There are millions of people throughout the UK who are self-employed, and there are many reasons why they choose to take that route. You can create your own work/life balance, you can follow your dreams, and you can have a flexible schedule while having nobody to answer to. As fantastic as these things are, there are downfalls, and one of them is having to know and understand the ins and outs of self-employed tax.
What Is Self-Employed Tax?
If you are an employee, your employer is responsible for paying your tax and national insurance contributions. If you decide to go it alone and become self-employed, the responsibility falls on you.
How Does It Work?
As a self-employed person, you will need to process a self-assessment tax return. Every year you will need to fill out a form that declares all of your earnings and send this to HMRC. You will then be sent a tax bill, dependant on your income, and you will have to pay it before the deadline; if you don’t, then you will incur legal penalties.
The main difference is that rather than being taxed every month, you will receive all of your income, and you will be expected to save up the money you owe in taxes on your own. Once you have filed your tax return, you will be expected to pay it. It’s a good idea to have a separate account for your tax bill and to see it as an untouchable account…unless you would like a hefty bill to pay out all at once.
How Do I Register?
You simply need to register as self-employed with HMRC. They manage all business and personal tax returns, and this is the only body that you need to inform. You are then added onto the database, and from then you can pay your self-employed tax.
Self-employed Tax Deadlines
Your tax is always due for the previous year, not the current one. The deadline for submitting a self-assessment tax return is always January 31st. For example, your tax return from 2018 to 2019 is not due until 2020.
What Do I Have To Pay?
This kind of tax does vary, but you may have to pay income tax, NI tax class 2/4, and VAT; this all depends on you and your business.
If you have started up a new business, or if you are venturing into the world of self-employment, and you are struggling with getting all of your finances into check, then maybe it’s time that you contact a professional to help you. If this is you, and you would benefit from having a knowledgeable accountant, then get in touch with us and see what we can do for you.