Completing a tax return at the end of your first year of self-employment (or any time thereafter!) can be a daunting task. Let’s face it- when it comes to accounts the quicker, the better. No-one relishes the idea of spending hours poring over receipts and bank statements, endlessly checking for the final figures to match.
If you choose to do your own tax return, by far one of the most frustrating aspects of this is finding the right information for counsellors and psychotherapists. For example, there are expenses that we can claim that are unique to our profession, but nowhere have I been able to find this information set out in one place.
This article attempts to do just that; and while I don’t claim to have offered an exhaustively informative and thorough guide, I hope this article will provide enough clear information for those starting out to feel confident to complete their tax return independently.
First the basics...
Your end of year tax return is a record of the money you’ve earned (Gross Income) and the money you’ve spent on the running of your business (Business Expenses) throughout the financial year. Your total business expenses are deducted from your gross income to calculate your taxable income (Net Profit).
Remember you’ll pay your tax in one or two lump sums so it’s a good idea to put money aside for this across the year to avoid getting caught out.
If you’re a sole trader your tax year runs from 6 April to 5 April. If at some point you decide to go limited you can set your own financial year end.
When
You have until 31st January to submit your tax return for the previous financial year. So for the Tax Year 21/22; which ran from 6th April 2021 to 5th April 2022, your return can be submitted any time from 6th April 2022 to 31st January 2023, if you are submitting your return online.
Paper returns need to be submitted earlier, by October 31st 2022.
Where
On the government website at https://www.gov.uk/self-assessment where you can submit online.
Paper returns can also be downloaded and printed from here.
Submitting Your Tax Return
Before Starting
1. Get your UTR
Before you can submit your tax return you’ll need to first register as self-employed to receive a Unique Tax Payers Reference (UTR) number.
You’ll need to do this by 5th October in your business’s second tax year at the latest. This is done by completing an online form on the gov.uk website.
It takes 10 days to be processed and arrives in the post.
2. Get Organised
You’ll need to provide information in your return about your own personal circumstances e.g. Income made on property or taxable inheritance etc. So, make sure you give yourself enough time to go through these details as well as your business’s turnover.
Having all your financial statements and records to hand and in order will make the process much swifter and much less stressful. It’s worth giving yourself a good margin of time in case you find yourself spending longer than expected gathering all these details.
Accuracy is the order of the day when it comes to your return, and you can’t give this your full attention if you’re in a hurry.
3. Sole Trader or Limited Company?
If you are practicing alone or as part of a group of therapists in which you are an affiliate rather than an ‘employee’ your self-employed status will be as a Sole Trader. Legally, this means you are personally responsible for any losses your business makes as opposed to a Limited Company (where responsibility does not extend beyond the company i.e personal assets are protected).
As a Sole Trader you’ll most likely use the Cash Basis method of recording your accounts. Using Cash Basis, you’ll need to report income and expenses as they are received and paid for during the tax year period. You won’t need to include payments owed or expected to fall outside of the tax year period.
There are a few circumstances where you cannot use Cash Basis accounting but must use traditional accounting methods (which includes recording income and expenses by the date they were invoiced or billed), for example, if your annual business turnover exceeds £150,000. For more details, please visit the gov.uk website.
Limited companies and limited liability partnerships must use traditional methods rather than cash basis. Once your taxable income exceeds the Basic Rate you might consider forming a limited company as this caps your tax rate at 20%.
How to Complete your Tax Return
1. Collate your Gross Income
Generally, keeping monthly records helps immensely with this. If you use Kiku you can generate a monthly (or annual) breakdown of all your counselling income instantly, which means you can forget about it until it’s time to submit your tax return.
If you prefer to do this manually, keeping tabs as you go throughout the year saves so much time and energy when it comes to your return.
2. Deduct allowable expenses
The following is a list of expenses that can be deducted if you are a self-employed Counsellor or Therapist:
Office costs - stationary, equipment, phones, software, Including office running costs (ie, broadband, phone bills, heating etc.); Room rental, Therapy Materials - Candles, oils, tissues, creative therapy tools ie, sandtray, crayons, clay etc.; Business costs - Civil Indemnity Insurance, bank charges and interest on business related loans; Work clothes; Advertising - website costs, google ads, print adverts, directory costs etc.; CPD - books, journal subscriptions, training courses, lectures etc.; Supervision; Membership costs for BACP, UKCP, NCS, HCPC etc.; Business travel costs and lunches.
If you work from home, as many of us do these days, you can also claim part of your heating, water, and council tax bills.
You’ll need to work out how much you can deduct based on the hours you spend working from home.
Alternatively, there is a simpler ‘flat rate’ method of calculating this (using hours worked and the number of people living in your home). Details can be found on the government website, gov.uk.
Again, keeping monthly records of your expenses can make this process infinitely easier.
With Kiku you can log your expenses as you go along, creating a securely stored record that can be downloaded instantly when it comes to submitting your return.
3. Calculate your Taxable Income
Once you have deducted all of your expenses you’re left with your Yearly Profit. There is a tool on the online submission form that allows you to view expected tax owed before submitting your final return.
Once you are ready and have submitted your return you’ll receive a confirmation receipt. Any tax owed will then be confirmed by the HMRC and the deadline for payment provided.
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