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Quite a few contractors and small business owners in the UK do not understand the Self Assessment tax process, so we seek to assist.

According to HMRC, there are various scenarios which require you to file a Self Assessment tax return, and some of the common scenarios are:

  • You are self-employed.
  • You are a business partner, a director of a limited company.
  • You have an investment income from investment, land, property or overseas which you need to pay tax on.
  • You have made a capital gain.
  • You are a trustee of someone who has passed away.

Most people mistakenly believe that HMRC will contact them and ask them to file a Self Assessment tax return. In reality, HMRC has made it very clear that it is your responsibility to declare taxable income and file a Self Assessment accordingly. The deadline to pay your Self Assessment tax bill is midnight 31 January for any tax you owe for the previous tax year (known as balancing payment) and your first payment on account. Another key date is 31 July for your second payment on account.

If you have questions pertaining to your tax situation, contact one of our chartered accountants in Putney, Richmond and Central London today. With years of experience helping small business owners, contractors and individuals in London to become tax efficient, we can help to take the stress of tax and Self Assessment away.

Understanding payments on account

If your last Self Assessment tax bill is more than £1,000 and you have not paid 80% of all the tax you owe, then you are required to make two payments a year to HMRC before 31 January and 31 July respectively.

Here is a simplified example:

Assuming your tax bill for the year before last was £1,800 and you had pay to HMRC twice, each time £900.
Last year you had a good year and as a result, you have a tax obligation of £3,000 this year. This means on 31 January, you will be paying £2,700. The breakdown is as follows:

  • The balancing payment of £1,200 (latest tax bill £3,000 minus previous tax bill £1,800 that you had paid).
  • £1,500 for the first payment of latest tax bill £3,000.

Then before 31 July, you will need to pay HMRC £1,500 – which is the remaining of your tax bill £3,000.
It is important to note that payments on account do not include anything you owe for capital gains or student loans (if you are self-employed). You will need to pay those in your ‘balancing payment’ on 31 January. This process is indeed complicated, hence it is best to work with a qualified and honest accountant who can assist you.

Ways to pay HMRC

You can choose to pay your Self Assessment tax bill online or by telephone banking, by debit or corporate card online (not personal credit card), or CHAPS. If you have received a paying-in slip from HMRC, you can also choose to walk into a bank or a building society and make the payment. Alternatively, you can also choose to pay via BACS, Direct Debit or by check through the post.
We usually encourage our clients to make a payment online as it is efficient, particularly if you are a busy individual juggling multiple tasks or if you reside overseas.
HMRC has two accounts, one is called HMRC Cumbernauld and the other is called HMRC Shipley. If you are paying from the UK, you need the usual sort-code and account number for the respective accounts. If you are paying from an overseas account, you will need BIC and IBAN. Details as follows:

  • HMRC Cumbernauld: Sort-code 08 32 10, Account Number 12001039
  • HMRC Shipley: Sort-code 08 32 10, Account Number 12001020
  • HMRC Cumbernauld: BIC is BARCGB22 and IBAN is GB62BARC20114770297690
  • HMRC Shipley: BIC is BARCGB22 and IBAN is GB03BARC20114783977692

Regardless of the account you are paying into, you must include your 11-character payment reference number when making your payment. This is your 10-number long Unique Taxpayer Reference (UTR), followed by the letter K (for example, 1234567891K). It can also be found on the original payslip HMRC sent you when you opened your online account.

How to save money on your tax returns

There are many ways to become tax efficient. For example, in this “Tax planning tips for self-employed contractors” post, we discuss five options – taking IR35 seriously, considering Flat Rate VAT, incorporating a limited liability company (and with that, you can split your income between salary and dividends, as well as claiming tax relief on legitimate expenses), taking advantage of Annual Investment Allowance, and submitting all the paperwork on time.

If you have heard about using personal allowance, capital gain tax allowance, pensions and ISAs to help with tax planning and would like to know more, then this post “Tax planning and your Personal Allowance” would make a great read.

If you are a working parent and would like to know how strategic family tax planning can benefit you, follow the link to this post “Tax planning for families”.

We are experienced tax accountants and we can help you

To speak with one of our experienced accountants to discuss your Self Assessment, tax matters and payments to HMRC, contact us today on 020 8108 0090 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

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