Personal Tax (Self-Assessment)
Self-employed, higher rate tax payers, landlords and company directors must all register for self-assessment. Registering will usually happen automatically for high rate employees and company directors.
The total tax and NI due on salary payments is generally deducted by employers through PAYE, so there is little or no salary tax liability payable on personal tax returns (As long as the correct tax code has been used during the year). Investment income such as dividend and bank interest will have basic rate tax deducted on the initial payment, so basic rate tax payers will have no further liability but higher rate tax payers will still owe the difference.
The self-employed will include any business profits on their self-assessment return, and pay tax and NI accordingly.
HMRC issue the tax return forms in April at the end of each financial year. They’re due back with HMRC by the next 31st January; if you want HMRC to calculate the tax due then they’ll want it with them by 30th September. Tax Returns are increasingly submitted electronically, either directly by the tax payer, or their accountant. We’ll prepare and submit your personal tax return as part of our Self-Assessment Service.
Two self-assessment payments are made each year: 31st January and 31st July. The first couple of years of self-assessment are always confusing: the first 31st January you’ll owe the whole of Year 1’s liability; plus 50% more on top as an estimate of what half of next year’s liability might be.
For example: If for the tax year ending 5th April 2010 you owed £5000 in tax, then payments would probably be due as follows:
- 31st January 2011: £5,000 (full calculated liability for year to 5th April 2010), plus £2,500 (50% of estimated liability to April 2011 – based on 2010 amount due), equals a total due 31st January 2011 of £7,500.
- 31st July 2011: £2,500 (50% of estimated liability to April 2011 – based on the 2010 amount due).
So, if for the year ending 5th April 2011 the actual tax owed was £4,000, the following payments would be due:
31st January 2012: £4,000 (liability for year to 5th April 2011), minus £5,000 (amount already paid on account), plus £2,000 (50% of estimated liability to April 2012 – based on 2011 amount due), equals a total due 31st January 2012 of £1,000.
31st July 2012: £2,000 (50% of estimated liability to April 2012 – based on 2011 amount due).
Confused?? Payments on account will take a while to get your head around. HMRC’s explanation is available...but if you're already struggling then might be best to ask us over the phone.
There are some very simple ways to put aside the tax money as you go along. For example, if a higher rate tax payer saves a quarter of each dividend received in a separate bank account then there will be enough money put by to avoid nasty surprises.
A full self-assessment service is available to our clients. Everyone’s circumstances are different but we’ll usually be able to quote a fixed fee. We’ll listen to what you need from us and then write to you separately rather than mix your personal affairs in with your business. We’d expect the basic charges quoted on our website to apply for a routine self-assessment return (i.e. one made up of salary, P11d employment benefits, dividends, bank interest, pension payments).
Self-assessment is a huge topic; HMRC’s website has detailed information if you fancy reading up some more.