Self-Employed Tax Help – If you are self-employed, you may have to deal with various tax issues, such as filing your Self-assessment tax return, paying your tax bill, keeping records of your income and expenses, and claiming reliefs and allowances. This article will provide you with some helpful information and guidance on how to handle these matters and avoid penalties.
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What is Self Assessment?
Self Assessment is a system that HM Revenue and Customs (HMRC) uses to collect Income Tax and National Insurance contributions from people who have income that is not taxed at source, such as self-employed income, rental income, dividends, or foreign income.
If you are self-employed, you need to register for Self Assessment and file a tax return every year by the deadline of 31 January following the end of the tax year (which runs from 6 April to 5 April).
You can file your tax return online or on paper, but online filing has some advantages, such as:
- You can file up to 31 January, whereas paper filing has an earlier deadline of 31 October
- You can check your tax calculation and see how much tax you owe
- You can pay your tax bill online or set up a payment plan
- You can access your previous tax returns and print copies
- You can get help and support from HMRC online or by phone
How to Pay Your Tax Bill
When you file your tax return, you will see how much tax you owe for the previous tax year. You need to pay this amount by 31 January. You may also have to make payments on account, which are advance payments towards your next tax bill. These are due by 31 January and 31 July each year.
You can pay your tax bill online using various methods, such as:
- Debit or credit card
- Bank transfer
- Direct debit
- Budget payment plan
You can also pay by cheque, cash, or at a bank or building society branch, but these methods may take longer to process.
How to Reduce Your Tax Payments
There are some ways that you can reduce your tax payments as a self-employed person, such as:
- Claiming expenses that are allowable for tax purposes, such as travel costs, office supplies, equipment, advertising, insurance, etc. You need to keep records of these expenses and include them in your tax return.
- Claiming reliefs and allowances that are available for self-employed people, such as the trading allowance, the property allowance, the marriage allowance, the personal allowance, etc. These reduce the amount of income that you have to pay tax on.
- Use simplified expenses if you are self-employed and work from home or use a vehicle for business purposes. These are flat rates that you can use instead of calculating your actual costs.
- Paying into a pension scheme or making charitable donations. These can reduce your taxable income or increase your tax relief.
How to Keep Records of Your Business
As a self-employed person, you need to keep records of your business income and expenses for at least five years after the 31 January deadline of the relevant tax year. This is because HMRC may check your records if they have any queries or doubts about your tax return.
You can keep your records in any format that suits you, such as paper, digital, or software. However, you need to make sure that your records are:
- Accurate and complete
- Easy to access and understand
- Organised and secure
What Happens If You Miss the Deadline or Make a Mistake?
If you miss the deadline for filing your tax return or paying your tax bill, you may have to pay penalties and interest charges. These can be quite high depending on how late you are and how much you owe.
If you make a mistake in your tax return, you may have to pay extra tax or get a lower refund. You can correct a mistake within 12 months of the deadline by filing an amended return online or by writing to HMRC.
Where to Get Help and Support
If you need help and support with your self-employed tax issues, you can:
- Use the online tools and guidance on the GOV.UK website
- Sign up for HMRC email updates, videos, and webinars if you’re self-employed
- Contact HMRC by phone, online chat, or post
- Get help from a professional adviser, such as an accountant or a tax adviser
- Get help from a voluntary organization, such as TaxAid or Tax Help for Older People
How to Choose the Best Business Structure for Your Self-Employed Activity
One of the first decisions that you need to make as a self-employed person is what kind of business structure you want to operate under. There are different types of business structures, such as sole trader, partnership, limited company, or limited liability partnership. Each one has its advantages and disadvantages, such as:
- The level of personal liability that you have for your business debts and obligations
- The amount of tax that you have to pay and the way that you report your income and expenses
- The legal and administrative requirements that you have to comply with
- The flexibility and control that you have over your business decisions and operations
How to Register for VAT and Charge VAT on Your Sales
If your turnover (the total amount of sales that you make in a year) exceeds the VAT threshold (currently £85,000), you need to register for VAT and charge VAT on your sales. VAT stands for value-added tax, which is a tax that you charge on top of the price of your goods or services. The standard rate of VAT is 20%, but some items are charged at a reduced rate (5%) or zero rate (0%).
You need to register for VAT online using the HMRC website. You will receive a VAT registration number and a certificate. You will also need to choose a VAT accounting scheme, which determines how and when you report and pay your VAT. There are different types of VAT accounting schemes, such as:
- Standard scheme: You report and pay VAT quarterly based on the invoices that you issue and receive
- Cash scheme: You report and pay VAT quarterly based on the payments that you receive and make
- Flat rate scheme: You pay a fixed percentage of your turnover as VAT and keep the difference between what you charge and what you pay
- Annual scheme: You report and pay VAT once a year based on an estimate of your turnover
In conclusion, being self-employed can be rewarding and challenging, but it also comes with some tax responsibilities. You need to register for self-assessment, file your tax return, pay your tax bill, keep records of your business, and avoid penalties and mistakes. You can also reduce your tax payments by claiming expenses, reliefs, and allowances. If you need help and support, you can use the online resources and services provided by HMRC or seek advice from a professional or a voluntary organization.
Frequently Asked Questions: Self-Employed Tax Help: A Guide to Filing Your Tax Return and Reducing Your Payments
How much tax do I have to pay as a self-employed person?
The amount of tax that you have to pay as a self-employed person depends on your taxable income, which is your total income minus your allowable expenses, reliefs, and allowances. You have to pay Income Tax and National Insurance contributions on your taxable income. The rates and thresholds of these taxes vary depending on your circumstances and the tax year
What if I have other sources of income besides my self-employed income?
If you have other sources of income besides your self-employed income, such as employment income, rental income, dividends, or foreign income, you need to report them in your tax return as well. You may have to pay tax on these incomes as well, depending on their amount and nature.
How can I reduce my tax bill as a self-employed person?
A: There are some ways that you can reduce your tax bill as a self-employed person, such as claiming expenses that are allowable for tax purposes, claiming reliefs and allowances that are available for self-employed people, using simplified expenses if you are self-employed and work from home or use a vehicle for business purposes, paying into a pension scheme or making charitable donations. You can find more information on how to reduce your tax payments on the GOV.UK website.
Where can I get help and support with my self-employed tax issues?
Use the online tools and guidance on the GOV.UK website
Sign up for HMRC email updates, videos, and webinars if you’re self-employed
Contact HMRC by phone, online chat, or post
Get help from a professional adviser, such as an accountant or a tax adviser.