HMRC will take a keen interest in your venture. Legally, you are obliged to supply them with information that will determine how much tax, National Insurance, and possibly VAT that you will have to pay.
This chapter gives you a simple overview of the key points, but we strongly recommend that you take professional advice. If you are not an accountant yourself, it is probably best to engage someone who is and to get on with what you do best – make the money.
Income tax and national insurance contributions will be payable annually on any profit/income over your personal allowance. Your annual self employment ‘income’ will be total revenue minus expenses So, you must have accurate details of the revenue and the ‘allowable expenses’ to ensure the profit/income calculation is correct.
There are a number of key dates that you must remember, but these vary depending upon the legal status of your business and whether or not you employ staff.
| April | HMRC sends a reminder telling you to complete a tax return. To complete your tax return online you must be registered to use the Self Assessment online service. If you registered online as newly self-employed from April 2014, then you may already be registered for Self Assessment Online. Complete your tax return using the records you have kept. You will be provided with an immediate calculation of tax and NI contributions due.If you wish to complete your self assessment tax return on paper, ring the Self Assessment Orderline to ask for the forms. |
| 31st October | This is the deadline for paper tax returns. HMRC will work out the tax and Class 4 NI contributions and let you know how much you must pay, before the due date of January 31. If you miss this deadline, you must submit your return online. |
| 31st January | This is the deadline for online tax returns. You must pay the balance of any tax and Class 4 NI contributions you owe by this date. You may need to pay a first payment on account for the following tax year by this date. |
| 31st July | You may need to pay a second payment on account by this date. |
If you are not registered, register here: www.gov.uk/log-in-register-hmrc-online-services
Value Added Tax (VAT) is a tax on certain goods and services supplied in the UK. At the moment, you only have to register for VAT when your ‘taxable turnover’ is more than the current threshold.
For more information visit: gov.uk/vat-registration-thresholds
Almost everyone who works for a living pays N.I.
It goes toward pensions, benefits and healthcare. Class 2 NICs are payable by anyone who is self-employed.
Class 2: is a fixed weekly amount, paid by monthly direct debit. When you register as self-employed, you will also fill in the Class 2 direct debit form. See: gov.uk/self-employed-national-insurance-rates
Class 4: is payable by most self-employed people. They are a percentage of your annual taxable profit from self-employment, but you only start paying Class 4 when your profits reach a certain limit. You pay your contributions along with your income tax using the Self Assessment tax return.
If you are in a partnership, or if your spouse is self-employed too, then each person pays their own Class 4 NICs.
If you are an employer, then you will also have to pay Class 1 – and possibly Class 1A or Class 1B – on employees’ wages.
Keeping track of income and expenditure is vital to the financial health of any business, as is complying with the demands of the revenue!
Careful planning, book-keeping and compiling annual accounts are often best left to someone with the required experience and skills – an accountant or qualified book-keeper.
If you operate a profitable business, a good accountant will save you a lot of aggravation and possibly money too! The tax laws are complex and accountancy fees can sometimes be covered by their knowledge of how to legally minimise the amount of tax that you have to pay.
Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.
As a result, small businesses are increasingly looking to cloud-based accounting solutions to manage their bookkeeping, payroll, statutory accounts and annual tax returns.
Learn more online at: Cloud Accounting Options For Small Business
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