If you have any sort of income outside of paid employment, you may be liable for tax on it. It’s therefore important to make sure that you pay the right type and amount of tax in the right way. To help you, here is a guide to five of the most common tax problems you need to avoid.
You must register as self-employed by 5th October after the end of the tax year that you began your self-employment. For example, if you become self-employed between now and 5th April 2023, you will have until 5th October 2023 to register as self-employed.
It’s advisable to register as self-employed even if you’re just trying out a side-hustle. This ensures that you stay on the right side of the law. It may also allow you to claim business expenses.
Currently, the tax year ends on the 5th of April. If you file your taxes online, the deadline to do so is the 31st of January of the following calendar year. If you file on paper, it’s the 31st of October of that year. In either case, full payment must be completed by the 31st of January of the following calendar year.
HMRC may also ask for an interim payment. The deadline for this is the 31st of July of the same calendar year. You can request for this payment to be waived. This is at HMRC’s discretion. If you want your self-assessed taxes to be deducted from your PAYE earnings, then you must either submit a paper tax return or file online by the 30th of December.
The closer you cut it to the deadline, the less room you give yourself to manoeuvre if there are any issues.
For example, at present, HMRC’s decision to withdraw from the government’s Verify service has left some people locked out of their online accounts and others unable to register to file and pay taxes online. Unless this situation is resolved quickly, those affected may have to file their taxes on paper and hence meet a much earlier deadline.
Firstly, keeping effective records ensures that your taxes will be accurate. This means that you avoid paying either too much or too little. Secondly, keeping effective records means that you can easily comply with any audit by HMRC.
These days, most records can be kept digitally. This includes supplementary documents such as receipts. You just need to ensure that any photos or scans are clear and capture all relevant details. In general, mobile phone cameras are more than adequate for this.
There are numerous tax-free allowances available to individuals, married couples/couples in civil partnerships and businesses (both sole traders and limited companies). It literally pays to make the most of them.
In particular, if you’re thinking of disposing of assets, you should look carefully at the tax implications. It often makes the most sense to dispose of assets a little at a time to make use of tax-free allowances on taxes such as Capital Gain Tax.