INCOME TAX AND TAX RETURNS
If you are self-employed or receive untaxed income then you have to file a self-assessment tax return. Technically that does not necessary mean a director has to file a tax return but usually HMRC like to think it does.
Self Assessment tax returns are your personal responsibility. If you pay an accountant to prepare your return on your behalf they should invoice you personally. If they invoice your limited company then there would be a benefit in kind and you would have additional tax to pay.
If you are going to file a paper tax return it must be filed by 31 October following the end of the tax year. Electronically filed returns have the deadline pushed back 3 months until 31 January. If the tax return is late there will be a fine to pay.
Tax arising from the tax return is due to be paid by 31 Januaryax arising from the tax return is due to be paid by 31 January after the tax year to which it relates. At new client meetings I then usually take a sharp intake of breath and try to explain payments on account!
If your tax is over £1,000 then you have to pay a further 50% of it as a payment on account (in advance) for the current year’s tax. Another payment on account is due by 31 July – ie in 6 months’ time (and AFTER the end of the tax year to which it relates). The tax then due by the next 31 January has the payments on account made over the last 12 months deducted but you then add 50% of the tax liability (before the payments on account were subtracted) for the next tax year. Confused?!
Try to follow through this table:
| Tax year | Tax due | Payment on account 1 | Payment on account 2 | Less payment on accounts paid | Total due 31 January | Tax due 31 July | Year tax paid |
| X1 | 500 | 0 | 0 | 0 | 500 | 0 | 2019 |
| X2 | 1,500 | 750 | 750 | 0 | 2,250 | 750 | 2020 |
| X3 | 1,500 | 750 | 750 | (1,500) | 750 | 750 | 2021 |
| X4 | 2,000 | 1,000 | 1,000 | (1,500) | 1,500 | 1,000 | 2022 |
| X5 | 2,000 | 1,000 | 1,000 | (2,000) | 1,000 | 1,000 | 2023 |
| X6 | 2,000 | 1,000 | 1,000 | (2,000) | 1,000 | 1,000 | 2024 |
| X7 | 3,000 | 1,500 | 1,500 | (2,000) | 2,500 | 1,500 | 2025 |
| X8 | 3,000 | 1,500 | 1,500 | (3,000) | 1,500 | 1,500 | 2026 |
| X9 | 3,000 | 1,500 | 1,500 | (3,000) | 1,500 | 1,500 | 2027 |
Important things to be aware of are:
- if your tax is less than £1,000 then you will escape payments on account.
- you will also escape payments on account if the tax due is less than 90% of your total tax suffered, eg if you earn a large salary under PAYE but have other minor income that is untaxed
- Payments on account do not mean you are paying MORE tax, it just means you are paying it EARLIER (but still a lot later than our PAYE friends are)
- Payments on Account are fixed by legislation but if your income goes down or you have more taxed income (ie a PAYE salary) then you can justify reducing the payments on account
- If you under pay payments on account HMRC charges interest on the late tax but if the payments on account were too much HMRC will give you interest on the money deposited with the government.
All this can soon become very complicated. If your income stays roughly the same then all that happens is that once you are into Payments on Account there is a rhythm: every January and July paying some income tax. If your tax liability is gradually increasing then the January payment will also include a balancing payment, so the rhythm is large payment January, “small” payment July, large payment January…
The tax rules do change so the rules mentioned today may not be applicable in the future. If you are unsure about your tax return then please contact us to take the stress and worry out of self assessment.
