I’ve put it off since the UK tax year ended back in April 2008 but I’m sick of having it hang over my head and have finally sat down and filed the damned thing.

Most of the work was already done since I created a system for keeping track of revenue and expenses back in January when I was at home in Canada. That’s made keeping on top of things a lot easier and from January to the end of the tax year in April I just made sure to hang on to receipts and put any revenue and expenses onto the spreadsheet as soon as possible. Unfortunately I’ve been pretty slack since then, but it means that when I sat down to do my return today, it really hasn’t been as painful as I was expecting.

Actually getting registered to file my return online was a hassle though. I had to make a few phonecalls to Inland Revenue in the UK to get them to update my address to my aunt’s house, then had to wait for some passwords to be sent though the post, then had to get in touch with her to get them. But once that was taken care of I was fully registered and able to file my return online.

So this morning I’ve been doing just that. It’s taken me about a half hour to go through my spreadsheet checking numbers and things and about 20 minutes to actually file the return. The website for filing is very straightforward and, although there were a couple of things I didn’t totally understand, I muddled through ok. Pretty painless really, I’m not sure why I’ve put it off for this long, although in the UK if you file online you have until January 2009 so I guess I’m actually early!

Because I worked full time in the UK for eight months for the tax year, my income has been boosted and I owe some tax. Boo. It’s not a huge amount but it’s a bit of a chunk out of my saving so I’m thinking I will start to set aside a bit here and there to go towards tax so I don’t end up coming up short next year.

One bit of advice I will give… keep on top of your records! For the current tax year I haven’t done a thing since about June and I’ve just been motivated to get my books in order. Catching up a year later will be a nightmare so in future Im going to do my best to record everything as I go.

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I have to admit that this issue has been sneaking up on me for a couple of months. I got a warning from Paypal months ago saying that, because I had received more than $3,300 in total payments to my account, access would be limited until I could verify a few things with them.

PayPal is required by law to comply with European Union Anti-Money Laundering regulations by collecting information from customers when they receive more than the set limit in total payments.

For months they didn’t do anything to my account and the only limitation placed on it was that I wouldn’t be able to close it. I could still accept and send payments and withdraw to my bank account so I ignored the warning. I was in Bangladesh and there wasn’t much I could do anyways.

Well I guess I’ve ignored them for a little too long and now my account is totally frozen. I can’t accept payments and that’s not good, especially since I have some subscription payments lined up. More importantly, I can’t withdraw to my bank account and my UK funds are depleating.

There are three steps to remove my account limitations:

• Add and confirm a bank account - I already have a bank account and creditcard attached to this account so it was just a matter of Paypal making a small deposit to one of them (I forget which. I needed to check my statement, find the code that showed up next to the deposit and enter it on the Paypal website.
• Provide business information - I don’t even remember what this step involved so I’m guessing it must have been an easy one.
• Validate account information - This isn’t really a big deal but it’s turned into a nightmare! They need to verify that I live at the address they have on record. They do this my making an automated phonecall (how this verifies the address I don’t know) and when someone picks up, there’s a message that tells them a code or to push some buttons and that’s that. I tried to get my aunt to do this but had the phone numbers screwed up so the call went to my old, broken, UK mobile phone. Now the phone option is out (guess you only get one chance) and they need to send a letter that can take up to 20 days (!) to get to the UK. The first one, of course, didn’t arrive. I emailed them to ask for a second one to be sent and it should arrive by June 9th. I’m counting on my old housemate to track it down and email me the code. The pressure is on.

Their customer service people have been pretty good but they always reply to emails in a really annoying, formal way. It seems like they’ve got pre-typed answers to every question because the replies are a bit robotic and don’t seem to take into consideration inividual circumstances until you harass them a bit more. But a new letter is on its way so I can’t complain too much, especially since it’s my own fault that I’m in this mess.

So if you’re heading abroad and will be counting on Paypal payments to keep your beer buying funds high, do not ignore these messages! Sort things out as soon as you get the first warning. They gave me plenty of time and now I could potentially be screwed for money very soon. Silly me.

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I registered as a sole trader here in the UK a few weeks ago and I was invited to attend an info session. I really wasn’t sure what to expect but was hoping it would go over how to keep my books in order, how to file my tax return and, most importantly, what sorts of goodies I’d be able to write off as expenses. The session left me confused at first but I saw the light by the end of it and the world of taxes is much clearer and less scary now than it was when I first started thinking about this sort of thing.

Questions I had that were answered:

• Filing my tax return - It turns out that this is really straightforward. We walked through the paper version of the form and there are actually only a few boxes to fill in. If annual revenue is less than £15,000 then all they ask for is total revenues + total expenses and that’s that. Plus I can do it all inline.
• Working out how much tax and National Insurance is owed - When you file taxes online apparently the system crunches the numbers and spits back how much you owe in a matter of seconds. You could probably find some loopholes if you use an accountant but it’s not essential like I thought it was.
• Claiming the big stuff - Major capital purchases like computers, cars etc. can’t be claimed all in one whack but smaller amounts can be added to your expenses each year. If an item is bought used then each year you can claim 25% of the total cost and then deduct that 25% for the next year before claiming again. For new items I think 50% can be claimed in the first year and then 25% each year after. The numbers change though so this is something to keep on top of and I think all the info is on their website.
• Using your home as an office - I hadn’t really thought of this because I’m expecting to be essentially homeless most of the time but for the time I spend in Beijing it would be good to be able to claim back expenses related to using my apartment as an office. He came up with a formula that I didn’t write down because at the time I didn’t think it applied but it’s something along the lines of dividing 1 (the number of rooms you’ll be using) by how many rooms there are in the house then figuring out the number of hours spent working at home divided by the total number of hours in a week and multiplying those two figures together. Then multiply that number with the weekly expenses involved in running your household (rent, heating etc.) Or something like that.
• Running the business from outside the UK - I asked some other question and the guy misheard me and started telling me that even if I was outside the UK it was ok to pay UK tax and consider the business as operating here because I wouldn’t be paying tax anywhere else and would have earnings coming into a UK account. I’m glad he misheard me because I would have totally forgotten to ask that and it’s been on my mind.
• Lack of paper invoices - Because of the online nature of this business there aren’t going to be a lot of paper invoices flying around. Sure, when I buy a camera or laptop bag or something then I’ll get a receipt but everything else is done electronically, sometimes without even electronic invoices. I asked the guy about the lack of paper proof and he said as long as I have some record of incoming and outgoing money (Paypal payments, affiliate program reports etc.) then that’s ok. I’m going to print out hard copies each month just in case everything fries.

Questions that still remain shrouded in mystery:

• Employing people - I occasionally pay people to do coding or to write articles which, to me, is an obvious business related expense. The problem is that things get fuzzy when it comes to whether or not these people are considered employees. I doubt they are because they’re usually one-off jobs and the writers are never professionals. The cost of this all adds up so I’d like to claim it as an expense but if I have to get tangled up with employer type stuff then it’s almost worth it just to forget about it. But how I could be considered an employer for getting someone to write me a 1,000 word article for £10 is beyond me.
• Claiming travel expenses - This is a biggie for me because I’ll be writing about pretty much everything I do and adding it to one website or another which makes me think that much of my travel related expenses and even tours I go on will be deductible. They touched briefly on travel expenses but used examples like going up to Glasgow for a night which doesn’t really come close to applying to me. They also said that this is an area where people having been taking the piss in the past so the taxman is a lot more strict now. Just my luck.
• Dealing with various currencies - I totally forgot to ask this. Damn. If I transfer my Paypal payments into my UK account as soon as I get them then that eliminates the problem but the US dollar is so crap that I can’t bear to do that. I want to leave it in my Paypal until it comes back from the dead but I’m not sure if this is an option.

I would definitely recommend that anyone in the UK attend one of these sessions. The guy who ran it was pretty helpful for the general things and was really good at passing the buck onto other departments but it’s nice at least to know where to go to ask my questions.

There are people called Inspectors of Taxes and I need to find out who mine is and contact them for clarification on all of the fuzzy issues. They suggested writing a letter to keep a document of my questions (rather than making a phonecall) and once I get a reply I just need to stick to what they said. As long as I have his advice in writing then I’ll be able to justify everything I do to any other tax dudes that come my way. If they think I’m doing something wrong then as long as I have a response from the Inspector of Taxes then I’m ok. Hopefully they tell me what I want to hear!

All up I think I learned a lot today and feel much better about the whole tax issue. Feels good to be on the books too… sort of like a major step forward. One thing I for sure need to do is organise my accounts. I’ve made a start but I still need to troll through my Paypal account to organise some older transactions. Once I get a system organised I’ll post an example for people to see. I had a hard time at first getting my head around how to organise things but after seeing some examples today it really is very easy.

There’s a lot of info on their website for me to sink my teeth into and I’ll report back as I get answers to my questions. I have to say that it feels nice to be at the point where worrying about tracking my income is an issue!

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