19th January, 2023, Henry Pettitt
If you are recently self-employed, or in receipt of rental income or other sources of untaxed income, this may be the first year that you will be asked by HMRC to make payments on account to them, and you might be wondering why…
What are payments on account?
Payments on account are payments to HMRC towards your next year’s income tax liability. They are advance payments towards your tax bill (including Class 4 National Insurance if you’re self-employed).
Each payment is half your previous year’s uncollected tax bill. Payments are usually due by midnight on 31 January and 31 July.
Payments on account do not include anything you owe for capital gains or student loans (if you’re self-employed) – you’ll pay those in your ‘balancing payment’.
Do I have to pay the payments on account?
Yes. If you’re a UK taxpayer who pays less than 80% of your income tax at source and your tax bill is over £1,000, you will be asked by HMRC to make payments on account. However, if you expect your tax liability to be less in the following tax year you can make a claim to reduce your payments on account. If your adjusted payments on account are not sufficient to cover your liability, HMRC will charge 6 per cent interest (rate from 6 January 2023). If your payments on account are more than your tax liability, HMRC will pay repayment interest at 2.5% (rate from 6 January 2023). If you will struggle to make the payments, you talk to HMRC about their Time to Pay scheme.
How are payments on account worked out?
If your tax liability for the 2020 to 2021 tax year is £3,000, and you haven’t made any payment on account towards this, you would owe HMRC £3,000 by 31 January 2023 to cover 2020/21.
In addition to this you will need to pay HMRC £1,500 towards your 2021/22 tax bill by 31 January 2023 and another £1,500 towards your 2021/22 tax bill by 31 July 2023.
If your tax bill for the 2021 to 2022 tax year is more than £3,000 (the total of your 2 payments on account), you’ll need to make a ‘balancing payment’ by 31 January 2024.
What if my circumstances change and I end up overpaying?
If you end up paying too much in advanced tax payments, HMRC will give you the difference back. This will either be via cheque or bank transfer, or by deducting the difference from your next tax bill.
If you know that you will pay too much on account because your tax bill next year will be lower, if you’re winding your business down, or because you’re passing retirement age and will no longer have to pay class 4 National Insurance, you can apply to HMRC to reduce your payments on account.
If you need help with working out your tax liability and ensuring you are compliant with HMRC please get in touch as soon as possible.
Profile: Henry Pettitt ACA CTA
Useful links: HMRC: Payments on account
12th January, 2023, Sean Page
That time of year is fast approaching where those who are self-employed, a partner or director in a business, or get income from property, may need to complete a Self Assessment tax return.
The deadline for completing this return online is 31 January 2023.
What is a Self Assessment tax return?
A Self Assessment tax return is currently an annual return that demonstrates to HMRC an individual’s annual income, that does not fall into their Pay As You Earn (PAYE) earnings.
So, for example, you may be employed and paying tax via your employer under the PAYE scheme, but also have a property that you rent out. The additional income from the property should be declared to HMRC by completing a Self Assessment tax return.
HMRC send out ‘notice to file’ notifications. If you have received one of these, you MUST complete a return by 31 January 2023.
If you have not received one of these, but fall under certain categories, you are advised to complete a Self Assessment return by 31 January 2023, for any earnings that fall into the period 6 April 2021 to 5 April 2022:
- If you are self-employed (unless this income is within the annual £1,000 trading allowance)
- If you are a partner in a business
- If you are a company director and have income on which tax is due that is not taxed under PAYE
- If you have property income – for example, you are renting out a room, a garage or a whole property to someone else (unless this income qualifies for rent-a-room relief or is within the annual £1,000 property allowance)
- If you want to claim tax relief on employment expenses over £2,500 in a year
- If you have to pay a tax charge on your child benefit, known as the high income child benefit charge
- If you have untaxed savings income. HMRC might be able to collect any tax due on small amounts without you doing a full tax return, but should always tell them about savings income of more than £1,000 a year (or £500 if you pay tax at the higher rate) and dividends of more than £2,000 a year
- If you have capital gains tax to pay which hasn’t already been paid in-year – this should be paid within 60 days of the sale of the property.
How do I complete a Self Assessment tax return?
There are many reliefs that can be applied to additional, private income. If you have had a ‘notice to file’ or fall into any of the above categories, it may be worth employing the services of an accountant to help you complete your Self Assessment tax return.
Accountants are experts in ensuring the return is completed correctly and have the knowledge to apply any reliefs that you may be eligible for, such as married couple’s allowance or property allowances.
This is an incredibly busy time of year for us, but we will always help where we can. The earlier you approach us though, the better we can help you.
If you would like our support with your Self Assessment tax return, or any other advice relating to tax or business, please get in touch.
Profile: Sean Page BA ACA
Helpful links: HMRC
6th December, 2022, Chris Goad
Advisory fuel rates company car – an overview by Partner, Chris Goad:
New company car advisory fuel rates have been published and took effect from 1 September 2022.
The guidance states: ‘you can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.
The advisory fuel rates for journeys undertaken on or after 1 December 2022 are:
|1400cc or less
|1401cc – 2000cc
|1400cc or less
|1401cc – 2000cc
|1600cc or less
|1601cc – 2000cc
HMRC guidance states that the rates only apply when you either:
- reimburse employees for business travel in their company cars
- require employees to repay the cost of fuel used for private travel.
You must not use these rates in any other circumstances.
The Advisory Electricity Rate for fully electric cars is 8p per mile. Electricity is not a fuel for car fuel benefit purposes.
If you would like to discuss your company car policy, please contact us.
3rd November, 2022, Martyn Benstead
Martyn Benstead, Partner at Stephenson Smart Chartered Accountants and Business Advisors explains why now, more than ever, employing an accountant is important:
Financially, as well as politically, these are turbulent times.
Replacements in Prime Minister and Chancellor of the Exchequer are coming thick and fast and with these changes, volatility in the financial markets and economic climate inevitably follow.
Why employ an accountant at times likes these?
Good accountants relish change as it enables them to advise clients to take advantage of tax reliefs and of opportunities to maximise wealth.
Interest rates, tax rates and the markets are all changing constantly and it is hard to follow and understand what to do for the best with our finances and how to plan for the future.
Employing an accountant to your team at times like these is crucial and at Stephenson Smart, we’re available to help.
“Martyn was extremely helpful and clear and went above and beyond in trying to resolve the issues we had – even though it was our first meeting with him. We definitely got the sense that he cared about his work and clients and would do all he could to help. We had a very positive experience and would highly recommend Martyn and Stephenson Smart.”
Key areas that may affect you:
If you are thinking about selling a residential property, you may need to be aware of the requirement to submit a Capital Gains Tax (CGT) Return and pay the tax due online within 60 days of completion. We can calculate the likely CGT to assist you in making an informed decision over whether to sell or rent your property.
Depending on the asset, you may be able to reduce any tax you pay by claiming reliefs.
As well as CGT, another factor needing consideration over whether to sell would be your inheritance tax position. Some assets would be subject to inheritance tax if left to beneficiaries in your estate at your death. Careful planning can assist in minimising the impact of this.
There have been a raft of changes in the rates and thresholds in Income Tax, Corporation Tax, National Insurance and Dividend Tax.
It’s more important than ever to consider your business structure – whether you’re operating as a sole trader, partnership or limited company, it may no longer be the best for your circumstances.
Please contact us if you need a fresh look at how you structure your business.
21st October, 2022, Chris Goad
Embarking on a new business start up is both an exciting and a challenging task, which carries with it an element of risk. Key decisions need to be made, and there are many factors to consider. Partner, Chris Goad, highlights some of the key areas.
A business plan is an essential document that will guide you in establishing and growing your new venture; helping you focus your thoughts, providing you with targets and goals as well as giving you an indication of your cash requirements.
Business financing can take two forms: debt or equity. Debt means borrowing money. Loans may come from family, friends, banks, other financial institutions, or professional investors. Equity relates to selling an ownership interest in your business. Such a sale can take many forms, such as the admitting of a partner or, if you are in a company, issuing of additional shares to investors.
Getting a grant is also an option. There are many different small business and start-up grants available depending on where your business is based, how large it is and what you do.
Taxes, legalities, and insurance
A significant task for a new business owner is ensuring that the business complies with the extensive tax, legislation and insurance requirements that are imposed by various authorities. To avoid problems, penalties and – in some cases – legal action, it is important to understand your obligations.
“Chris has been brilliant. I can literally send him a text with a quick question, and he is always so helpful. With each start-up I have worked on Chris has guided me through the process and helped me with the business model. I haven’t had the need to worry about anything because I know Chris is always at the end of the phone with an answer.”
Sean Brown, owner, Cambridgeshire Hair and Beauty.
Stephenson Smart are specialist business start-up advisors. We can guide you through the decision-making processes, help you make the appropriate registrations, assist with cash flow forecasts and offer regular updates to enable you to monitor the performance of your business. Please get in touch if we can support you on your new business start-up journey.
Related articles: Stephenson Smart helps new business start up flourish
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