For those of you doing your tax return for the first time, it might seem daunting, but we are here to run you through the whole process and point out the common pitfalls to avoid. For those who have submitted before, feel free to take this as a refresher – you might learn something new…
If it still seems a bit overwhelming, don’t panic. Howlader and Co Is a friendly Central London firm serving primarily small businesses, start ups and entrepreneurs. Call Hasib on 0207 488 3614, or email [email protected] and mention BUBELE for a free initial consultation.
1) How do I file?
The deadline for paper filing has already been and gone, and so the only option remaining is to file on HMRC’s website. But to do this, you first need to create an account (https://online.hmrc.gov.uk/registration). It can take 10 working days for HMRC to post you an activation code for your online account, so this needs to be done asap!
What you will need to hand
You will need your unique taxpayer reference number, or UTR. This would have been provided to you by letter from HMRC when you first registered to submit a tax return, and will be on any correspondence received from HMRC.
Once you’ve got your login details and UTR
Follow the relatively intuitive instructions on HMRCs online system, and use the help buttons if you have any queries. Depending on your income, you may need to complete different pages on the return:
If you received employment income
You’ll need your P60/Final P45 from the year. If your employer provided any medical insurance/company car, etc. you will also need a form called a P11D – this should be requested from your employer.
If you were self-employed over the year
You’ll need details of all your income received and expenses incurred over the year. We recommend that you print off hard copies of all of your sales and purchase invoices, as HMRC can go back six years if they decide to look into your return.
If you received interest on your bank account/other investments
The total net figure of interest should be included on the return. The bank pays tax on your behalf to HMRC, so if you are a basic rate taxpayer (earning less than ~£41,000 during the year) you will have no further tax to pay on this income.
If you received rental income
Similar to the self-employment income above, you need to include your income received and the expenses incurred during the year on the rental pages.
Once all the relevant pages have been completed, click through to the final calculation, where you can see what the total damage is.
Extras you might not be aware of:
- – Self-employed workers will pay Class 4 national insurance through their tax return – broadly speaking, 9% of their income over £8,000.
- – If you have student loans repayments to make, this will be calculated in the return as well, on your total income for the year. If you have employment income and another source of income (such as self-employment), you will find yourself paying this on top of the deductions already taken through your payslip.
- – On your first tax return, if the total amount you owe is greater than £2,000, then HMRC will expect you to make ‘payments on account’ for the following year’s tax. You pay 50% in January, and the remaining 50% in July. If you know that your income for the following year will be lower, then you can apply to reduce these payments on account. However, if you end up earning more than this reduced figure, you will need to pay some interest on the difference
2) What happens if I don’t file before the deadline?
- – If you can’t complete the full return to 100% accuracy on time, submit something to HMRC to avoid the late filing penalties. You have one year to amend the return after it has been submitted so you can always go back and make changes.
HMRC will fine you if you file your tax return late. The penalties escalate as follows:
- – One day late: £100 fixed penalty
- – 3 months to six months late: Penalty of £10/day for 90 days (up – to a maximum of £900)
- – More than six months late: 5% of tax due, or £300 fixed penalty (if greater)
- – More than twelve months late: 5% of tax due, or £300 fixed penalty (if greater)
The penalties quickly stack up! You may end up owing £1,600 if your return is over twelve months late.
3) What if I can’t pay my tax bill?
HMRC also issues fines for a failure to pay your tax bill on time, BUT it’s worth noting that the penalties are generally much lower than those for late filing, certainly in the first months, so if you haven’t got the funds, make sure you file your return anyway. The penalties for late payment are:
- – 30 days late: 5% of tax due
- – Six months late: 5% of tax due (of balance outstanding)
- – Twelve months late: 5% of tax due (of balance outstanding)
- If you are unable to make the full payment of tax to HMRC, in some circumstances they will arrange a ‘time to pay’ (payment plan) agreement with you. They are more likely to agree to this if you speak to them before the payment deadline of 31 January.
- If no payment plan is reached, you still have 30 days before the first late payment penalty kicks in, so you may have time to rearrange your finances so that you can pay the bill, or at least some of it. HMRC will charge interest on the balance (at 3% per year) so it’s worth paying as much of it as you can, even if you can’t clear the whole balance.
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