Tax season in the UK is a complicated time if you’re self-employed or running a business. Normal employees have tax and national insurance deducted automatically from their monthly wages, but it’s up to the self-employed and businesses to submit their forms themselves.
With all the issues surrounding tax and the potential financial penalties if you get it wrong, it can be a headache months in advance of your final deadline.
In this survival guide, we will show you how to deal with Her Majesty’s Revenue and Customs (HMRC).
Step 1 – Figure Out Your Tax Deadline
For most people, they have a differing tax deadlines depending on whether they submit online or in paper form. The evidence on the HMRC website states that paper forms must be submitted by the 31 of October. Online forms have to be submitted by the 31 of January for the current tax year.
This is the case for the majority. Limited companies and other entities can alter their tax year through the HMRC tax portal. In this case, they have complete freedom over when their financial year starts and ends. You will be given a customised deadline automatically, based on your start and end dates.
Step 2 – Gather Your Records
You should make sure you have kept adequate financial records of your transactions throughout the year. Ideally, you will have a spreadsheet of everything coming in and going out, so you’ll already know how much you need to pay in tax. Don’t make the mistake many newbies make and leave this until the last minute. Give yourself enough time to amend any records if there’s anything missing.
If you’re using an accountant, you’ll need to submit receipts, invoices, and any other financial documentation.
You must file this carefully because you have a duty to maintain this information for up to three years in case you’re audited. Take note, this isn’t something to worry about because the majority of tax payers never have to undergo an audit.
Step 3 – How Much Do You Need to Pay?
If you’re using a professional accountant to submit your tax return, they will do the work of determining how much you need to pay. In the event you decide to do it yourself, you need to work it out.
As it stands, you have a personal allowance of £10,000, unless you earn over £100,000 per year. This means the first £10,000 you earn is completely tax-free, regardless of the industry you work in.
The other bands indicate the following, based on information from Money Saving Expert:
- 20% rate on anything between £10,000 and £31,865.
- 40% rate on anything between £31,866 and £100,000.
- 45% rate on anything over £150,000.
Take note, there are exceptions to these tax bands, such as if you have an increase in your personal allowance due to a disability like blindness.
Step 4 – Tax Payer Reference Number
After you’ve gathered your financial records and calculated how much you need to pay, you have to know where to pay to make sure HMRC knows what you’ve paid and that you’re completely up to date on your tax.
Your tax payer reference number can be obtained directly from HMRC. If you’ve signed up for the online portal, you can find the reference there. It also appears on any payslip sent to you by HMRC. Use your national insurance number if you don’t have a reference yet.
The reference number ensures HMRC knows it’s you paying the tax. It’s the equivalent of the US social security number. Everyone has a unique number.
Step 5 – How Do You Want to Pay?
You can pay in a number of ways, according to the HMRC website. You have the option of making a lump sum payment at the end of the year. Do this and you won’t have to worry about tax until the next financial year.
Another option is to pay by direct debit using a flexible monthly repayment plan. The deadlines for setting up a payment plan and direct debit is the same as if you paid a lump sum. The HMRC deadline is just when you have to make your intentions clear that you will be paying your tax bill.
You can decide how much you want to pay over how long. There are limits, but it’s largely in your hands. Ideally, you want to make sure it doesn’t last too long or you could be paying tax for multiple years at the same time in the long-term.
Additional Tips for Surviving Tax Season
- Employ an accountant. They will make sure you submit your return correctly.
- Keep accurate financial records throughout the year. This will make the process much faster when it comes to finding out what you owe.
- Start early to reduce the pressure.
- Call HMRC if you need help. They’re there to help you.
- Don’t panic!