software, you can take photographs of your receipts and add them directly to each transaction as proof of your purchase. This gives you a level of protection should you be selected for a tax investigation.

Another way to protect your craft business is to consider Crafters’ Insurance. This can provide a safety net that protects your business from potential risks, such as property damage, theft, or liability claims. While insurance premiums represent an additional cost, they are also deductible as a business expense, potentially lowering your taxable profit. More importantly, comprehensive insurance can prevent unexpected financial setbacks that could affect your business operations and financial stability during the tax year.

One of the most stressful aspects of tax season is ensuring you have the funds available to pay your tax bill. To avoid surprises, it’s wise to set aside a relevant amount of your income throughout the year in preparation for this. Many crafters find that transferring a percentage of their earnings into a separate savings account can help manage this effectively. You can do this on a monthly or quarterly basis depending on how complex your accounting needs are. Consider making Payments on Account if your tax bill is consistently high. This involves making two payments each year towards your next tax bill, helping to spread the cost. These payments are usually taken in January and June.

If you are looking for ways in which you can be as tax-efficient as possible, you may want to speak with an accountant or a financial advisor. They will be able to talk you through how you can be more efficient with your tax payments. This may include making payments into a pension scheme before the end of the final year. Ideally, you would set this up as a regular monthly payment. An accountant will also be able to help you ensure that you are staying compliant within the framework of business tax and self-employed tax requirements.

By understanding your tax obligations, keeping detailed records, maximising your allowable expenses, utilising relevant tax allowances, considering Crafters’ Insurance, planning for your tax bill, and seeking professional advice, you can confidently approach tax season. Not only will this ensure compliance with HMRC, but it can also lead to significant savings, allowing you to reinvest in your passion and grow your craft business. By starting each tax year off in the right way you can help to prevent the last-minute January rush to gather together all of your information and to submit your self-assessment. Once the new tax year starts, you will be able to submit your tax return for the previous year. So why not start the 2024 tax year off by submitting your 2023 return as soon as possible and ensure you are recording all relevant purchases and sales ready for the following year?

If you have all of your accounts and tax records in place, it will free you up to be able to carry on with the vital part of your business, making excellent crafts to sell.