Self-employed - changes to my previous years accounts ?

box33

I am a self-employed musician - I have not been working very much before 2009 as I also have children, although I have been completing tax returns since 2006. I am starting to earn a more significant amount of money (£8000 income last tax year) but with an overall loss of >£11000 as of April 2010 mainly due to purchase of instruments and previous losses brought forward.

I expect my takings from teaching & gigs this current year to be around £16000 and expenses and allowances to be about £5000. Now that I am likely to start paying tax in the next few years, I am thinking about my records and realise that I have made some mistakes with the earlier years accounts. One major thing is that I have had some finance from my dad which he is expecting to be paid back, and I also have a personal loan starting in 2007, some of which was spent on the business and some on personal. I have also only recently got a separate business bank account so the time when I got the personal loan I was using my bank account for both personal and business purposes.

I am wondering if I need to change my records for earlier years to include this finance & do I need to inform the hmrc even though I haven't yet had to pay tax? My previous understanding was that including my purchase of assets (with the money from the loans) as capital expenditure was enough but there is currently no record of the money from the loans going into the business. I also now think I should be including loan repayments (as a % for business purposes?) in my expense accounts. If anyone could offer help, or an opinion I would be really grateful as I am a bit confused. :cool:

Cook_County

There is no point in changing them as you paid no tax unless...it increases a loss in later years; gives you more tax credits than you claimed; reduces future Class 4 NIC because you have a larger NIC loss carryforward or get a better answer from calculations under the averaging rules for creative artistes. Subject to normal time limits you can of course repair your past returns.

jimmo

This link may be useful for the time limits and procedures.
http://www.hmrc.gov.uk/sa/correct-repay.htm
You may amend any Returns that are in date for amending, that is 2009/10 if you have already submitted your Return and 2008/09 but you only have 1 month to amend 2008/09.
Normally earlier years can be covered by an Error or Mistake Relief claim but in your particular circumstances I am afraid you cannot claim.
Error or Mistake Relief enables you to claim a repayment if you have overpaid tax but you haven't.
Coming now to your details any amount you borrow does not count as taxable business income when you borrow it and does not count as deductible expenses when you repay it. Any interest you pay is deductible but any interest you pay to your father will require him to pay tax on it..
So the errors you think you have made may not be as bad as you seem to think.
However I do wonder whether you having been mistaken about the tax consequences of borrowing and repaying money suggests that there are other things you don't understand and have got wrong.
If your business is starting to take off and you have not sought professional advice before, now might be a good time to do it.
Unfortunately, at this particular time of the year an awful lot of accountants and tax agents appear to be incredibly busy because a number of their existing clients seem to think that as long as they supply their business records etc to their agent now he will have plenty of time to get their Tax Return into HMRC by 31 January.
Now, how important is it for you to amend your 2008/09 Return before 31 January?

box33

I am thinking about getting some professional help soon but what you have said has been useful, thank you. I originally didn't include the loans as income or the repayments as expenses, but then a friend has queried this recently. The main thing that's troubling me is if I were to make changes and they were not correct. I am concerned that my accounts are correct and make sense in case they were ever checked, and I would like to make my records more accessible and straightforward. I am thinking about putting it all onto a programme such as solar accounts, as at the moment it is mainly on paper.