A General Overview on Taxation

Self-employed people need to submit a Self Assessment tax return once a year, and tax and National Insurance Class 4 needs to be paid after the calculated income.

Not every income is subject to tax, and there are cases when an income is only taxable above a certain threshold.

The tax payable may be decreased also by other factors (e.g. the settlement of expenses).

Tax years always last from 6 April to next year’s 5 April.

The deadline of submitting a Self Assessment is next year’s 31 January in case of online submission.

The deadline for paying the calculated tax, the National Insurance Class 2 and National Insurance Class 4 is also 31 January.

TIPS & TRICKS

Tax year: 5 Apr - 6 Apr

Self Assessment tax return due date: 31 January

Tax & NI payment due date: 31 January

If someone registered for self-employment in December 2019, then it was still in the tax year 2019-2020, which lasted from 6 April 2019 – 5 April 2020.

In this case, the deadline for the Self Assessment is 31 January 2021.

The deadline for paying taxes and NI Class 2, as well as paying the first instalment of tax advances, is also 31 January 2021.

Being self-employed does not rule out having a job working as an employee at the same time. But if you also worked as an employee before registration, during working as self-employed, or after termination, but in the same tax year, you must also indicate both in the Self-Assessment, as the income of both sources need to be aligned in the Self-Assessment.

For this, it is always necessary to show the income statements from being an employee, which may be one of the following: P45, P60, P11D, Statement of Earnings, etc.

If you quit your job on 12 August 2019 where you had been working as an employee, then you should receive your P45 income statement within 2-3 weeks after quitting (normally during the next payroll). If this did not happen, please contact your previous employer.

Let’s assume you continue working as self-employed from 13 August 2019 and keep working as such until the end of the tax year without having any additional employee income. In such cases, a combined Self-Assessment tax return needs to be submitted, in which the income documentation of being self-employed is necessary, as well as the P45 documents from being an employee.

If you had not quit your job but continued to be working as an employee while starting your self-employed activities, then, after the end of the tax year (5 April 2020), you would have to receive a P60 statement from your employer.

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Paying tax advances

If the profit calculated in the Self-Assessment, the tax and NI Class 4 payable exceeds £1,000, then the tax authority orders the payment of a tax advance for the same amount (the sum of the tax and NI payables) for the next year.

This amount does not need to be paid at once, but in two parts, besides the originally calculated tax and NI amounts!

The first 50% instalment must always be paid by 31 January together with the actual tax and NI amounts.

The second 50% must always be paid by 31 July.

The amount of the tax advance equals the sum of the tax and NI payables, which must be paid to the tax authority in two parts.

In each subsequent Self-Assessment, the tax advance paid in advance will be credited, and another one will be determined, based on the calculated results.

The tax advance must be paid in two parts, besides the originally calculated tax and NI amounts!

The first 50% must always be paid by 31 January with the actual tax and NI amounts

The second 50% must always be paid by 31 July

The amount of the tax advance equals the sum of the tax and NI payables, which must be paid to the tax authority in two parts.

If the sum of tax and NI payables exceeds £2,000 for the tax year of 2019-2020, then the tax authority orders the payment of another £2,000 besides this amount as tax advance for the tax year of 2020-2021.

Example:

£2,000   Tax and NI                          2019-2020 tax year

£1,000   First 50% of the tax advance       2020-2021 tax year

£3,000    Payable electronically by 31 January 2021

£1,000   Second 50% of the tax advance 2020-2021 tax year, payable electronically by 31 July 2021.

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