Sole Trader Income Tax Return
Sole trader income tax return
It’s that time of year again; time to start planning for your income tax return 2010. In this article we look at the common issues sole traders run in to in preparing their income tax returns.
The first question we often receive is whether or not a sole trader is actually obliged to fill in a tax return. There is a mistaken belief out there that if you made a loss you do not have to file a return, this is not the case. So, remember that all sole traders are required to prepare accounts and submit a tax return regardless of whether they made a profit or a loss.
ALLOWABLE EXPENSES
As sole traders you will come to your profit figure by deducting ‘allowable expenses’ from your sales. So the issue of what is and what is not an allowable expense is crucial. The easiest rule to apply is to ask yourself was the expense incurred ‘wholly and exclusively’ for the purposes of your trade. That is to say the expense must apply only to your business and not to your personal expenses. For example you can claim an allowance for business travel or for using personal computer or office for business purposes.
CAPITAL ALLOWANCES
Capital allowances are another area where sole traders often make mistakes. Capital allowances apply to the tax deduction you can claim when buying larger items such as computers or plant and equipment. The issue here is to a) ensure you claim these allowances and b) you claim them correctly. Some costs should be claimed over 8 years but some energy efficient equipment can be claimed in full in one year.
MISSING TAX CREDITS
It is amazing how often sole traders fail to claim all of the tax credits they are entitled to. Make sure you are claiming all of the tax credits available to you to pay the right amount of tax
Once you have calculated your tax you should consider tax planning strategies such as contributing to pension funds, splitting your income with a spouse or forming a company. To discuss your tax return and tax planning strategies contact us by phone or email today.
