In 2016, the average family in Britain paid £25,000 in taxes. Reducing the amount you to pay to the government is an excellent idea because you can use that cash on other things. For example, you can pay your utility bills with the refund that you claim from the taxman. Unfortunately, not many people know that claiming back an amount on their taxes is possible. That is especially true when they file their tax return themselves as opposed to hiring someone to do it for them. Avoid the mistakes that they make when filing their returns. Instead, follow these 4 tips for DIY construction tax returns.
1. Keep Excellent Records
Claiming back 45% on the value written on a receipt is possible. Can you imagine how much cash you could claim back if you had kept your receipts throughout the year? Therefore, keeping excellent records is critical because it helps you claim as much as possible. The best way of doing so is by having an accounting spreadsheet. A well-developed spreadsheet gives you an idea of the claims that you should make. It will ease your bookkeeping processes as well. In summary, it will ease your accounting processes. Alternatively, you can record your expenses on a notepad. A cash book might be an excellent idea as well.
2. Register as a Subcontractor
Did you know that paying a tax rate of 30% is possible if you do not register as a subcontractor? Registering incorrectly as a subcontractor leads to the same outcome. Avoiding this outcome is possible if you register correctly as a subcontractor under the Construction Industry Scheme (CIS). The first step is to apply for a Unique Transaction Reference (UTR) number. You can do that directly with the HMRC. You will receive your UTR number within two to four weeks. The next step is registering as a self-employed subcontractor with HMRC. Remember, failing to register correctly leads to unnecessary inconveniences. For example, claiming back your money if the government deducts it at 30% would have to wait until April the next year.
3. Evaluate Your Expenses
Offsetting the costs that you incurred during the year against your revenue for the same period is possible. You can do that when you are calculating your taxes for the year. The first step in doing so lies in knowing the expenses that you can offset against your income. Some of these expenses include tools, advertising, and protective attire. Administrative costs including telephone and stationery fall into this category as well. Others are materials required for the construction project and capital allowances for your company car. Processing your tax returns for subcontractors is a straightforward process when you know the expenses that you can offset against your revenue.
4. Understand the Rates
Three deduction rates exist for professionals in the industry namely 0%, 20%, and 30%. You can fall into any of these categories depending on how you register with the relevant authority. For example, various checks by the HMRC are necessary before you receive a 0% deduction rate. Usually, the 20% deduction rate is mostly for small-scale sub-contractors who have registered correctly with the HMRC. You will pay a 30% deduction rate if your records at the HMRC are unavailable. You will also pay this deduction rate if you register incorrectly with the HMRC. Going for zero taxes may yield some fruit, but in most cases, you will fall under the 20% rate. Contact the HMRC immediately when you realize that you paid a 30% deduction rate.
