Soletrader tax returns and accounts – what exactly is needed?

I frequently get requests to quote for “filling in” or “filing” a tax return for a sole trader. Often the potential client doesn’t fully understand the full extent of their obligations.  They think in terms of the final act, ie the tax return, and not in terms of how to get there.

So how do you get there and what are the legal requirements?

The introduction of the Revenue Online Service (ROS) and online filing of tax returns created a bit of confusion.  The online filing regime introduced the concept of “extract from accounts”.  Revenue changed the requirement from submitting accounts with the tax return to asking for specific information relevant to it.

I have encountered a number of people that believe the preparation of the information to be included in the tax return is all that is required of them.  This is not the case.

For those who are interested the relevant legislation is Section 886 of Taxes Consolidation Act 1997. It states that:

  • every person in business must records that will enable true returns to be made for the purposes of income tax
  • records will be kept on a continous and consistent basis and entries will be made in a timely manner

Records is defined (in the same section) as:

Accounts, books of account, documents and any other data…relating to

(a) all sums of money received and expended…

(b) all sales and purchases…

(c) the assets and liabilities of the trade, profession…

(d) all transactions which constitute an acquisition or disposal of an asset for capital gains tax purposes

Some may argue that competion of the extracts from accounts section of Form 11 fulfills this requirement.  At a stretch, I suppose it does (depending on the complexity of your business), however, it is not a full and proper set of accounts.  The operative word here is “extracts”!!

Revenue’s Tax Briefing on the subject has this to say:

It is important to remember that the requirement to complete Extracts from Accounts in no way affects the necessity to prepare proper accounts or the manner in which accounts should be prepared for tax purposes, i.e., for tax purposes, accounts have to be prepared in accordance with the ordinary rules and conventions of commercial accountancy.

It goes on to say:

The ‘extracts’ …  do not try to represent a complete set of accounts. Therefore, they will not, nor is it intended that they should, ‘add-up’ or ‘balance’ like they do in the full set of accounts.

You can appreciate the importance of preparing a full set of annual accounts (profit and loss, balance sheets, explanatory notes) to comply with Revenue requirements, but it has other uses and benefits such as:

  • better monitoring and control of the business (especially where a computerised accounting system is used and kept up to date)
  • added value when presenting information to bankers, potential investors and customers

If you are looking for an accountant to prepare your tax return make sure you are getting exactly what you need to be compliant: is it just the return or will you also get a full set of accounts? The price quoted will often give an indication.

Is your accountant adding real-value or cutting corners to keep the price down?

We have developed our processes to enable us to prepare a full set of accounts efficiently at a low cost.  By doing this we make sure we have the full picture to allow us to help and advise you accordingly.

Comments are closed.