Yes, unfortunately all self-employed individuals, businesses, partners in LLP's, company directors, higher-rate tax payers earning over £100k, and some others do need to complete a tax return. If this doesn't happen, HMRC can issue fines, penalties and interest. The question is, which tax return is the one for you?
The self-assessment is how HMRC figures out income tax for sole traders, partnerships, the self-employed, capital gains, property income, some higher-rate taxpayers and non-residents. To check with HMRC if you need to file a self-assessment, click here. If you've taken a look at all those numbered 'forms' that HMRC like to bring your attention to - don't panic! HMRC expect almost everyone to complete their return online now, and by doing so HMRC will generate the sections relevant to your return using the information that you provide at the beginning.
The return is usually submitted annually, and payment is usually paid once - twice depending on the amount of income tax you owe. The amount of income tax due is calculated by deducting any expenses incurred from your total income. The calculation is either made on a 'cash' or 'accrual' basis. Smaller business, the self-employed and sole-traders tend to prefer use a cash basis, as income tax is calculated on cash that has been physically exchanged, rather than situations where invoices have been sent or received and the cash transaction is actually outstanding.
When a business has a taxable turnover (NOT profit) of £83k or more, it is liable for VAT and so VAT returns must be submitted. The VAT return usually covers a quarter (3 month period) and must be submitted within 1 month and 7 days after that accounting period has ended. There are several schemes from which a small business may benefit. The Annual Accounting scheme only requires one VAT return to be completed each year (rather than 4), and several payments are made throughout the year. The amount of administration required is a benefit of this scheme. The Cash Accounting Scheme has been designed especially for those with a turnover of £1.35M or less, and benefits business cash flow - as VAT is only paid or reclaimed when cash has actually changed hands. Finally, the Flat Rate scheme for businesses with a turnover of under £150k mean that all the calculations involved in a standard tax return can be left, and the enrolled business only pays a fixed rate to HMRC - keeping the difference between what is charged to customers in VAT and what is paid to HMRC. However under this scheme VAT cannot be reclaimed on purchases.
Registered contractors need to verify all subcontractors with HMRC. You will be responsible for paying towards your subcontractor tax and NI by deducting an amount advised by HMRC from your subcontractors invoice after their expenses have been taken out. These deductions are paid to the HMRC with your monthly CIS return. Sub-contractors are also required to register with HMRC.
If you are a limited company, you need to register and file you tax return after the completion and submission of your statutory annual accounts. It is calculated on your companies taxable profits. The rate is currently 19%. There are allowances for capital expenditure which are complex and tricky to calculate.
If you need any help regarding your tax returns - such as completion or putting your accounts in order to make the completion process much easier, then feel free to contact me via the Contact Page. You can often save a considerable amount in accountant's fees if you have all your accounts done by a qualified bookkeeper, rather than paying the accountants to do it!
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