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self-employed tax uk

Rules for Paying Income Tax if You are Self Employed

Paying your income tax is a very important obligation that you must fulfil. Otherwise, there’s a lot of trouble that you’ll have to face. It is one of the most important sources of revenue for the government. So, you are supposed to give priority to any arrears that you have. For people employed under someone, the authorities can get information about the income from the employer. As for those who own a business or work for themselves, they are required to give information about their income. Things work a little differently in their case. As a self-employed person, you have to make sure that you pay the tax that you owe. So, let’s get to know more about self-employed tax UK.

What is the amount you have to pay?

The incomes of people are divided into different bands to determine the amount they have to pay. Each of them has to pay a fixed percentage of their earnings. The higher you earn, the bigger the amount you’ll have to pay. 

Now, when you have a fixed income, you might go from one band to another in a short time. In such a situation, it would get very confusing. You might get charged the tax that you paid in the previous band that you were in. That’s why you are required to send a tax return, giving the authorities information about your earnings. 

In cases like yours, you’d be required to let the authorities know about your earnings so that they can put you in the correct band. You would get a limited amount of time. It must be noted here that you would be able to keep a certain amount of your earnings as a personal allowance. You would be required to pay only if it exceeds this specified amount. 

Currently, it is £12,500, but it can change in the next year and keep doing so in the subsequent ones. In addition to this, your expenses related to your work would be deducted from the taxable amount, if you’re self-employed. So, a detailed idea about self-employed tax UK will help you out.

How do you Inform the Authorities about your Income? 

First, you’ll have to register yourself as a self-employed Tax UK person with the HMRC. In case you are entitled to an allowance for your business expenses, you have to claim it. They won’t give it to you automatically. Also, you might be eligible to get exempted from paying in some cases. Thus, you have to give all of this information and others in your tax return, every year. 

What expenses will you be allowed to keep as an allowance?

In cases like yours, it would be very important that you’re able to pay for all your costs related to your livelihood. That’s why the government doesn’t put a tax on the amount that you use for these purposes. If you’re filing a return for the first time, you must know which expenses are included in this. 

Unless you work from your home, you probably have to spend money on travelling to your workplace. This can include anything from bus fares to the cost of fuel for your car. If you specify the total amount you spend on these things, you won’t have to pay any percentage of it. 

Apart from this, if you have an office, you have to spend on necessary supplies as well. These expenses are not taxable either. Moreover, this category includes any amount that you have to pay as wages to employees or workers. You can even include the expenses that you made to provide training to your employees. So, anything that you have used for business is not included with the taxable amount. 

Do you work from your home? In that case, you can add costs such as electricity to your tax return. Though this has to be the amount that you use during your working hours, not throughout the day. You can also include a reasonable part of your Council tax in your allowance. This is because your home is being used as a workplace after all.  

In case you are using a phone or the internet for business purposes, you can apply to keep a reasonable amount as an allowance. 

What if you’re late in sending a Tax Return?

If you’re wondering, you’ll get at least two months under any circumstance to submit the returns. If you fail to do so, you will be charged £100. You’ll have to pay this amount under all circumstances. Since it has been made quite easy for you to submit the form, there shouldn’t be any strong reason for you to be late. You can even send it online to the HMRC. To avoid the chances of getting a penalty, it would be advisable that you choose online submission only. 

What if your Business is affected due to Coronavirus?

Ever since the COVID-19 outbreak, a lot of self-employed people have incurred big losses. If you’re facing something similar, then you’re not the only one. That’s why the government is acting in a considerate way while dealing with such cases. 

As such, the payments that were due in 2020 were allowed to be delayed until January 2021. However, the subsequent deadlines will remain the same. If your earnings have been reduced, you’ll be required to pay only according to the present circumstances. If you want benefits, you can get them, provided that you’re eligible. Further, you can check your eligibility for availing this, on the government website. 

Should you claim a Trading Allowance? 

Apart from the one that has been discussed, the government also provides a property allowance. In this, you can get a sum of £1,000 added to your non-taxable income. However, you must claim this only after carefully considering your expenses. This is because you would be able to claim any one type of allowance. The government won’t grant you both of them. 

What if you have a job besides being an Entrepreneur?

It is sometimes seen that people work in a job and have some kind of business on the side. So, you won’t be alone if you fall into this category. In case you are wondering whether this will have any effect on your tax, you must know that it won’t. You’d have to pay a percentage on both your earnings, according to the band they fall into. So, you’d have to submit a self-assessment form for your business. 

What to do if you end up paying more than you owe?

You may have made a payment worth more than what you were charged. In that case, there is no good reason for you to be concerned about it. All you need to do is inform the agency about it and ask them to send back the extra amount. Otherwise, you can also have it added to next year’s tax. In that case, this amount would be deducted from the next payment. 

What if you’re late in making the payment?

If you have failed to pay on the due date of 2021, you’ll be charged interest on the amount. You can see it as a penalty for late payment, as it has the same kind of purpose. They will charge, starting from the date that you missed the payment. So, you are advised to make some kind of arrangement, if you can’t afford to pay. 

Are you unable to pay the tax? 

Due to the tremendous loss caused to businesses, you might be in a difficult financial situation. There are other expenses you have to keep up with besides income tax. So, it is quite acceptable that you’re having difficulty paying. In such a case, the best thing to do would be to contact your local HMRC office and explain everything to them. They generally would grant you some time to recover from your financial condition. 

Also, you can manage and try to pay in affordable monthly instalments. If you want, you can get relief from a debt charity as well. There are a lot of them helping out people who are stuck in similar situations. 

How do you pay your self-assessment tax?

It has been made quite easy for you to pay when the due date comes. There are many ways in which you can make the payment. Depending on how many days you take to pay, you can use online banking, as well as a debit card. Not only that, you can even pay by posting a cheque. Apart from this, you also get the option of paying in the bank, if you prefer.

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