If you are trading as a sole trader, as opposed to a limited company, your business profits will be declared and taxed as part of “self-assessment.”

Most people know the deadline for submitting this tax return is the 31 January AFTER the tax year end.  (so, for 20010/11, the self-assessment tax return is due by 31 January 2012).

The unfortunate thing that catches many people out is the payments on account system and a 50% payment on account for the current tax year is ALSO DUE by 31 January.

Mike began trading on 6 April 2010 and has been lucky enough to make a profit, during 2010/11, and his Tax and Class 4 National Insurance bill comes to £1,000

So, total to pay by 31 January is £1,000  right?
WRONG!
Because Mike also has to pay his first “Payment on Account” in respect of 2011/12, and that is estimated as 50% of his 2010/11 tax bill, he actually has to pay £1000+£500=£1500 on or before 31 January 2012.

His second Payment on Account for 2011/12 is due on or before 31 July 2012 and will be another £500.

If his tax and NI for 2011/12 comes out as £1200, his final payment for 2011/12, which would be due on or before 31 January 2013, would be £200.  However, now he has to make a 50% payment on account for 2012/13, which would be £1200 x 50% = £600.
So, the total he would have to pay by 31 January 2013 would be £200+£600=£800
(and so it goes on)

If you have reason to believe that your profits in any year are lower than the previous year’s, you may make an application to reduce your payments on account.

What Next After Incorporation

*So, you’ve set up a new limited company… what next? When you incorporate a new company, Companies House pass that information onto HMRC. So, within a few weeks, HMRC will automatically send you a CT41G form. This asks for some standard information on your new company, such as it’s year-end date, it’s registered number, directors [read more]

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Self-Assessment Tax Returns for Company Directors

*If you work from home, consider charging business rent to your limited company (you’ll need to set up a rental licence agreement between yourself and your company).  If you set the rent figure to be the same as the actual costs, then there will be no personal tax to pay, (although both the rental income [read more]

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Sole Trader Self-Assessment Tax Returns and Things to Claim For

*Things to Claim for a sole-trader self-assessment tax return Cost of all your materials Cost of things like advertising, promotion Business Assets/Capital Expenditure* Office Equipment, computer, printer* Use of home (either a flat rate charge of £3 or a proportion of your household expenses, as appropriate to your circumstances) Mobile phone Stationery & office supplies [read more]

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Completing your Self-Assessment Tax Return

*If you receive a letter from HMRC telling you to send in a tax return, you will, at some point need to send it in.  There’s no point in putting your head in the sand (however tempting that may be) There are penalties for late returns.  There are also penalties for inaccuracies and errors – so [read more]

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Do you have to complete a tax return?

*So, who must fill in a self-assessment return? Well, amongst others, you’ll need to complete this annual task if: You are self-employed You are a company director You have savings & investment income above a certain level You have property income above a certain level You receive an annual trust or have settlement income You [read more]

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