Start the new tax year right
6th April 2020 marks the first day of the new tax year. This moment often brings about changes to taxes and kicks off some financial admin, like tax returns.
Despite the extraordinary circumstances we are all currently facing, this year is no different. So, we wanted to help you start the new tax year right.
Get to know the 2020/21 tax rates
Most of the rates will remain the same this year based on the budget announced a few weeks ago. Here’s the key information you need to know:
- Personal Allowance – £12,500, no change from last year
- Income Tax – 20% for those earning between £12,501 and £50,000, no change from last year (more detail linked below)
- Class 2 National Insurance – amount payable has increased to £3.05 a week for those with profits above £6,475
- Class 4 National Insurance – threshold has increased to £9,500
- VAT – the VAT registration threshold (£85,000) and VAT rates (20%) remain the same
First tax return? Register with HMRC
If 2019/20 was your first year of being self-employed and you didn’t complete a tax return last year, the first thing you need to do is register for Self Assessment and Class 2 National Insurance.
The deadline to register is the 5th October the tax year after you started trading. So, for example, if you started working as self-employed on 1 May 2019 you’ve got until 5 October 2020 to register. Although it’s best to get this done sooner rather than later. You’ll need to wait for a code to arrive in the post, so make sure you leave plenty of time to do it.
When you register, HMRC will:
- Send you a letter with your 10-digit Unique Taxpayer Reference (UTR)
- Set up your account for the Self Assessment online service
We strongly recommend that you do this as soon as you can because it’s best to be in HMRC’s system ready to go if any additional Government support is announced for the newly self-employed in response to Covid-19.
We’ll be keeping our live Covid-19 support blog up to date with any new information from the Government on this.
Get started on your tax return
If you’re registered with HMRC you can now submit your 2019/20 tax return. Although you have until 31st January 2021 to do so (this is also the deadline to pay your tax bill), it’s always good to get ahead of the game and get it out of the way whilst everything is still fresh in your mind.
If you do it now and find you haven’t saved enough money to cover it, you’ve still got plenty of time to pull the funds together.
Have all your information ready
When you’re ready to tackle your tax return, here’s a list of everything you’ll need:
- Your Unique Taxpayer Reference Number (UTR)
- Your National Insurance number
- Details of your untaxed income from the tax year, including income from self-employment, dividends and interest on shares
- Records of any expenses relating to self-employment (there is plenty of guidance in the app on this, but this article may also be useful as well)
- Any contributions to charity or pensions which might be eligible for tax relief
- P60 or other records showing how much income you received which you’ve already paid tax on
Watch out for payments on account
One point worth noting is that you may need to make advance payments towards your tax bill, these are known as ‘payments on account’ and are made twice a year – 31st January and 31st July.
They’re designed to help you spread out your tax payments, but they often come as a surprise when your first tax bill arrives.
So for those of you completing your tax return for the first time this year, it would look a little like this:
Imagine you’re preparing your Self Assessment tax return for the 19/20 tax year. You’ve worked as a sole trader for the full tax year and have no other sources of income. After all calculations are considered your tax bill comes to £5,000.
Your payments to HMRC will then be broken out as follows:
- Self Assessment 19/20 balancing payment: £5,000 Due – 31st January 2021
- 1st Payment on account for 2020/21: £2,500 – Due 31st January 2021
- 2nd Payment on account for 2020/21: £2,500 – Due 31st July 2021
So that means rather than just paying the £5,000 you owe for 2019/20, you’ll be asked for an additional £2,500 as an advance on next years’ tax bill.
We’re here to help
If you have any questions, or would like to chat anything through feel, please free to get in touch with the team through the app anytime. We’re always happy to help. And if you’re ever in doubt or in need of some reassurance, it’s always worth speaking with an accountant.