You are liable for tax from the day you start trading however the way the self-assessment system works means you do not file and pay your tax until October of the year after you start trading. It is your obligation to notify Revenue and to file a tax return for any year in which you are a sole trader.
You will need to keep records of all transactions in and out of the business since you started trading. It may seem like a big job to get all this information together but as a starting point you will need the following:
- All sales invoices for the period
- All purchases invoices for the period
- Business bank statements and business credit card statements
You can claim relief for certain expenses but make sure you are not claiming incorrectly. You can claim some relief for working at home but only expenses related to the business, and the same for work travel expenses – but only travel related to the business, not for example your journey from home to your normal place of work.
It is important to file your tax return on time as if you miss the deadline you may be subject to a surcharge. A surcharge of 5% of the tax applies where the return is late but filed within two months of the deadline. This increases to 10% where the return is filed more than two months late. The surcharge is calculated on the tax charge before taking account of any payments on account.
There is a relief for your first years tax return where no surcharge will apply provided it is filed within twelve months of the filing deadline. So if you started business in 2011 you will avoid the surcharge if you file your income tax return by the 31st October 2013. If you do not file a tax return you may also be prosecuted by Revenue's enforcement section.
Completing your first tax return can be daunting, if this is your first time to file a tax return or if you would like some help in filling your return contact TaxAssist Accountants.
Disclaimer: Advice shared in this blog is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this forum, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.