Managing your accounts, tax and finances is vital when you decide to become self-employed or a business owner. In this section we will detail the various things you need to consider when managing your tax whilst working for yourself.
Companies
At TaxAid we help people with personal tax issues who cannot afford to pay for tax advice. We do not advise on Corporation Tax, which is the tax payable by companies. How to choose an accountant or tax adviser.
Self-employed (including partners)
Tax returns
Self-employed individuals must submit a self-assessment tax return by 31 January following the end of the tax year if the return is filed electronically or 31 October for a paper-based return.
For example:
The 2024/25 tax year the deadlines are 31 October 2025 (paper based) or 31 January 2026 (electronic).
Failure to submit a return on time will result in late filing penalties.
The following link gives details on how to register for self-assessment: https://www.gov.uk/register-for-self-assessment
Accounting year
Apart from the year you start and the year you finish being in business, accounts normally cover 12 months.
The tax year runs from 6 April in one year to 5 April in the next. HMRC requires all sole traders and partners to calculate taxable profits for the tax year, known as the tax year basis. This rule came into effect for the tax year 2023/24 onwards.
Prior to 2023/24 sole traders and partners could have a different year end date, known as the basis period.
The following link gives further guidance: https://www.gov.uk/guidance/get-help-with-basis-period-reform
Profits and tax bills
Your tax bill is based on your business profit. The business profit is the difference between your business income and your business expenses. You may need to make adjustments to the figures to reflect the tax rules.
Payment of tax
Self-employed individuals pay tax (Income Tax and relevant National Insurance contributions) and the payment is due by the 31 January following the end of the tax year (5 April). If your annual tax bill is over £1,000 you may also be required to make ‘payments on account’ for the following tax year.
Payments on account are due on 31 January and 31 July each year. The first payment on account is simply 50% of the previous year’s tax liability and is due on 31 January following the end of the previous tax year and a further 50% is due on the next 31 July. Once the tax bill for the year is known, through your self-assessment tax return, any outstanding tax for the year will be due, along with next year’s first payment on account.
For example:
For the 2024/25 tax year, payments on account will be due by 31 January 2025 and 31 July 2025.
You can ask for your payments on account to be reduced if you think your actual tax bill will be lower, for example, if your profits are declining.
For further information see: https://www.gov.uk/understand-self-assessment-bill/payments-on-account
What happens if you don’t pay on time?
Failure to pay your tax on time will mean you incur interest. The interest payable rate equals the Bank of England bank rate plus 2.5%. You can view the current bank rate here. If your tax bill remains unpaid for more than 30 days, you will also incur late payment penalties separate from (and in addition to) the interest.
If you are facing penalties or have a large tax bill that you do not understand, and have not been able to resolve with HMRC yourself, then we, at TaxAid, may be able to help you.
These penalties and interest are in addition to late filing penalties, and they can quickly mount up. Therefore you should seek help as soon as possible.
This link can be used as a guidance for the potential amount of late filing and/or payment penalties. https://www.gov.uk/estimate-self-assessment-penalties
