Gerald Charles & Co Accountants

INCOME TAX

Who pays income tax?

Income tax is payable individuals on income earned in the tax year. As an employee tax is deducted from your salary through the PAYE system. As a self employed person you are responsible for paying your own tax through the self assessment system. The tax year begins on the 6 April and ends on 5 April in the following year, e.g. the income tax year 2021/22 runs from 6 April 2021 to 5 April 2022.

On what income do I have to pay tax?

You will pay tax on the annual profits or gains from your trade , profession or vocation and on any other income you might have up to 5 April. There are special rules for commencement and cessation years. See basis of self assessment page for further information.

You will also pay tax on any other income you receive such as investment income, rental income etc. This tax is based on the income earned in the tax year, i.e. from 6 April to the following 5 April.

What tax and when will I have to pay it?

As a self employed person you will be taxed under the self assessment system. Under this system you will:

On 31 January in the tax year pay your first payment on account of tax
On 31 July following the tax year pay your second payment on account of tax
On 31 January following the tax year pay the balance of your tax due for the year
On 31 January following the tax year you must also have submitted your self assessment tax return or you will incur penalties.

Note that the payments on account will equal the previous years tax liability.

Example - ongoing business

The tax liability for 2023/24 was £8,000 and £10,000 for 2024/25, hence your tax payments for 2024/25 will be;

31 January 2025 1st payment on account £4,000
31 July 2025 2nd payment on account £4,000
31 January 2026 balancing payment £2,000

Note on 31 January 2023 you will also pay your first payment on account for 2025/26 of £5,000

Will I be notified of my tax liability?

Yes. As a self employed person you will receive, from the HM Revenue & Customs, a statement of account showing amounts payable. These notices are generally sent out in January and July. However it is your responsibility to ensure you pay sufficient tax even if you do not receive such a notice.

What happens if I do not pay my Tax on time?

Interest is charged from the first day payment is late plus a further 5% for amounts overdue by 28 days or more.

When must I submit my tax return?

Under self assessment you have a legal duty to submit your tax return every year

The Inspector of taxes will issue tax returns to all persons on record who are considered likely to be liable for tax. However it is your responsibility to see to it that you get, complete and submit your return on time.

Your tax return must be submitted by 31 October following the tax year if you submit a paper return, or 31 January following the tax year if you submit your return on-line. The address to which the return must be submitted will be on the front of the tax return.

If you submit your return after the due date, even by one day, you will incur an automatic penalty of £100 and then increasing depending on certain circumstances.