As the tax deadline for payments on account looms (it’s 31st July by the way) we thought you may appreciate a quick reminder of how tax works for sole traders:
First thing to remember is that the tax year runs from 6th
April to 5th April the following year.
The deadline for completing your tax return online, and paying
the amount of tax owed for the previous year, is 31stJanuary (ie 9 months
after the tax year has ended).
When you file your tax return online the amount of tax you need
to pay is calculated there and then. For
your first year in business this will be for the whole of the previous tax year.
You may also be asked to make a ‘payment on account’ which
is half of the estimated amount tax due in the tax year you’re in. So a pretty steep tax bill for the first year you're in business. But don't worry, it's not always this way!
Then on 31st July you pay the other half of this estimated
amount.
When you fill in your tax return for the following year (by
31st January remember) if there is any difference between the payments you’ve
made and the actual amount of tax you owe it’s called a 'balancing figure' and
will be added to your bill there and then.
So for the second year you’re in business onwards, your
January tax bill will be the balancing figure for the previous year plus the
payment on account for the current tax year. See, we told you it would get better!
Easier to see by example? Here it is:
If your first year of business is in the 2012/2013 tax year:
On 31 January 2014 you'll pay
- tax on the profits for the whole of the tax year 2012/2013
- a payment on account for 2013/2014 tax year
And on 31 July 2014 you'll pay
- the rest of the tax due for 2013/2014 tax year
And on 31st January 2015 you'll pay
- the balancing figure from 2013/2014 (if there is anything outstanding)
- a payment on account for 2014/2015
Go to nowletsgetstarted.co.uk/YourFinances/Taxbasicsforsoletraders if you need the detail
