You've signed up for self-assessment with HMRC, you've gathered your statements, invoices and receipts, and now it's time to make sense of your tax return...
What is taxable?
The main taxable incomes in the UK are:
- Employment income: from freelance/contract employment or partnerships
- Investment earnings: dividends paid to you as a shareholder, or income from a trust
- Rental income: money received from tenants
- Savings interest: excluding tax-free savings like ISA's and Savings Certificates
- Pension income
- State benefits: e.g. bereavement allowance, jobseeker's allowance and incapacity benefit (from week 29)
If you're unsure whether something is taxable, make sure you check online before submitting your return.
Can I get a deduction?
Almost certainly, yes. When filling out your tax form, take a look at the expenses and capital allowances sections.
Expenses relate to your running costs, and include:
- Travel expenses
- Staff costs
- Cost of goods bought for resale, or to provide a service
- Accountancy/professional fees
- Rent and utilities
- Business banking charges
- Stationery, telecoms and internet charges
Capital allowances relate to expenditure on equipment that improves or expands your business/service. For example, upgraded machinery or shop fittings.
Remember: deductions must be business expenses. You cannot claim for personal items
How much will I need to pay?
Your tax payment is a percentage of your total earnings, dictated by your income during the tax year (your 'tax bracket'). For 2012/13, this was:
- £0-£35,000 : 20%
- £35,001-£150,000 : 40%
- £150,000+ : 50% (45% for 2013/14)
You only pay tax on your income after deductions and the 'Personal Allowance' (tax-free earnings of £8,105 for 2012/13) are subtracted.
So, if you earned £25,000 in between April 2012 and April 2013, and had deductions of £5,000, you'd pay £2,379 in tax. You arrive at this figure by deducting £5,000 plus your personal allowance of £8,105 from your total earnings, and taxing the remaining £11,895 at 20%.
How do I pay?
Once you've submitted your tax return, HMRC will confirm the tax due and the deadline for payment. Generally speaking, your first payment will be due on the 31st of January 2014. Additional payments are then taken on the 31st of July 2014. You can pay your tax by:
- Direct Debit of flexible payment plans set up via your HMRC Online Account
- Debit/Credit card via HMRC BillPay
- Taking your bill to your bank, building society or Post Office
- Telephone, online banking or CHAPS transfer using the details on your bill
- Sending your bill and a cheque directly to HMRC
What happens if I'm late?
Meeting the January 31st deadline for payment and submission is crucial. If you're late, there are a number of penalties that HMRC can and will apply, including:
- 1 day: £100
- Up to 3 months: £100 for the first day, plus £10 per day up to £900
- 6 months: Adds £300 or 5% of tax owed (whichever is higher) on top of previous penalties
- 12 months: Adds another £300 or 5% tax owed. If your case is judged as 'serious', it can rise to 200% of tax owed.
- 30 days: 5% of tax owed
- 6 months: another 5%
- 12 months: another 5%
If you're looking for ways to simplify your tax returns, check out Money Dashboard, the free service that automatically tracks and itemises spending across all your current accounts, savings accounts and credit cards.