UK Tax News

Paying tax under self-assessment

Published: 22 Jan 2012

Updated: 16 Oct 2023

Written by Ray Coman

Where possible, tax will be collected on your income before you receive it. This mainly applies to employment, pension and savings income. However this is not always possible, for instance where you have self-employment or rental profits. In this case, you will have to pay your tax to HMRC under self-assessment. This tax due is calculated on your Tax Return.

Self-assessment tax and Class 4 national insurance is due by 31 January after the end of the tax year. However, payments towards the following year's tax liability can also be payable on 31 January in the tax year and 31 July after the end of the tax year. These are payments on account towards next year's tax liability. Payments on account are half of the previous year's liability. When your actual tax has been calculated, any balancing payment is due by the following 31 January, or a repayment is issued if the payments on account are more than the tax owed.

If 80% of your tax liability has been deducted at source, or the liability is less than £1,000, you will not need to make payments on account.

If you expect your current year income to be lower than that of the previous year you can request that your payments on account are reduced accordingly. If your profits are higher than the reduced amount then interest will be charged on the difference.

You will be also charged interest on any underpayments of tax. If the balancing payment is still overdue by 28 February following the tax year an extra 5% surcharge will be imposed, rising to 10% on any amount which is still outstanding on the following 31 July.

If you are taxed through PAYE you can arrange for additional tax to be deducted at source from your pay. Tax of up to £3,000 (or £2,000 for 2010/11 and earlier years) can be deducted in this way, provided you send your tax return online by 31 December following the end of the tax year.

The system of paying tax through self-assessment can be complex particularly where payments on account are involved. With our Tax Return service we aim to:

• Minimise your tax
• Clear up any queries you have regarding your payments
• Remind you well in advance of deadlines the tax you have to pay, so reducing the chance of being charged by HMRC for late payment.

Please contact us and we would be pleased to help.

Tax Returns: An overview

Published: 22 Jan 2012

Updated: 11 Oct 2023

Written by Ray Coman

Most people in the UK do not have to complete a Tax Return. There is often no need to file a Tax Return if your only income comes from employed earnings, state benefits or a pension.

Typically, a Tax Return is due if you are self-employed, receive rental profits, investment income or you earn over £100,000.

It is your legal obligation to let HMRC know that you have to complete a Tax Return for any tax year. The tax year runs from 6 April to the following 5 April.

The time limit for notifying HMRC of your chargeability to tax is 31 January after the end of the tax year. If HMRC have to prompt you to notify them to complete a tax return after the deadline, the penalty can be as high as 100% of the tax owed. On the other hand, there may be no penalty for notifying HMRC after the deadline if you do so voluntarily.

Although you may avoid a penalty for late notification, there will be a fixed penalty, of at least £100, for filing the Tax Return late.

The deadline for submitting your Tax Return online is 31 January following the end of the tax year.

There are a number of reasons that you may have to complete a Tax Return. In many cases, a Tax Return may no longer be necessary, even though it is still requested by HMRC. Seek professional advice from us. We offer a free, initial consultation and can help you determine the best way forward.

Tax relief on capital costs

Published: 15 Jan 2012

Updated: 16 Oct 2023

Written by Ray Coman

Capital allowances are a tax relief for outlay on capital. Capital costs are those required for the business to run long term, such as vehicles and equipment. To reflect the length of time that capital is used in the business, only a proportion of the capital costs are deducted from profits each year. This proportion is called the capital allowance. By distinction, revenue costs are those required immediately in the business. Most revenue costs are deducted straight away against from profits.

In an attempt to relieve the cash flow implications of this system for small businesses and sole traders, the government has introduced an annual investment allowance (AIA.) The AIA provides 100% relief for expenditure on most capital used in the business up to a yearly maximum. As a result, capital costs up to the annual limit are effectively treated in the same way as revenue costs for tax purposes. If the business has invested more than annual investment allowance for the twelve month period, any balance is relieved at the writing down allowance rate.

However, the 100% annual allowance rarely applies to cars. The rate of allowance given to a car depends on its CO2 emission, so that the less a car emits the faster the business will benefit from tax relief.

It is possible to deduct certain costs on features which are integral to a building, such as lighting, heating and air conditioning systems. This can apply even to commercial premises which are not new builds. The annual investment allowance can apply to integral features and the balance could receive an allowance at the special rate. The tax reliefs can be significant and should be considered when planning the premises for your business.

If an asset is sold for more than the capital allowances left to deduct from profits, the surplus could be treated as extra profit for the year. It could be worthwhile considering the timing of disposals of assets which are likely to increase profits.

Where a company makes a loss as a result of investing in certain types of capital, such as green technology and research and development assets, a tax credit may be claimed. This could result in a government payment to the business. The payment is in the form of a tax credit rather than a tax refund.

There are incentives for certain types of investment that the government wishes to promote, such as for converting empty spaces above commercial premises into flats.

Various tax planning opportunities are available with capital allowances. It is possible to obtain allowances separately on assets which are expected to have a life of less than five years. This can accelerate tax relief. It is also possible to disclaim capital allowances, which can be an advantage where your tax free allowances would be wasted if the capital allowance was all used in the first year.

Discuss with us a budget for capital expenditure, which is aligned to business goals and optimised for tax.

Harsher rules on late Tax Return penalties

Published: 09 Jan 2012

Updated: 06 Oct 2023

Written by Ray Coman

HMRC have toughened the penalty system for late tax returns. With effect from the tax year ended 5 April 2011, automatic penalties now apply regardless of your tax liability. As such, even if you have no liability, or were due a refund, you are still liable to a minimum £100 if you were supposed to file a Tax Return and have missed the deadline. Penalties increase more sharply where a tax return is over three months late.

Coman & Co. Ltd. can help you avoid unwanted fines. We offer an efficient, online service. With our system you will be reminded well in advance of any relevant deadlines.

Please contact Coman & Co. Tax Accountants for advice on your tax situation. We are Chartered Tax Advisers and pleased to help with all your personal taxes no matter how straightforward or complicated.

Paying yourself a salary from your own company

Published: 09 Nov 2011

Updated: 16 Nov 2011

By running your business through the company, the question arises as to how to take profits out of the company properly and with the minimum tax.

Where it is just you in the company, you will have a choice to withdraw funds as dividend or salary. Provided you do not have any other income it will save tax to withdraw salary less than your personal allowance and therefore tax free in your hands.

There are three possibilities to consider:

1. Where your salary is below the lower earnings limit, there is no need to run a payroll, and no further reporting requirements.
2. Where your salary is below the earnings threshold, you will have to register as an employer and submit an employer's annual return, but there will be no tax or national insurance to pay.
3. Once you pay exceeds the earnings threshold, you will have national insurance both employers' and employees' and soon after your earnings will exceed the personal allowance and there will be income tax to pay as well.

Filing an employers' annual return is often worthwhile, despite the administrative cost and exposure to late filing penalties. A year could be added to your state pension

Although you will be filing an employers' return the payroll will be basic. This is directors are assessed to national insurance on an annual basis, and therefore it is not necessary to ensure small payments of salary on a monthly basis to remain within the thresholds.

We can help advise on the best split between salary and dividends based on your circumstances and future expectations. Please be in contact for a free meeting.