If you are self-employed or have rental income, you are among the 12 million individuals who must pay self-assessment income tax, and you should be conscious that midnight on January 31, 2021, is a crucial day for you.
That is when you must have submitted your yearly tax return to HMRC and paid all of your major payments for the year. Because of the epidemic, there are certain modifications this year, but the main principles still apply.
People who have been self-employed for a while are likely to be familiar with the processes, but if you are new to self-employment, it is critical to understand your filing and payment requirements to avoid HMRC penalties.
Determining your status as a self-employed person:
To confirm your tax status, check if you work for only one company and receive a regular wage. If you quit full-time employment and work for yourself, you may continue working without tax deduction. HMRC will assess your tax position using the Employment Status Indicator on their website. If you manage a small firm and are responsible for its success, you are considered self-employed. You must provide equipment, bid for work, and submit invoices.
Self-Assessment Registration:
You must register with HMRC as soon as possible if you are truly self-employed. However, keep in mind the registration deadlines.
The fiscal year spans from April 6 to April 5. If you started working for yourself before April 5, 2020, you must register by October 5, 2020. You may be subject to a penalty if you have not yet registered.
When you became self-employed later April 5, 2020, you must register by October 5, 2021, except you, can do so at any time before that date.
HMRC will create your account once you have answered all of the questions, and you will get a letter with your Unique Taxpayer Reference (UTR) number. After that, you will get another mail containing an account activation code. You may file your tax return at any moment before the deadline once you have enrolled in your account.
Estimating Your Tax Liability:
Starting a self-employed firm requires defining an accounting period, usually lasting a year. During this period, you or your accountant record revenue and allowed expenses. HMRC allows tracking in cash and accumulation methods. An accountant handles bookkeeping, statutory and management accounts, online accounting, and cash flow. The cash basis allows reporting real receipts and expenditures throughout the accounting period. The accruals basis requires recording money owing to you during the accounting period. Using this information, you can determine your business profit, which is the basis of your tax liability.
Filing a tax return:
Once your self-employed firm is established, you must file an annual self-assessment tax return. You can file a paper return by October 31 or online by January 31. If your position is complex, you must complete the online return by December 30. The online form calculates your earnings and calculates tax and National Insurance payments. If you started your business after April 6, 2020, you must file a tax return by January 31, 2022, including self-employed profits.
Estimating your payments:
Tax payments are based on profitability, not self-employment income. For the 2020-21 tax year, the personal allowance is £12,500, so you only need to pay tax on £13,500 of earnings. Tax rates vary between £12,501 and £50,000, with higher rates for over £50,000. National Insurance contributions may be required for profits exceeding £6,475 and over £9,500. Profits between £9,500 and £50,000 are taxed at 9%, and over £50,000 at 2%.
Making payments:
Self-assessment tax payments are due by 31 January and 31 July. You must pay tax on your earnings and National Insurance contributions by 31 January. You must also make your first account payment for the tax bill due January-July 2022. The tax payable on your profits is subtracted from the payments on account. Payments can be made in installments or by the deadline, but late payments will result in interest charges.
Arrangements for payment during the pandemic:
The government and HMRC have provided assistance to self-employed individuals during the pandemic by offering grants for lost income and time to pay extensions. The Self-Employment Income Support Scheme compensates for lost earnings, which must be reported in tax returns by January 31, 2022. A second payment extension allowed individuals to postpone account payments until January 31, 2021, and a 12-month payment plan for those unable to meet their January 31 obligations due to pandemic-related issues. However, HMRC will not impose late payment penalties on unpaid sums. CBM Accounting can assist with tax returns and provide expert guidance for self-employed individuals and corporations.
CBM Accounting can assist you with your tax return:
Self-assessment tax is difficult to understand, especially if you are new to self-employment or have had issues during the epidemic. We can assist you if you require expert guidance or support in filing your tax return. We can assist self-employed individuals as well as corporations with their Tax returns.
However, any Covid or non-Covid related our helpful small company accountants and employees could handle tax concerns. Check out our most recent Tax advice, and contact CBM Accounting for a free accounting quotation right away!
