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Work From Home? Run a Small Business? Welcome to the Tax Nightmare

by Dan on November 16, 2011

Here’s one of the more practical posts that I’ve decided to do, but it’s about important as it can get. This is because if you get your tax returns wrong, then you can be in serious trouble and  facing either fines or imprisonment – sometimes even both.

And it gets worse, the HMRC have recently announced a tax avoidance clampdown, focussing particularly on small businesses and the self-employed. This means that the tax return forms you supply as a work-from-homer will be scrutinised even more, which makes it even more important for you to keep accurate records of what you buy and sell.This, however, will not only help you assess your tax liabilities, it will also help you see what makes a profit and what makes a loss.

So, here are some handy tips to help you avoid a telling off from the tax man:

  • Make a profit-loss spreadsheet. Record how much you put into the business and how much you get back. Make sure that you break it down into individual revenue streams so that it makes it easier for you to see what makes the profit and what makes the loss. Save the spreadsheet monthly or weekly and then start a fresh one. This helps you to compare spend/revenue over a set period of time and can help you to make even more money!

E.g. of profit/loss sheet:

Money Spent:      Sales:        Revenue:            Profit:

Campaign 1               £25                      8                    £50                     £25

There are ways to make a more complex spread sheet, so check out some useful guides on Microsoft Excel or Apple Numbers to see how to input sums, etc. so you can make it easier to take statistics.

  • Keep your receipts and print off receipts! Sounds simple, but everything spent on the business MUST have a receipt and it must be filed, otherwise you won’t be able to claim it as a tax-free business expense. Whenever you pay for an advertising campaign or buy a product to sell, print off the invoice and file it, otherwise all the revenue generated from that sale will be treated as profit by the taxman! You only pay tax on profits, so this is so important to do. Just to illustrate the difference this can make: if you spend £1,000 on a campaign/product and then make £2000 from the sale of that product or that campaign and you haven’t kept the receipt or invoice, then you’ll pay tax on the £2,000. If you have filed the receipt, then you should only pay tax on £1,000 of that revenue.
  • Another simple one: fill out your tax returns on time! Not filling in your tax returns on time can incur needless penalties and fines. If you’re uncomfortable with filling in your own returns, then it’s worth seeing about hiring an accountant. Providing you keep accurate records an accountant shouldn’t be too expensive.

Hopefully that helps!


Dan Little

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