The Christmas celebrations may seem like a distant memory, you have successfully managed the first couple days back at work, and now it is time to think about your self assessment.
If you are not aware, the deadline for filing your tax return is 31st January. If you haven’t started thinking about it, you better get a move on. There is an automatic £100 penalty charge if it’s late!
If you are new to contracting, understanding what needs submitting and by when can be a little confusing. This breakdown provided by Cogent Accountants explains all, in simple detail:
If you are self employed or are a limited company director you are responsible for ensuring that your tax liability is correctly calculated and that any tax owed is paid on time.
The tax return is issued shortly after the end of the tax year (the fiscal year runs from 6th April – 5th April the following year). You are then required to file your tax return by 31st January.
It is important to remember to include all sources of income on the form, for example:
Most contractors prefer to use the services of a specialist contractor accountant, who will provide you with a tax calculation and submit the tax return on your behalf.
If you have not paid enough tax for the year, you will have to settle the balance. This payment is called ‘Balancing Payment’. If you are required to make a payment, cleared funds must be with HMRC by 31st January.
As well as making the ‘Balancing Payment’, you may also be required to make two payments towards the estimated cost of your bill for the next tax year. This is known as ‘Payments on Account’.
Payments on Account are split into 2 payments: the first one is due by 31st January and the second is due by 31st July.
If you are a first time contractor, it can come as a shock having to pay tax in advance as well as paying tax on income you’ve already earned. However, once you get into the flow of the tax cycle it becomes easier to understand. And, your accountant will keep you up notified of what needs paying and when.
Our advice is not to leave sorting out your self assessment to the last minute. If you are late in submitting the form you will be issued with a £100 penalty charge. Additionally, if you do not settle the balance on taxes due, will be charged interest until it is settled.
Details of charges and penalties can be found on the .Gov website.
HMRC may decide to conduct an enquiry into your tax return. If they do, they will provide you with written notice within 12 months of when the form was filled.
It should be emphasised that HMRC cannot query any entry on a tax return without starting an enquiry. The main purpose of an enquiry is to identify any errors on, or omissions from, a tax return which result in an understatement of tax due. Please note however that the opening of an enquiry does not mean that a return is incorrect.
Records are required of income, expenditure and reliefs claimed. For most types of income this means keeping the documentation given to the taxpayer by the person making the payment. If expenses are claimed records are required to support the claim.
Here is a checklist of what may be needed for an HMRC enquiry:
Employees and Directors
Documents you have signed or which have been provided to you by someone else:
The information in this article has not been written by Caunce O’Hara & Co Ltd or any of Caunce O’Hara’s employees. None of the opinions or views contained within this article are Caunce O’Hara’s nor do we accept responsibility for any financial advice given within the article.
Caunce O’Hara & Co Ltd do not provide Life Insurance policies nor advice regarding Life Insurance or accounting and bookkeeping.