Being a contractor in the UK is an exciting and flexible job where you work on various projects. It’s great because you can use your skills in many areas. But there are some essential things to take care of, including handling your taxes and self-assessment.
This blog post is like a helpful guide for UK contractors. It will tell you everything you need to know about doing your taxes. We’ll cover tax self-assessments, financial records, earnings, tax breaks, and National Insurance Contributions. We will also give you tips on how to pay your taxes without any problems.
Knowing about taxes is super crucial for contractors. Working alone means managing your own money. Sound finances are a big indicator of success. So here is your go-to source for all the info you need to handle taxes. We’ll help you understand and follow the rules to make doing your taxes easy and stress-free.
UNDERSTANDING SELF-ASSESSMENT:
Self-assessment is HMRC’s way of gathering income tax. Contractors must report earnings and expenses, calculate tax, and submit an annual return. The deadline for filing for the previous year is January 31st. It is crucial to stay organised throughout the year for punctuality and accuracy. You don’t have to wait before the deadline to submit, and there are so many advantages to completing it early! Check out our blog: 6 advantages of completing your tax return early…
REGISTERING FOR SELF-ASSESSMENT:
If you’re a contractor in the UK, you must register for self-assessment with HMRC. This involves obtaining a Unique Taxpayer Reference (UTR) and activating your online account. Once registered, you’ll receive a letter containing your UTR. You can then set up your online account to manage your tax affairs easily.
KEEPING ACCURATE RECORDS:
A successful self-assessment relies on maintaining accurate financial records. You should keep detailed records of your income, expenses, invoices, and receipts. Thorough recording ensures compliance with tax regulations and facilitates preparing your tax return. Cloud-based accounting software is a valuable tool to streamline record-keeping and stay organised. We recommend Xero.
INCOME AND EXPENSES:
Contractors have to declare all their income on their self-assessment tax return. You must report all earnings from contracts, dividends, and other income sources. Contractors can also claim business expenses to reduce their taxable income. These can include travel expenses, equipment costs, and professional fees. It’s essential to understand which expenses are allowable. You can ensure you are keeping thorough records to support these claims.
self-assessment TAX ALLOWANCES AND DEDUCTIONS:
The UK tax system has various allowances and deductions that you can take advantage of. Understanding these can impact your tax liability. Personal, Dividend and Marriage allowances are a few examples. You may also qualify for tax relief on pension contributions and specific expenses. Staying informed about available allowances ensures you maximise potential tax savings. Check out our video on 10+ Things you can claim for your Business (Tax Deductible):
NATIONAL INSURANCE CONTRIBUTIONS (NICS):
Contractors in the UK are also required to pay National Insurance Contributions. The self-assessment process involves the payment of Class 2 NICs. Your profits form the basis for calculating Class 4 NICs. Understanding NICs and ensuring accurate calculations are crucial for meeting your contribution obligations.
MANAGING Self-assessment PAYMENTS:
Contractors are responsible for managing their tax payments effectively. Payment deadlines for self-assessment tax bills are in January and July. Failure to meet these deadlines can result in penalties and interest charges. Setting aside funds regularly and utilising HMRC’s payment options can help manage tax payments efficiently. Check out this blog: Paying your self-assessment tax return for more help!
CAN I REDUCE MY PAYMENTS ON ACCOUNT?
This is a question we get asked quite a lot! If your business makes less profit than the previous year, you can apply to reduce your payments on account. This will prevent overpayment of taxes, and you reclaim them later.
You can request this through your Government Gateway Account or chat with an accountant about it. Learn more about Payments on Account here!
WILL I BE CHARGED INTEREST OR PENALTIES FOR LATE PAYMENT on my self-assessment tax return?
It’s essential to pay your self-assessment bill before the deadlines.
If not, you’ll face a late fee and must clear all outstanding amounts to stop further interest from racking up.
If you might struggle with your tax deadlines, don’t ignore them!
Contact HMRC or talk to your accountant about options like a Time To Pay arrangement.
I MADE A MISTAKE ON MY SELF-ASSESSMENT TAX RETURN. CAN I CORRECT IT?
Yes, you can amend your tax return within 12 months of the filing deadline. Remember that the changes you make could mean paying extra tax or interest. If you submit your tax return with any mistakes or issues, HMRC can correct it within nine months of filing.
SEEKING PROFESSIONAL ADVICE:
Self-assessment can be tricky, and many contractors turn to experts for guidance. If you are looking for an accountant to help you, contact us!
Self-assessment is a crucial part of a contractor’s tax responsibilities in the UK. Successfully managing this involves understanding the process, maintaining detailed records, and staying informed about allowances. It’s essential to seek professional advice and be proactive in managing tax obligations for a thriving contracting career in the UK.
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