Self-employed taxes are a whole new ball game when it comes to PAYE. This post will help you calculate your self-employed taxes and not face any fines.
Are you actually self-employed? Your taxes and National Insurance will depend on your status.It’s not as daft a question as it sounds. Sometimes it can be less straightforward than you’d imagine. You might be employed in one job and self-employed in another. You also might be paid on a short-term contract, which can blur lines further.
To help you out, HMRC provides a handy tool on its website that’ll help you work out your employment status. Use that tool to determine if you're truly self-employed.
There’s plenty to do when you first become self-employed. But one of your priorities must be to tell HMRC about your new status.How quickly must you do this? You’ve got until 5th October following the first tax year on which a return is due.Each tax year runs from 6th April to the following 5th April. Fail to register in time and you could face a fine.
Register on the HMRC website or call the Newly Self-Employed Hotline on 0300 200 3504.
The self-employed usually also pay National Insurance contributions (NICs) on top of their income tax.This divides into Class 2 NICs (a flat-rate charge) and Class 4 NICs (based on your profits).You must keep your contributions up to date and pay on time or the government might not be so keen to hand over your state pension when the time comes.
What about VAT? If your taxable turnover reaches a certain level – currently set at over £85,000 in a 12-month period – you’ll need to register to pay VAT. You’ll also need to register if you expect to go over the threshold in a single 30-day period.You can register if you earn less than the threshold. In some circumstances, you might even benefit. The HMRC has an interactive guide on registering for VAT.
Nobody wants to pay too much tax, so you’ll want to keep great records of the money coming in and the money going out.
If you don’t keep records, HMRC could fine you. Keep on top of your records as you go along, then you’re not scrabbling around at the end of the year trying to find the right bits of paper.In short, you should have records of all your sales and takings and all your purchases and expenses.
You’ll need to keep paper and digital records of things like cashbooks, invoices, bank statements and receipts. You’ll also need to keep accurate mileage records. Fortunately, apps like MileIQ can help you electronically capture every mile you drive.
Every April, you’ll get a lovely letter from HMRC telling you to complete your self-employed tax return online. Alternatively, you can complete a paper tax return for the year that’s just ended.
There are two deadlines to be aware of: 31st January is the date for your online return, while 31st October is the date for your paper return.What about payment deadlines? You’ll need to pay the balance of what you owe for the previous tax year by 31st January. On 31st July, you’ll need to pay your second payment on account for the current tax year.Good luck. And don’t miss those deadlines.