Taxes can be tricky to navigate, can’t they? As a self-employed business, keeping track of all your tax reporting deadlines is just one of the many crucial things you need to remember. No matter how busy you are though, missing the deadline to submit your tax return and pay the bill is best avoided (along with the financial penalties which HMRC will probably add to your existing tax bill).
Getting to grips with what tax you need to pay can be a bit confusing, so we’ve summarized the most common taxes for self-employed people and businesses to help stay on top of paying your taxes.
When do I need to pay Income Tax?
Most self-employed people will need to submit a Self Assessment tax return to tell HMRC about the income they receive as a sole trader, partner, or as a shareholder in a limited company. The good news is that there are tax allowances which might help to reduce what you owe.
How much is the Personal Allowance?
This means you can earn up to the threshold before you need to pay any Income Tax on your money, although you might still need to submit a tax return to tell HMRC (so that they know what’s going on!).
Can I use the Trading Allowance?
If your self-employment income is less than £1,000 in a tax year, the trading allowance means you don’t need to register for Self Assessment or pay tax on your earnings. Once you cross the threshold you’ll need to register, but you can still offset the allowance against your income in order to pay less tax (or claim tax relief on your expenses!).
What is the Self Assessment tax return deadline?
HMRC eagerly encourage taxpayers to file their returns digitally, with few exceptions. If you do submit a paper-based tax return, you will need to do so by 31st October following the end of the tax year being reported.
If you submit your Self Assessment return online, which most people do, you get until 31st January – an additional three months.
The tax due for that tax year will also need to be paid by 31st January – so getting it in early gives you more time to prepare.
Payments on account
If your tax bill is more than £1,000, you’ll automatically be liable for payments on account. In a nutshell, these are advance payments you must make towards your tax bill for the following tax year, based on what HMRC assumes you are likely to earn.
These payments are made in two separate instalments by the following deadlines:
- First payment on account – 31st January following the end of the tax year being reported (yep, the same deadline as your tax bill).
- Second payment on account – 31st July of the same year.
When do I need to pay Corporation Tax?
When a business is registered as a limited company, this means its finances, assets and liabilities are separate from that of the business owner(s). As a result, Corporation Tax is collected from companies on any profits they make after allowable expenses have been deducted.
In order to pay the necessary Corporation Tax, limited companies are required to submit an annual Company Tax Return.
What is the Corporation Tax payment deadline?
HMRC will confirm your Corporation Tax bill after you submit your tax return, although the deadline to pay it is actually sooner than the deadline to send your return.
If your taxable profits are less than £1.5 million, the deadline to pay Corporation Tax is 9 months and 1 day following the end of your accounting period. If your taxable profits are more than £1.5 million, you will be required to pay your tax in instalments.
What about my VAT bill?
VAT is a type of consumption tax added to goods and services, most commonly at the standard rate of 20%.
What is the current VAT registration threshold?
Businesses must register for VAT if their VAT-taxable turnover reaches the £90,000 registration threshold in a 12-month period.
How often do I need to submit a VAT return?
This depends on the VAT scheme that you register for. In most cases you’ll need to make a VAT submission every three months, but some schemes require a monthly submission, or you can do it once a year if you register for the annual scheme.
Don’t forget that MTD for VAT is now live, so you must keep digital records, and use software to submit information to HMRC.
Voluntary VAT registration
Some businesses choose to register for VAT before their VAT-taxable turnover reaches the registration threshold of £90,000. This is for a number of reasons, including wanting to make their business appear more established and being able to reclaim VAT paid on business expenses. The deadlines remain the same, even if you register voluntarily.
Capital Gains Tax
If you earn money through selling assets that have gained value over time, then you may be liable to pay Capital Gains Tax (CGT). The tax due will be on what you have gained, not the full sale amount.
An example: If you bought a painting for £150,000 and sell it for £200,000, you will pay CGT on the £50,000 value the asset has increased by – this is the gain.
You only need to pay CGT on applicable earnings over the Capital Gains tax-free allowance. This threshold is currently set at £3,000 for the 2024/25 tax year (or £1,500 for trusts).
HMRC guidance sets the following CGT deadlines:
- If you sold a residential property in the UK with a completion date on or after 27 October 2021, you must report and pay within 60 days
- If you sold a residential property in the UK with a completion date between 6 April 2020 and 26 October 2021, you should report and pay within 30 days
Top tip: monitor your income and thresholds regularly
Hopefully your business will continue to grow and make money, which means your income will increase. As this happens, it’s important to keep a close eye on what you’re earning so that you know when you’re nearing any new thresholds or qualifying for any new tax liabilities.
The best way to stay on top of your finances and ensure you remain tax compliant is to maintain solid bookkeeping habits!
Sign up for your free Pandle account to find out more about how we can support your business with our cloud-based bookkeeping software.
