The A to Z of HMRC Tax Self-Assessment for 2014
Personal_Finance / Taxes Dec 09, 2013 - 10:24 AM GMTBy: Submissions
Doug Barden writes: Do you earn an income through freelance work? Are you a company director? If you are self-employed, every year you need to complete a tax return for HM Revenue & Customs.
You have to showcase your income and capital gains, and you can claim certain allowances and reliefs.
It’s important that you understand everything you need to know about self-assessment in order to avoid any penalties from the taxman.
If you work for a company, they arrange all your tax payments for you and when you get paid, all your national insurance contributions are automatically deducted. However, being self-employed means that you need to take care of your tax affairs yourself.
So without further ado, here is an expert guide to help you understand everything you need to know about what to pay, when to pay it and how to go about doing it.
- Register
Register for self-assessment in order to get a tax return. It’s vital that you declare yourself as self-employed. HMRC will then set up the records for you and give you a Unique Taxpayer Reference. This 10-digit tax reference you’ll need to complete your tax return.
You need to register as soon as possible. The latest you should register is 5th October at the end of the tax year, or you may face a penalty.
You’ll need your national insurance number, contact details, your Unique Taxpayer Reference and the date your circumstances changed.
You can register online here - https://online.hmrc.gov.uk/registration/newbusiness/introduction. By letting HMRC know about your new self-employment, they will then set up tax records for you including self-assessment, national insurance and PAYE if you have anyone working for you. Registering for national insurance contributions is important because it enables you to receive benefits like Maternity Allowance.
- Work out your tax-deductible expenses
You must pay tax to HMRC but some earnings are non-taxable like premium bond wins and working tax credits. This year you are entitled to earn £9,440 before you have to pay any tax. If you were born before April 6th 1948, you could have a higher tax-free allowance.
There are various expenses which you can claim too like specialist clothing, equipment, travel costs and business mileage.
- How much tax to pay
After you have calculated your tax-deductible expenses, you then need to pay your tax. Here are the income rates for 2013-14 and remember, this is your tax band after allowances have been taken away.
FYI: Non savings income is any income from self-employment, rental and pension; and dividends are income from shares in UK companies.
Income Tax Band |
Income Tax rate on non-savings income |
Income Tax rate on savings |
Income Tax rate on dividends |
£0 to £2,790 |
Not available |
10% |
Not applicable - see basic rate band |
£0 to £32,010 |
20% |
20% |
10% |
£32,011 to £150,000 |
40% |
40% |
32.5% |
Over £150,000 |
45% |
45% |
37.5% |
(Table information taken from HMRC)
- Pay your tax with a self-assessment tax return
Complete a self-assessment tax return to declare all income received from 6th April 2013 to 5th April 2014. You can do it online or on paper but online is quicker and easier.
- National Insurance contributions
As aforementioned, registering for National Insurance contributions is important. But how much do you pay? On average it is a flat rate of £2.70 a week for class two contributions but if you earn less than £5,725 a year you don’t need to pay any.
- VAT
Do you earn more than £79,000 a year? If you do, you need to also register for VAT.
So there you have the A to Z of self-assessment. Now you should understand everything you need to know about going solo in 2014.
BarlowAndrews managing partner, Doug Barden specialises in financial planning & Accountancy. To find out how he can help you to manage your finances or accounts better visit www.barlow-andrews.co.uk
Copyright © 2013 Doug Barden - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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