Summary

In this episode we will discuss your impending self-assessment tax return. Christmas is over, you are back at work and to top it off, if you are eligible, you have to submit your tax return (and pay any liability) to HMRC by 31 January. We will look at your tax return in more detail and consider the implications of the Self-Employment Income Support Scheme (SEISS), Cryptocurrencies and NFTs. Enjoy.

 

Natasha 00:37

Happy New Year, everyone. I hope you had a wonderful Christmas break and have fully recovered from New Year’s Eve. If you haven’t already, please make sure you click subscribe to listen to the latest episodes as they’re released.

 

Natasha 0:50

So today’s episode is called January Blues and we’re going to be looking at what items usually make up your self-assessment tax return. But what is a self-assessment return? Well, it’s an annual form submitted to HMRC in order for you to declare your taxable activities in a tax year. A tax year runs from the 6 April to the 5 April the year we’ll be looking at as 6 April 2020 to 5 April 2021. The deadline to submit the return and pay any liability is the 31st January 2022. So if you have put this task off until the New year, pop it to the top of your priority list as time is starting to run out.

 

Natasha 01:26

But who does it apply to? Well, if you’re self employed partner in a partnership or member of a limited liability partnership, it’s more than likely you’re going to need to submit a return. If you’re a shareholder in a company, you may also need to submit a return, but it depends on your circumstances.

 

Natasha 01:43

So how do you submit a return? You can do it yourself through an online portal or youcan use an agent and an  agent means a tax advisor. If you do not have an advisor and you would like one, please email me at help@taxable.uk and I’ll try to assist to submit the return. You’ll need something called a unique taxpayer reference number or a UTRN. This number is unique to you and it’s an internal number issued by HMRC. If you do not have one of these and you need to submit a return, then please make sure you submit  to HMRC before the end of the month.

 

Natasha 02:20

So what’s usually included in your return? Well, first of all, you have your employment income and this means your salary. And if you only paid a salary and you do not have any other forms of income, it’s more than likely you do not need to submit a return, and that’s because your employer has already paid the tax to HMRC on your behalf.

 

Natasha 02:39

Next you have rental income and this can be from either investment properties or if you rent a room out in your own home. Interest from savings and dividends and dividends can be received on investments or by distributions from your own company. If you do not know what I mean by that, please refer to an earlier episode called “It’s My Money, I’ll Spend if I Want to”.

 

Natasha 03:00

Next you have to report any sales of assets and assets include properties, shares or physical arts. Then you’ve got sale of NFTs and gains and losses on cryptocurrencies or shares. There are other items that are included, but those are the main ones. Now each of the items we just discussed are taxed in different ways and they’ll be subject to either income tax, national insurance or capital gains tax. If you do not know what I mean by these terms, please refer to either my Instagram or the Gov.uk website.

 

Natasha 03:33

There are three items we’re going to discuss in detail today and the first one is cryptocurrencies. Now this is the new big thing and people are starting to make a lot of money or if you’re unlucky significant losses. If you are resident in the UK, you may need to report your gains and losses to HMRC. Now, any gains are subject to capital gains tax and you have an annual allowance of £12,300 and this means you do not pay tax on that initial amount.

 

Natasha 04:02

There is a big misunderstanding of how cryptocurrency gains are reported and when they’re triggered. Most people think they’re triggered when you convert to Fiat currency, but they’re actually triggered a lot earlier when you sell a cryptocurrency and that’s because each currency is assessed separately. So you need to keep detailed records.

 

Natasha 04:23

So let’s put this into practice. Let’s say you invest £10,000 in Bitcoin and sell it for 100k. So you’ve made a £90k  Bitcoin gain. You then invest that £100k into Ethereum, but you’re rather unlucky and you sell that for £50k. So you make a £50k Ethereum loss. You then convert this to Fiat currency. So let’s have a look at what we have. We have a £90k Bitcoin gain and a £50k Ethereum loss.

 

Natasha 04:54

Now, if these occur in the same tax year, then the net gain is taxed. What I mean by net gain is you take the £90k Bitcoin gain and you minus the 50k Ethereum loss, so you’ll be subject to tax on £40k (90k-£50k).

 

Natasha 05:08

But what if these transactions occur in different tax years? This is quite likely considering the tax year runs from the 6 April to the 5 April.And let’s use our example from earlier. You have your £90k Bitcoin gain and let’s say this took place in May 2020. That will go on your 20/21 tax return due at the end of this month. You’ll then pay tax on the £90k gain minus your annual allowance (£12,300). If you’ve not already used it up and then you’ve got your 50,000 pound Ethereum loss. But this takes place in May 2021. So that goes on next year’s tax return. The key thing is here is that you cannot offset the Bitcoin gain with the Ethereum loss. The Ethereum loss will be offset against gains in its own years, or it’s carried forward against future gains.

Essentially, you’re going to front load the tax on the Bitcoin gain and you’re going to have to wait to offset the Ethereum loss. This is why you have to keep a detailed record of every transaction you do. A timing will be key.

 

Natasha 06:08

Next, we’re going to be looking at NFTs and NFT stands for nonfungible token. These are completely unique, and they are items such as photos, videos and audio and other types of digital files. These have become increasingly popular this year, but if you were an early adopter, you may need to report a gain or loss in this tax return. To report a gain, you look at the sales price minus any costs, but you only get one annual allowance per tax year.  So if you already used it up on, say, gains in cryptocurrencies, then you cannot then offset it against your NFTs in the same tax year.

 

Natasha 06:44

Now let’s look at those conditions in more detail. First of all, if the asset you sold was more than four times the annual allowance, then you need to declare it. And remember, the annual allowance at the moment is £12,300 and you have to report it even if you’ve not made a gain or loss. But what if you’re thinking I’ve only made a small amount on crypto or NFTs. So surely I do not need to report those.

Well, you may be right, but it depends on your own circumstances. The main rule to remember is if the asset you sold was more than four times the annual allowance, then you need to sign up and declare it. And this is the case. Even if you’ve not made a gain or loss on that sale.

 

Natasha 07:24

Now remember, the annual allowance is £12,300. So what we’re looking at is four times £12,300. But let’s put this into practice. Let’s say you invest £40k into Bitcoin and sell it for £50k, so you have a £10k gain, but the proceeds remember were £50,000. This is more than four times the annual exemption. So you have to report this sale in your self- assessment tax return, even though you’ve only made a £10k gain and that is under the £12,300 annual allowance.

 

Natasha 08:00

But this is why you need a tax adviser as we do the heavy lifting for you. So it’s best if you tell us everything you’ve done in the tax year and we’ll tell you what’s reportable and what’s not.

 

Natasha 08:11

The last item we’re going to look at is the Self Employed Income Support Scheme or SEISS. Now the government introduced this scheme to support self-employed businesses during the pandemic. You had to submit an application and there was a certain criteria you needed to meet. For the first and second grant, you had to show that your business was adversely affected by COVID. That was nice and easy, considering we were in a national lockdown. Next, you have the third, fourth, and fifth grant but the criteria for these grants changed as you had to show there’d be a significant reduction in your trading profits as a direct result of COVID-19.

 

Natasha 08:48

The grants are taxed on the date of receipts. There will be at least three that form part of this year’s tax return. Now, we are not overly worried about the first and second grant, but the third grant you have to make sure that you can show you meet the criteria. Each of the grants will be subject to income tax and they’re included in a separate section of the tax return. Do not include it in your trading income.

 

Natasha 09:13

What we’re finding is HMRC are starting to challenge as to whether the third, fourth, and fifth grant payments were validly made as they did find that a few people abuse the system. What they’ll do is they’ll review your last year’s trading profit and compare it to your current year’s trading profit. If you cannot show that you are adversely affected, they will seek to reclaim part or all of the payments they have made to you.

 

Natasha 09:37

So what can you do to safeguard this? Well, you need to keep evidence on file to show that you’ve been adversely affected, and this can include correspondence from cancelled contracts, detailed analysis of your income, and any evidence to show the hardship you have been caused. If you did get an alternative job in order to supplement your income, HMRC may not accept that the payments they have made to you were valid. This is because they are only looking at your overall trading income and they do not look at this on a job-by-job basis.

 

Natasha 10:11

So what should you do if you’re preparing your return and you realize your income has not been adversely affected by the first thing you can do is voluntarily pay it back. I can imagine most of you probably don’t want to do that, but it is the best option. As you do not want to wait for an enquiry. If HMRC decides that they should not have made those payments to you, they will seek not only to reclaim the money but they are likely to lever you with interest and penalties, so it will work out more expensive overall. We haven’t seen too many enquiries yet but I imagine these will start in February once all the returns have been submitted.

 

Natasha 10:48

If you aren’t sure as to whether you should pay back your grant, then you should get in touch with your tax adviser. And if you do not have one, then I suggest you look into getting one.

 

Natasha 10:57

So what happens if you submit your return after the 31 January? Well, there’s an automatic £100 penalty if your return is up to three months late. If your return is later than this, then the penalties are geared on the amount of loss of tax to HMRC. Unfortunately, you cannot use the excuse that you just were not aware of the rules. This argument has been tried and tested with HMRC and in the courts and this is why you need an advisor.

 

Natasha 11:23.

I understand that today you’re probably not feeling your best. You’re probably a little bit hungover and tired and you’re not looking forward to work. The last thing you want to do is to be worried about your tax return. I appreciate it is a complex area and it is always best if you have a tax adviser, so please do get in touch. If you are looking for help.

 

Natasha 11:44

Thank you for listening. Next week’s episode is going to be called “Should you put a ring on it?” We’re going to be looking at the tax benefits of getting hitched.

 

*This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Please visit my disclaimers page. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

 

Subscribe to podcast

    Share