Oversight might have cost me big tax bill - can I do anything?

darkh0rse

Hi folks

I'm really annoyed with myself at this one but I'm hoping something can be salvaged.

Have been self employed since 2007, originally had an accountant, we didn't really get on and I went down the TaxCalc route instead. All hunky dory, I have been TaxCalcing ever since and carefully doing it all myself since.

I did take advice again a few years later, but a chat with another accountant revealed it was borderline whether worthwhile on going limited.

However, for the 2015/2016 year I turned over the biggest amount to date, and even with all allowable expenses that I can think of, I owe 40% on £6,000 of profit. The 2016/2017 return with a quick 'n dirty What If would be a similar. But beyond this however, my instinct is my turnover may reduce again, but I can't be sure.

My question is in two parts I suppose:

1. Am I too late to try and claw anything back from 2015/2016?
2. Am I too late to get something sorted for the 2016/2017 year too? (i.e. go ltd now)

An idea I had were perhaps contribute £6,000 to a pension to increase threshold of my basic rate. (A pension which I currently do not have and do need to sort out, perhaps with Nest) Is that an option to put in to a previous tax year?

I realise this question could be outside the scope of this forum, but I am not sure what to do next - for all my penny pinching elsewhere with cutting household bills, maximising saving rates etc, all the "usual" stuff I feel like this tax situation completely negates all the other areas I have been moneywise with and it is troubling me somewhat.

Thanks for any help.

martinsurrey

darkh0rse wrote: »

Hi folks

I'm really annoyed with myself at this one but I'm hoping something can be salvaged.

Have been self employed since 2007, originally had an accountant, we didn't really get on and I went down the TaxCalc route instead. All hunky dory, I have been TaxCalcing ever since and carefully doing it all myself since.

I did take advice again a few years later, but a chat with another accountant revealed it was borderline whether worthwhile on going limited.

However, for the 2015/2016 year I turned over the biggest amount to date, and even with all allowable expenses that I can think of, I owe 40% on £6,000 of profit. The 2016/2017 return with a quick 'n dirty What If would be a similar. But beyond this however, my instinct is my turnover may reduce again, but I can't be sure.

My question is in two parts I suppose:

1. Am I too late to try and claw anything back from 2015/2016?
2. Am I too late to get something sorted for the 2016/2017 year too? (i.e. go ltd now)

An idea I had were perhaps contribute £6,000 to a pension to increase threshold of my basic rate. (A pension which I currently do not have and do need to sort out, perhaps with Nest) Is that an option to put in to a previous tax year?

I realise this question could be outside the scope of this forum, but I am not sure what to do next - for all my penny pinching elsewhere with cutting household bills, maximising saving rates etc, all the "usual" stuff I feel like this tax situation completely negates all the other areas I have been moneywise with and it is troubling me somewhat.

Thanks for any help.

1)yes too late as long as your deductions are correct you cant put anything into your pension for last year

2)pension is still possible for 16/17 but no point going Ltd for this year, its done on an accrual basis (so whats already happened as a sole trader is taxed as sole trader).

Don't underestimate the work of going ltd, there are many more regulations and required submissions, the cost of getting these done properly can often outweigh the gains.

darkh0rse

Thanks Martin.

1) I thought I'd missed the boat with 2015/2016 pension, but figured it was worth a check.

2) I thought that may be the case, but perhaps I could not issue any more invoices for the time being if ltd was the right choice for me. Pension would be a great option for this year I feel as it is something I need to kick start with a decent sum, and savings rates are dire at the moment anyway.

Do you know of any ready reckoner or WhatIf spreadsheet or resource that compares SE vs LTD just to help with this decision please?

The work of going ltd is what has kept me self-employed to date. I suppose if I were to look at the positive side of this, those 8 years or so I've saved on fees of going ltd.

martinsurrey

darkh0rse wrote: »

Thanks Martin.

1) I thought I'd missed the boat with 2015/2016 pension, but figured it was worth a check.

2) I thought that may be the case, but perhaps I could not issue any more invoices for the time being if ltd was the right choice for me. Pension would be a great option for this year I feel as it is something I need to kick start with a decent sum, and savings rates are dire at the moment anyway.

Do you know of any ready reckoner or WhatIf spreadsheet or resource that compares SE vs LTD just to help with this decision please?

The work of going ltd is what has kept me self-employed to date. I suppose if I were to look at the positive side of this, those 8 years or so I've saved on fees of going ltd.

you need professional (paid for) advice on going LTD, no hard and fast spreadsheet, and the fees don't stop when you are up and going as Ltd.

annual accounts, tax returns, annual returns, are all FAR more complicated than sole trader (as a company is expected to be sophisticated enough to do them), and you are expected to get them right, so more fees for them.

darkh0rse

Thanks Martin, I think I might be best looking for a good IFA to go through everything with.

Pennywise

darkh0rse wrote: »

The work of going ltd is what has kept me self-employed to date. I suppose if I were to look at the positive side of this, those 8 years or so I've saved on fees of going ltd.

But you could have saved maybe £2.5k per year or more in terms of tax and NIC (assuming annual profits of maybe £25-£35k at a guess) by being a ltd instead of sole trader and may have avoided breaching the h/r thresold, if you'd engaged a decent accountant who'd probably have cost far less than the amount you'd have saved.

Bob_Bank_Spanker_2

darkh0rse wrote: »

Thanks Martin, I think I might be best looking for a good IFA to go through everything with.

I would be astonished if an IFA could accurately advise on the tax (dis)advantages of forming a limited company.

Cook_County

Have you looked at changing your accounting period? Have you accrued for all of the expenses unpaid in your accounting period? Have you accounted for debtors and pre-payments?

darkh0rse

The N.I. savings at this point were greater than I expected so yes, for this alone, even before hitting higher rate threshold, it seems there would be a saving Pennywise.

Accounting date change sounds like a good idea.

I will look for an accountant as well as an IFA.

Thanks all