After the festive cheer of Christmas and the New Year, we’re all faced with the joyous task of submitting our tax returns. Okay, it might not be the most enthralling process but if it’s done properly there are benefits.
This system often applies to self-employed individuals, company directors and those whose income is of 'foreign' origin. If you're employed, your company will deduct your taxes and your insurance from your salary or pension through PAYE (Pay As You Earn). In this case, no declaration is necessary because the amount is deducted directly from your pay. However, if an employee pays more than 40% tax he has to complete a self assessment and may be eligible for an overpayment from the Inland Revenue.
The British tax system runs from April 6th to April 5th the following year and forms must be submitted no later than October 31st. This creates a lot of hustle and bustle all over the nation so some people opt to submit the document online. If this is your method of choice then it must be done no later than January 31st, any submission after this date will result in a penalty.
If your employment status has changed, for example, if you’ve decided to brave it alone as a freelancer, you will need to call Inland Revenue to make them aware of the change within three months. You’ll then receive a Unique Taxpayer Reference (UTR) by mail, after which you must register online before submitting your return on the Inland Revenue website (www.hmrc.co.uk)
The amount of tax liability consists of two parts:
1. A payment toward national insurance (which is less expensive for the self employed). This can be as much as 9% instead of 11%. There is also a payment to be made toward national insurance which is about £2.75 per week (2014-2015).
2. A tax on profits will be applied after deducting the amount of your tax exemption beyond a threshold set at £ 10,000 profit. You will be taxed at 20% up to £ 31,850, 40% if your income is from £ 31,850 to £150,000 and 45% if your income is over £150,000.
If your turnover happens to exceed the VAT threshold (currently £ 81,000), you are obliged to register for VAT. However, in certain cases you can contact the Inland Revenue and register voluntarily even if your income falls below the VAT threshold.
To lower your tax bill as an independent, you are entitled to deduct certain expenses from your income, mainly spending which relate to your business, such as transport, printing costs, electricity etc. But if your office is in the comfort of your own home, certain expenses can be deducted by justifying with detailed receipts. For this, a tax consultant will be required.
Bear in mind that a little more tax knowledge can go a long way and you may find you’re entitled to more money back than you originally thought. For further information or assistance, please do not hesitate to contact us:
Tel: +44 (0) 208 123 1755