We are fast approaching the 2020/21 tax return deadline of 31 January 2022.
Have you completed your self assessment tax return yet?
If the answer is yes, give yourself a pat on the back. It still might be worth reading this article, as it covers all aspects of your self assessment tax return, and you can ensure you haven't missed anything.
If the answer is no, read on, as I will be covering all aspects of completing your self assessment tax return. Most importantly, try not to panic, and if you're really stuck, you can always get in touch.
Personal allowance – which is the amount you can earn before being liable for income tax was £12,500
Basic rate band of 20% income tax is on earnings of £12,501 - £50,000
Higher rate band of 40% income tax is on earnings of £50,000 - £150,000
Additional rate band of 45% is earnings over £150,000
If your income is over £100,000 your personal allowance goes down by £1 for every £2 that your adjusted net income is above this amount. This means your allowance is zero if your income is £125,140 or above.
Class 1 is payable on employment earnings but I will only discuss NIC on self employment here.
Self employed taxpayers often don’t realise that they also have to pay Class 2 NIC (which was £3.05 per week in 2020/21) and also Class 4 NIC which is 9% on profits between £9,500 - £50,000 and then 2% above this amount.
Both Class 2 and Class 4 NIC are payable with any income tax due by 31 January 2022.
Class 4 NIC is also added to the income tax liability when calculating payments on account but Class 2 isn’t.
I've been asked for payments on account, what are these?
If your tax liability is more than £1,000 you will have to make payments on account in both the January and July following the tax year for which you have prepared a return. These payments will be 50% each time. Then when you prepare your next tax return, the liability will be reduced by these payments on account and you will have either a balancing payment to make (if your income is higher) or a repayment to claim.
However, again if your liability for that year is more than £1,000 you will need to make payments on account again. The first year you fall within this regime is often a shock having to pay upfront so make sure that you budget throughout the year for your tax liabilities.
If you think your profits have fallen in the current tax year you can reduce your payments on account accordingly by making a claim on your tax return.
If you have other income such as PAYE income as an employee or if you made a Capital gain or loss in the year there are additional sections of the return you will need to complete.
Make sure you include each self employment you have separately; they cannot be added together.
Other information worth remembering about completing your self assessment tax return
Do you know what your government gateway login and password is?
Ensure that you know what your government gateway login and passwords are as it can take up to 10 working days for a new code to arrive through the post.
My tax is higher than I expected it to be, what should I do if I can't afford to pay it?
If you are struggling to find the funds to pay your bill by 31 January 2022 you can contact HMRC to arrange a payment plan and this can now be done online. There will be interest added to any amounts still outstanding from 1 February 2022.