If you are self-employed you will pay your tax using a self-assessment tax return. This article will give you an overview of the self-assessment process and your legal obligations as a self-employed individual.
It is your responsibility to inform HMRC that you have started to trade and to file a tax return under self-assessment.
As a business owner you’re responsible for:
To check if you need to fill in a Self Assessment tax return click here.
To register for self assessment, click on the following link: https://www.gov.uk/register-for-self-assessment
To help you decide whether or not you are trading, the following link should prove useful - https://www.gov.uk/working-for-yourself/what-counts-as-self-employed
Do I need to use an accountant?
You do not need an accountant to file your tax returns, you can file them yourself.
However, it is important that you understand the legal requirements, not only in terms of the figures that are included, but in terms of the deadlines that penalties. You’ll get a penalty if you need to send a tax return and you miss the deadline for submitting it or paying your bill.
Search our database to find an accountant or bookkeeper.
All taxable income will need to be reported on your tax return.
ISA interest and other non-taxable income such premium bond winnings or casual gambling profits do not need to be reported. There are special rules when it comes to taxing your taxable personal income.
Remember you are entitled to your personal allowance which is £11,000 from April 2016 (this is restricted once your income reaches £100,000).
Non savings income is taxed first. This includes:
Bank interest is taxed second. The rates of tax that you apply are:
Dividends are taxed last.
The first £5,000 of dividends are taxed at 0% and then 7.5%, 32.5% and 38.1%, where they are taxed at the basic, higher or additional rates.
Information that you will need to keep to prepare your accounts will be:
It is vital that books and records are kept safely as there are rules surrounding how long business records must be stored for.
You need to keep:
The deadline for self-assessment returns is:
The last tax year started on 6 April 2015 and ended on 5 April 2016.
If you need to submit a self-assessment return for the first time, you need to inform HMRC by 5th October following the tax year in which you started trading.
Payments on account are advance payments towards your tax bill. They are made in two instalments.
Income tax is payable on 31 January following the tax year. Where most of your income is not taxed throughout the year as it is earned e.g. a self employed individual, it is likely that you will fall under the payments on account regime.
Let’s say it is 2016/17 and you make payments on account each year. For example if you paid £1,000 in the tax year for which you are filing your return:
This will include Class 4 National Insurance Contributions where applicable, but not student loan repayments or Capital Gains Tax.
Once the actual tax liability is calculated for 2016/17, you will deduct the payments you have already made and pay or reclaim the difference from HMRC.
Most small businesses will work with an accountant here to ensure they are making the correct payments on account.
You can download forms and guidance to help you send your tax return online or by post.Read more
Once your overall takings for the previous 12 months exceeds the VAT registration threshold (£83,000 for 2016/17) you are legally obliged to register for VAT.Read more
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