Does the thought of dealing with your self-assessment tax return cause sleepless nights? It’s not everyone’s idea of a good time, so we’ve put together this article to show you it’s not scary when you know what you’re doing.
You’ll need a cup of coffee, a spreadsheet, and some spare time.
If you’re ready, we’ll get started.
Register with HMRC
Before you do anything else, you must register with HMRC. Once done, you’ll receive your Unique Taxpayer Reference to enable you to set up your online account. By the way, you’ll also need your National Insurance Number.
Self-assessment tax return deadlines
Knowing your deadlines is essential because “I didn’t realise” isn’t a valid excuse for late returns.
If this is all new to you and you’ve just gone freelance or set up a new business, you can wait until the end of the tax year ends in April. Your first self-assessment tax return must be filed by midnight on the 31st of January the following year.
Do you know how much tax you’re paying?
As you know, the amount you earn dictates the tax bracket you fall into. Everyone benefits from a personal allowance, which for 2021/22 is £12,570. Once your income has exceeded that, you pay the basic income tax rate of 20%. This rises to 40% for earnings over £50,270 and then 45% for earnings over £150,000.
It’s best to keep an eye on the news as these rates can change. To help you gauge how much tax you’ll pay, try out this handy online tax calculator.
Don’t forget your National Insurance
In addition to tax, you’ll also have to pay National Insurance.
Again, what you pay depends on what you earn:
- Class Two – £3.05 pw, if you make more than £6,475 profit pa
- Class Four – 9% on profits between £9,501 and £50,000
Just like income tax, these figures can change from year to year.
Don’t forget to record your expenses
Claiming allowable expenses will help you reduce the amount of tax you pay. These could include stationery, travel, printing, and Subsistence. Of course, you must have the receipts for each of the expenses you’re going to claim.
This is when a good bookkeeper or accountant is worth their weight in gold because they can let you know what you can and can’t set against tax.
What is payment on account
If this is all new to you, the concept of payment on account may seem strange.
The concept is straightforward – once you’ve paid your first year’s self-assessment tax return bill, you’ll have to pay about half of the bill again by the 31st of January and the remaining balance by the end of the following July.
Why?
It’s essentially a way for HMRC to estimate what you’ll owe and ensure you keep paying tax. Don’t worry about overpayment; HMRC take the payments on account from your final bill when you complete your following self-assessment, and you can claim a refund if overpayment occurs.
Self-assessment tax return – Don’t go it alone
The last thing you want to do is miss a deadline or over or under-claim expenses, which is why it’s a good idea to work with a professional bookkeeper. They are well-versed in the whole process and can guide you to ensure all deadlines are hit.
Far from seeing this as an additional business expense, you should see it as an investment in your business’s future.
Time Wise VA work with a wide range of small- to medium-sized businesses to make their working day that little bit easier. Call the team on 0161 211 9837 to get the helping hand you need.