Big bill after tax return

[ShellaBella]

Hi

I have been reading through the forum as I have a few questions but can't really see a definite answer.

We have just entered the tax return for 2021/2022 for a sole trader and have been hit with a bill of just over £11,500 (including £5700 in Payment on account fees for 22/23). Does this sound about right off the following figures please - we don't know whether it is normal or if we should get someone to look at our figures to see if they could do anything

earned around £63,000
SEISS grants x 2 £15,000
paid around £12,500 already in CIS tax
bought a car for around £20,000
14000 ish miles
around £3500 in expenses

Not sure if this makes sense or not but hopefully it will.

Thank you in advance for any advice

 

[Gyumri]

The grant is subject to Income Tax and self-employed National Insurance contributions so if you have earned around £80,000 less £3,500 expenses that's about £76,000 profit.

I'm sure somebody with a calculator will be able to say what is the tax. Not sure about the advance payment on account - that's seems a bit odd if nobody can say what profit you will make this year.

"A good accountant will cost you nothing."

 

[japancool]

bought a car for around £20,000

Are you claiming this as a business expense? Is it wholly for business use?

 

[JEREMY HAWKE]

Is this figure t/o or sales? and do you not have any other business costs have you included all expenses . I
If you running a car on the business fuel would be included

 

[NicoJ]

Tax on gross income (I.e. without taking into account any other expenses) of £93k (including the SEISS) would be in the region of £24k. So, without any further information it wouldn't look obviously incorrect.

Payments on account are based on the previous years tax so it is possible to reduce these if you estimate your earnings will be less.

Its always worth having someone else take a second look just in case you have missed something.

 

[WaveJumper]

Might be worth you looking at some of the calculators out there, and if you not sure what you can or not claim for worth speaking with an accountant

Estimate your Self Assessment tax bill

Find out how much you need to put aside for your Self Assessment tax bill by using HM Revenue and Customs' (HMRC's) Self Assessment tax calculator.

www.gov.uk

 

[UK Contractor Accountant]

The question to ask here is why was he/she claiming the 4th & 5th SEIS grants when earning £63K?

 

[AndreasC]

It doesn't sound far off but not sure what you have claimed for motor expenses

 

[MyAccountantOnline]

Hi

I have been reading through the forum as I have a few questions but can't really see a definite answer.

We have just entered the tax return for 2021/2022 for a sole trader and have been hit with a bill of just over £11,500 (including £5700 in Payment on account fees for 22/23). Does this sound about right off the following figures please - we don't know whether it is normal or if we should get someone to look at our figures to see if they could do anything

earned around £63,000
SEISS grants x 2 £15,000
paid around £12,500 already in CIS tax
bought a car for around £20,000
14000 ish miles
around £3500 in expenses

Not sure if this makes sense or not but hopefully it will.

Thank you in advance for any advice

What expenses and capital allowances did you claim and did you have any other income or gains?

 

[ShellaBella]

Wow, thank you for all of your responses - it is very much appreciated!

It appears that the majority think that is about right for the earnings made that year - we are using a new accountant and got quite a shock as we usually get a small refund and didn't really know what to make of it all - maybe we should have trusted the accountant more rather than doubting! We just handed over the bank statements and answered a few questions but think for the 22/23 I will sit down and work out figures so we have an idea of earnings and outgoing rather than going in blind and hopefully it won't be as much of a shock.

Are you claiming this as a business expense? Is it wholly for business use?

I am not sure what it was claimed as, I just let the accountant know we had bought it and the price (minus our old car as trade in of £12k). 14k miles are business and we allocated 1k for personal use.

Is this figure t/o or sales? and do you not have any other business costs have you included all expenses . I
If you running a car on the business fuel would be included

It is just the money we received over the year for work completed - not sure this would class as a sale? Sorry, I'm really not at all business minded! I think that mileage allowance was given in the return as we were asked how many miles for business usage.

Tax on gross income (I.e. without taking into account any other expenses) of £93k (including the SEISS) would be in the region of £24k. So, without any further information it wouldn't look obviously incorrect.

Payments on account are based on the previous years tax so it is possible to reduce these if you estimate your earnings will be less.

Its always worth having someone else take a second look just in case you have missed something.

Thank you, I think we will leave the payments on account as it is until we know what is likely to have been earned this tax year but certainly good to know for the future - we hadn't ever heard of it until now as we have always had a small refund (we have only been self employed for 3 years)

The question to ask here is why was he/she claiming the 4th & 5th SEIS grants when earning £63K?

We claimed those as it was lockdown with little to no work coming in for months and seeing the bank balance and savings account go down as much as they did, it was a no brainer! We were shocked when the year ended as well as it did.

What expenses and capital allowances did you claim and did you have any other income or gains?

Not sure about capital allowances (I have heard of them but not sure what they are) and for expenses, we were asked the usual mileage, workwear, things we bought. Bank statements were used to pick out other things for us.

Once again, thank you all for your advice. It has highlighted that we must be better prepared in future and could really do with knowing more about how to run a business haha.

I do have some other questions that I will be asking on the forum and will definitely be reading other threads to try and gain better knowledge

 

[NicoJ]

Just to add that if you don't understand the figures then you should discuss with your accountant. It is their duty to ensure you understand what you are signing off. I had assumed you didn't have an adviser.

Its impossible to be certain but I would hazard a guess that the grants tipped you into the 40% bracket where previously you have always been in the 20% bracket.

The tax year ends on 5th April and you can prepare your return from 6th April. The earlier you get your records into your accountant the sooner you will know the bill so not as much of a shock!

 

[JEREMY HAWKE]

I have noticed in this last few weeks that some people are asking questions on here and are trying to use complicated tax calculation and claiming methods when the simplest and most commonly used solutions are being avoided
A common theme has been related to motor vehicles and business premises leasing.


If you are confused I would seriously consider working with one of the accountants on here (if they will have you )They are the ones providing the accountancy answer on here

 

[WaveJumper]

I have noticed in this last few weeks that some people are asking questions on here and are trying to use complicated tax calculation and claiming methods when the simplest and most commonly used solutions are being avoided
A common theme has been related to motor vehicles and business premises leasing.


If you are confused I would seriously consider working with one of the accountants on here (if they will have you )They are the ones providing the accountancy answer on here

Not they only one to have noticed this, I don't blame people at all we all want to pay as less tax as possible, but there does seem to be a theme from many to squeeze as much back in tax as possible in the most complicated of fashions, when on first read of a thread you get the distinct feeling a trip to the local accountants office would have saved them an awful lot of stress and probably money in the process.

 

[MyAccountantOnline]

Just to add that if you don't understand the figures then you should discuss with your accountant. It is their duty to ensure you understand what you are signing off. I had assumed you didn't have an adviser.

Its impossible to be certain but I would hazard a guess that the grants tipped you into the 40% bracket where previously you have always been in the 20% bracket.

The tax year ends on 5th April and you can prepare your return from 6th April. The earlier you get your records into your accountant the sooner you will know the bill so not as much of a shock!

I was going to write a very similar reply.

@ShellaBella do ask your accountant to explain how the tax charge is calculated, and how you can reduce it - it's what you are paying for.

 

[GLAbusiness]

My accountant always provides a backing sheet to show exactly how the tax is calculated. You may want to ask your accountant to do this.

 

[DWS]

My accountant always provides a backing sheet to show exactly how the tax is calculated. You may want to ask your accountant to do this.

I thought all accountants send out a tax package to their clients which should include the accounts showing the profit & loss and the balance sheet, and also the tax calculations showing how the tax liability/refund was worked out.

 

[UK Contractor Accountant]

We claimed those as it was lockdown with little to no work coming in for months and seeing the bank balance and savings account go down as much as they did, it was a no brainer! We were shocked when the year ended as well as it did.

there were no lockdowns post April 21 or during the tax year ended 5 April 2022.

I believe everthing started opening again up April/May 21

 

[ShellaBella]

Just to add that if you don't understand the figures then you should discuss with your accountant. It is their duty to ensure you understand what you are signing off. I had assumed you didn't have an adviser.

Its impossible to be certain but I would hazard a guess that the grants tipped you into the 40% bracket where previously you have always been in the 20% bracket.

The tax year ends on 5th April and you can prepare your return from 6th April. The earlier you get your records into your accountant the sooner you will know the bill so not as much of a shock!

I agree, we really needed to sit down with the accountant at the beginning - I didn't want to seem as if we didn't trust their judgment and expertise when we received the return so thought I would ask the opinion of others who know more than me about this type of thing. Thanks again for your posts, they have been informative and helpful

I thought all accountants send out a tax package to their clients which should include the accounts showing the profit & loss and the balance sheet, and also the tax calculations showing how the tax liability/refund was worked out.

We do have a separate sheet with a breakdown of figures if this is the same thing. I don't really understand all of it as it isn't broken down enough for a total novice like me - my fault for not asking the questions, although as my invoice was based on the time they spent working on my accounts, its probably a good thing I didn't ask as Im sure he could have spent days talking me through it and I still wouldn't have understood!

there were no lockdowns post April 21 or during the tax year ended 5 April 2022.

I believe everthing started opening again up April/May 21

I actually can't tell if you're trolling me! Finances were dire due to lockdowns, grants were available, I took them, not sure what else I can say really.

I was going to write a very similar reply.

@ShellaBella do ask your accountant to explain how the tax charge is calculated, and how you can reduce it - it's what you are paying for.

This is great advice and something we should have done in the first place, I will definitely be asking the best way to reduce it (if any) for future tax returns

Could I just ask those of you who have accountants, do you pay a lot more if you're a limited company? For example if a tax return is £700 would it be doubled (or more!) for them to look after a limited company as I have read there is a lot more paperwork involved.

Thanks again

 

[AndreasC]

£700 for a tax return is high but it depends what is involved. If you need all the money from the business then a Ltd co won't be more tax efficient but would be more hassle/admin but it comes down to your situation/circumstances. If you have a Ltd Co you'd have to pay your accountant for accounts/returns as well as your personal tax return so is unlikely to be worthwhile.

I'd also suggest doing your taxes early so you/your accountant have time to check things and understand it

 

[MyAccountantOnline]

.......

Could I just ask those of you who have accountants, do you pay a lot more if you're a limited company? For example if a tax return is £700 would it be doubled (or more!) for them to look after a limited company as I have read there is a lot more paperwork involved.

..

I hope you dont mind me replying as an accountant.

Fees wont (or shouldn't need to) automatically double if you change from a sole trader to a limited company.

A limited company does mean a bit more work (mainly for your accountant) but if you are considering transfering your business to a limited company do discuss it with your accountant and consider all costs - you may find tax savings well outweigh any increased admin costs.

 

[vivente]

£500 for partnership accounts and we've been advised around £200 more to do limited company accounts. That chimes what with what you are hearing here therefore double as a guesstimate seems to be way too high. Unless your current bookkeeping is a mess then £700 for sole trader accounts seems on the high side to begin with. I'm sure you could find better value elsewhere though it comes down to your relationship with your Accountant and how much you value that specific business relationship.

 

[ShellaBella]

£700 for a tax return is high but it depends what is involved. If you need all the money from the business then a Ltd co won't be more tax efficient but would be more hassle/admin but it comes down to your situation/circumstances. If you have a Ltd Co you'd have to pay your accountant for accounts/returns as well as your personal tax return so is unlikely to be worthwhile.

I'd also suggest doing your taxes early so you/your accountant have time to check things and understand it

Thank you for explaining, it appears its not as clear cut as just changing to Ltd, the worry was that we would have to pay crazy amounts of money each year for an accountant to look after the paperwork if Ltd and that alongside the tax bill we have just had would just be too much - we may as well of cut hours worked and saved on paying the higher tax and had some time off! We are definitely going to start earlier for 22/23 tax year and start gathering the things over the next week so that we are more prepared and not just last minute handing over bank statements.

I hope you dont mind me replying as an accountant.

Fees wont (or shouldn't need to) automatically double if you change from a sole trader to a limited company.

A limited company does mean a bit more work (mainly for your accountant) but if you are considering transfering your business to a limited company do discuss it with your accountant and consider all costs - you may find tax savings well outweigh any increased admin costs.

I don't mind at all! I really appreciate it, this has been a bit of a wake up call in that we can't just expect to hand over paperwork and not get hit with a big bill every year. I'm pleased that from an accountants perspective it doesn't necessarily mean double the fee as Ltd is something I would like to explore to see if there are tax savings to be made by doing that - could I just ask if accountants should recommend ways of saving ie telling you to make pension contributions, buy a work van instead of a car etc or would I have to mention that to them first? - It really is such a minefield!

£500 for partnership accounts and we've been advised around £200 more to do limited company accounts. That chimes what with what you are hearing here therefore double as a guesstimate seems to be way too high. Unless your current bookkeeping is a mess then £700 for sole trader accounts seems on the high side to begin with. I'm sure you could find better value elsewhere though it comes down to your relationship with your Accountant and how much you value that specific business relationship.

Thank you so much for your info! I think our thoughts now are that maybe our fee could have been a little inflated after reading here and as there is a sour taste left in our mouths (although we completely accept blame for this mess!) we will look at what else is out there and use this as a valuable lesson learned!

Thank you all, again!

 

[pentel]

A big tax bill means you have been earning big money.

It is better to come out with 50-60% of a lot of extra money rather than 100% of no extra money.

 

[MyAccountantOnline]

- could I just ask if accountants should recommend ways of saving ie telling you to make pension contributions, buy a work van instead of a car etc ...

Ideally yes, but, it does depend on what services you are paying your accountant for and the arrangement between you.

I will say it's much easier to give clients proactive tax advice and look at tax saving opportunities if clients send records in good time and dont leave it until deadlines are very close.

 

[Bobbo]

could I just ask if accountants should recommend ways of saving ie telling you to make pension contributions, buy a work van instead of a car etc or would I have to mention that to them first? - It really is such a minefield!

There's no "should" or "shouldn't" aspect - as @MyAccountantOnline says it depends on the level of services you agree.

What I will say is an accountant can't read your mind. If you're thinking about purchasing a vehicle for the business then a good accountant will be able to advise on advantages and disadvantages between car or van, purchase or leasing etc (for accounts and tax purposes that is) , if you ask them to.

 

[JEREMY HAWKE]

I would say you should be speaking to an FA about pensions. Accountants are Bleedy good ( translate from Cornish) but they are not the best people to talk to when it comes to investing money .

Money people are the people to talk to about money

 

[ShellaBella]

There's no "should" or "shouldn't" aspect - as @MyAccountantOnline says it depends on the level of services you agree.

What I will say is an accountant can't read your mind. If you're thinking about purchasing a vehicle for the business then a good accountant will be able to advise on advantages and disadvantages between car or van, purchase or leasing etc (for accounts and tax purposes that is) , if you ask them to.

'Should' probably wasn't the best word to use - I was really just asking would/will they recommend things or do I need to do the prompting as we haven't really found an accountant who has done this so far and wondered if this was even a thing