income tax_

Income Tax is payable by self-assessment. Once you have registered your self-employment with HM Revenue & Customs you will be given a 10 digit Unique Taxpayer’s Reference (UTR). (Your Tax Return form should contain the relevant supplementary pages to notify your self-employment income.)

The UK tax year runs from 6 April to the following 5 April. (The year commencing on 6 April 2016 and finishing on 5 April 2017 is known as the tax year 2015/2016.)

There are strict time limits for filing your Tax Return. The 2014/2015 Tax Return must be filed by 31 January 2016 to avoid a late filing penalty.

Common problem areas and questions

To what date should you prepare your Self-Employment accounts?

Normally the first accounts that you should prepare would be for a period of no more than 12 months, but the first period of accounts need not be for exactly 12 months. For example, if you commenced self-employment on 1 August 2015, there is no requirement to prepare your first accounts for the year to 31 July 2016. Normally it is simpler and more tax-efficient for the first accounts to be prepared from the date of commencement to the following 5 April, e.g. with a 1 August 2015  commencement date your first accounts would be to 5 April 2016 and then to 5 April annually thereafter.

If you have never filed online, you can’t get started without an ‘activation code’, sent in the post by HMRC, which takes around seven days (it could be 10) to arrive

Anyone who is self-employed, receives rental or other income on which tax is due, or who makes capital gains over the annual exemption of £11,000 for 2014/15, will need to complete a return. People who receive child benefit and where the higher earner in the couple has income of over £50,000 are also affected. Don’t overlook the cash in hand from a sideline in eBay trading, playing in a band at weekends, or letting your spare room on Airbnb, as all this income is potentially taxable.

As HMRC move to a digital tax system it will become easier.They have just launched the new digital personal tax accounts. At present, the information shown is limited, but HMRC will be adding more services to the accounts over the coming years, which may, in future, reduce the need for annual tax return completion.”

In the meantime, here are 12 important points to remember when filing your tax return with HMRC:

1. Make sure you have all of the relevant documentation: employees and pensioners will need their P60s, employees may need P11Ds for details of any benefits in kind. You’ll also need details of any investment income outside an ISA. The self-employed and landlords will need more extensive records of their revenue and outgoings. If you are self-employed think about cash books, invoices, mileage records, receipts, bank statements, records of all sales and takings, purchases and expenses, and money put in to the business or taken out for personal use.

2. Gather details of any professional subscriptions that you paid in the year, which were not reimbursed by your employer.

3. If you have made pension contributions in the year, check whether you have had the full relief that you are entitled to.

4. Check your charitable donations under the gift aid scheme. Like personal pension contributions, gift aid donations may attract additional relief if you are liable to higher rate tax.

5. If you have outstanding student loans and you are self-employed, you may be required to make repayments via your tax return.

6. Have you got married or separated during the year? Income from jointly owned assets, such as rental profits, can sometimes be treated differently depending on whether the owners are married.

7.You can use provisional figures in your tax return if the final figure is not available, but it is important to provide the final figure as soon as possible. HMRC will charge penalties if the original return is considered to have been filed ‘carelessly’.

8. Even if you can’t finalise your tax return yet it’s a good idea to check roughly how much tax you are likely to need to pay by 31 January so that you can ensure your finances are in order. Any amounts paid late will attract interest charges – currently 3%. If payment is still outstanding after 30 days, a 5% late payment penalty may be charged.

9. Check and double check all of your details and ensure that you have accounted for everything. HMRC receives a lot of information directly from third parties, so if anything has been omitted, an enquiry may well be opened. Penalties for inaccuracies in tax returns are much harsher if HMRC spot them first, so it’s best to make sure that all bases have been covered.

10. Finally for those who filed 2013/14 returns, remember that the deadline to amend these is 31 January 2016, so if any provisional figures were included, or any mistakes were made, these should be corrected by this date.

HM Revenue & Customs publishes guidance notes about the records that should be kept (leaflet SA/BK4, obtainable from www.hmrc.gov.uk ). You must keep a proper record of all business receipts and expenses and retain all supporting documentation, otherwise penalties may become payable. Business records must be kept for at least 5 years after the 31 January following the year of assessment.

The HM Revenue & Customs helpline for the Newly Self Employed is 08459 154 515

VAT –

Value Added Tax (VAT) is a tax on the final consumption of certain goods and services in the home market but is collected at every stage of production and distribution. Most business-related goods and services will therefore be subject to VAT.

There are several UK VAT rates, the standard rate being 20%

Your company should register for VAT if your turnover -the amount of money going through your business, (not just the profit) in the past 12 months or less has exceeded the current VAT registration threshold of £82,000. This threshold applies for the 20015/16 tax year.

Even if your business turnover lies below the current threshold, you can still register for VAT, since there may be business benefits in doing so (worth checking with your accountant or direct with HMRC).

Basically, a business will pay VAT on all purchases it makes (known as ‘input tax’) and then charge VAT on all sales it makes (known as ‘output tax’). If a VAT-registered business receives more output than input tax in a VAT period, it will pay the difference to HMRC, otherwise the HMRC will refund the difference if the business pays more VAT than it receives.

Once you are VAT registered, you will need to update your invoicing templates to take account of the additional tax you need to charge your customers. Most businesses will receive a green VAT return every quarter – you should then send your calculations to HMRC, and pay any VAT owed (or claim a refund). if you file your VAT return online,you will have extra time to pay.