income tax_

Income Tax is payable by self-assessment. Once you have registered your self-employment with HM Revenue & Customs you will be given a 10 digit Unique Taxpayer’s Reference (UTR). (Your Tax Return form should contain the relevant supplementary pages to notify your self-employment income.)

The UK tax year runs from 6 April to the following 5 April. (The year commencing on 6 April 2011 and finishing on 5 April 2012 is known as the tax year 2011/2012.)

There are strict time limits for filing your Tax Return. The 2011/2012 Tax Return must be filed by 31 January 2013 to avoid a late filing penalty.

Common problem areas and questions

To what date should you prepare your Self-Employment accounts?

Normally the first accounts that you should prepare would be for a period of no more than 12 months, but the first period of accounts need not be for exactly 12 months. For example, if you commenced self-employment on 1 August 2011, there is no requirement to prepare your first accounts for the year to 31 July 2012. Normally it is simpler and more tax-efficient for the first accounts to be prepared from the date of commencement to the following 5 April, e.g. with a 1 August 2011  commencement date your first accounts would be to 5 April 2012 and then to 5 April annually thereafter.

What business records do you need to keep?

HM Revenue & Customs publishes guidance notes about the records that should be kept (leaflet SA/BK4, obtainable from www.hmrc.gov.uk ). You must keep a proper record of all business receipts and expenses and retain all supporting documentation, otherwise penalties may become payable. Business records must be kept for at least 5 years after the 31 January following the year of assessment.

The HM Revenue & Customs helpline for the Newly Self Employed is 08459 154 515

VAT -

Value Added Tax (VAT) is a tax on the final consumption of certain goods and services in the home market but is collected at every stage of production and distribution. Most business-related goods and services will therefore be subject to VAT.

There are several UK VAT rates, the standard rate being 20% (from 1st January 2011).

Your company should register for VAT if your turnover -the amount of money going through your business, (not just the profit) in the past 12 months or less has exceeded the current VAT registration threshold of £73,000 (from 1st April 2011), if your turnover looks likely to exceed this you should register prior to hitting the £73,000 figure

This threshold applies for the 20011/12 tax year.

Even if your business turnover lies below the current threshold, you can still register for VAT, since there may be business benefits in doing so (worth checking with your accountant or direct with HMRC).

Basically, a business will pay VAT on all purchases it makes (known as ‘input tax’) and then charge VAT on all sales it makes (known as ‘output tax’). If a VAT-registered business receives more output than input tax in a VAT period, it will pay the difference to HMRC, otherwise the HMRC will refund the difference if the business pays more VAT than it receives.

Once you are VAT registered, you will need to update your invoicing templates to take account of the additional tax you need to charge your customers. Most businesses will receive a green VAT return every quarter – you should then send your calculations to HMRC, and pay any VAT owed (or claim a refund). if you file your VAT return online,you will have extra time to pay.