Ah here we are again. In the inexplicable British system (is it to do with an old byelaw about swords? No?) the tax year runs from 6th April, so this time of year always feels like a time for a fresh start. It might feel more like this if it would stop snowing and really get on with the business of Turning On Spring but let’s see. Oh, and it also means a bunch of work, but we’re here for that too.
So what are the things you need to be thinking about?
As with all new year’s exercises it boils down to wrapping up last year and preparing for the next one. There will be some major changes to be aware of for the 2022-23 year, thanks to Rishi Sunak’s budget but if you want fuller details of what those are I suggest you have a look at this fuller list of upcoming tax changes and what they might mean for you. Basically – he has likely done you no favours. In a post in 2020 I actually used a picture of Rishi but this year I can’t do it, even ironically. It feels like we are all being pushed too close to the financial brink to find any of this funny any more.
My main focus today is on the wrapping up at the end of the tax year. This means two things: preparing for my tax return and looking back on how I spent, saved or invested my money. This week I will focus on prepaing tax returns, in order to get the boring stuff out of the way first.
Prepare for your tax return
Caveat: Firstly, I am not a financial advisor (pretty obviously, I mean my personal finance Instagram is mostly pictures of Barbies or food). There are lots of people out there who can help you with all the details of your taxes, and I am not one of them. But I am sharing my own approach here because why not.
Secondly, not everyone needs to do a tax return. However if you are the following then you do:
- You are working for yourself – either as someone who is self-employed or someone who makes income from additional sources to their regular job which is not taxed elsewhere, e.g. from rental income;
- You are a partner in a partnership business;
- You are a minister of religion – any faith or denomination;
- You are a trustee or the executor of an estate.
If you are unclear, the best thing is to consult an Independent Financial Advisor since getting it wrong in either direction could cost you a lot of time and stress.
As with so many things in life, the best time to start preparing for your tax return is this time last year. No really. The easiest way to do your taxes is little by little, so if you can get cracking with a simple spreadsheet and way of monitoring income and expenses, your life will be so much easier next year.
Of course the complexity of your tax directly relates to the complexity of your income. I have income from employment, from a rental property, from savings interest (but not dividends which have separate rules), and some overseas stuff plus I also pay into a personal pension which has its own tax benefits. So I need to complete four forms. HMRC really are the best place to start since their factsheets and whatnot are actually quite helpful. Another great thing about getting started early is you can call HMRC and ask them questions before they get closer to the 31st October deadline for filing paper forms and start to have a collective breakdown.
So the first things to do are to make sure you know if you need to file a self assessment; and if so, what forms do you need to complete. Once you have that, you can pull together all of your paperwork and start ploughing through it. You will need to know what expenses you can claim, and make sure you keep copies of all relevant documents.
In terms of when and how you get organised, you can do what I do and have a personal date night once a month with all my financial paperwork and a beer and just get it done. I do feel a little bit squirmy and sad saying that, but I find it so much easier than getting in a panic once a year. I also have a friend who has a week long retreat with her tax return and uses it as a way of engaging with gratitude for the year that has past. Whilst I absolutely love that as an approach, it’s not for me. So – as with every element of personal finance – go ahead and find whatever works to make the process as simple and painless for you as possible.
See – I managed to talk about tax returns without making a joke about Rishi Sunak’s family circumstances. So anything is possible!
What are you going to do today to further your personal or financial journey? Whatever it is, I hope it will be full of joy.