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Self-assessment tax

Back to Tax Basics: What taxes will I need to pay as a director?

Back to Tax Basics: What taxes will I need to pay as a director?

Are you aware of the personal taxes you’re liable for as a company director? We’ve got the lowdown on self-assessment and capital gains tax – and can help you plan your wealth management as a director.

When you set up a new company, there are certain business taxes you’ll be liable for as a business. But have you also planned for the personal taxes you must pay as a director?

As a company director, it’s not just the company’s corporation tax that you have to pay. You also need to pay the requisite taxes on your own income. This might be dividends payments from the company’s year-end profits, or even the income you receive from any property, shares or investments you own.

Knowing which personal taxes to plan for

A fundamental distinction to understand is the difference between company assets/profits and your own personal money.

Money that’s been generated by your company will sit in your business bank account and can be seen as the cash assets of your business. But, as a director, this is not your money. It’s the company’s money. This cash only becomes yours once it’s been paid to you, either as a dividend, a loan or via a salary paid through the company’s payroll.

HM Revenue & Customs (HMRC) will charge the company corporation tax on the company’s earnings. But HMRC will also need to charge you income tax on the cash you’ve been paid as a director – and this means planning for these tax costs as part of your wealth management strategy.

As a director, you’ll need to plan for:

  • Self-assessment income tax – self-assessment is the way that directors and self-employed people pay their income tax and National Insurance contributions (NICs). In addition to any tax and NIC collected monthly via PAYE as part of your normal payroll, with self-assessment, you must complete an annual personal tax return and submit this to HMRC. You then have to pay two ‘on account’ payments of tax and NICs.
  • Paying your self-assessment tax – paying your self-assessment tax bill is generally done by making two payments on account – one by the 31 January in the relevant tax year and one by the 31 July following the end of the tax year. If needed, a final ‘top up’ payment may be required at the end of January, following the end of the tax year. Through this system, not only does the company pay tax on its profits, but you also pay income tax when you take any of the remaining after-tax profits out of the business as dividends.
  • PAYE income tax – if you pay yourself a salary through the company’s payroll, this income will be taxed at source via the pay-as-you-earn (PAYE) system. The PAYE system will deduct your income tax and National Insurance (NI) contributions via your in-house payroll and this will then be paid directly to HMRC. This income will need to be accounted for in your self-assessment tax return, but you’ve already paid the income tax that is due on this salaried income.
  • Capital gains tax – capital gains tax (CGT) is a tax you pay on ‘gains’ you’ve made during the tax year. CGT is paid on the profit you make when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. So, for example, if you sold your business at a profit, you’d be liable for any gain (increase in value) that you’d made on selling the company. The rate of CGT that you pay will depend on your own income tax band and the nature of the gain that you’ve made. Reliefs are available, including the Business Asset Disposal Relief.

Learn more about the basics of directors’ personal tax

If you’d like to have a chat about your self-assessment or capital gains liabilities, please do contact us. The earlier you plan for these taxes, the more you can mitigate their impact.

Get in touch if you have any questions about your tax and let’s find out how we can help you from the The Stan Lee.

Back to Tax Basics: What taxes will I need to pay as a director? Read More »

Self Assessment Tax Return – Deadlines and Penalties

Self Assessment Tax Return – Deadlines and Penalties

You must do your self assessment tax return here in the United Kingdom if you have any undeclared taxable income including; dividend, property rental income,  investment income and other taxable income. As per the record of tax return 2021/22, more than 300k taxpayers missed their self assessment deadline of 31 January 2023 and 11.7 million submitted their returns on time. You might subject to penalty charges if failure to comply with self assessment requirements. We will note here the key aspect of self assessment registration, submission, payment and inaccurate tax return.

Self Assessment Registration Deadlines

If you have new source of taxable income and you need to declare for income tax purposes, you must notify HMRC by 05 October in your business’s second tax year. For example, you need to notify HMRC by 05 October 2023 for tax year ended 05 April 2023. You could be fined by HMRC if you don’t do so. You can register for self assessment tax return with HMRC via online or post.

Tax Return Submission Deadline

There are two options to submit the tax return; paper based tax return and online tax return. The paper tax return must be submitted by 31 October and the online tax return by 31 January following the tax year ended.

For instance, the tax return for 05 April 2023 must be submitted by 31 January 2024 if doing by online and by 31 October 2023 if via post. If you are failure to submit the return on time, HMRC may charge penalty on your late filing depends on how long you are late. You may appeal on the penalty charges if you have reasonable excuse.    

Income Tax Payment Date

The income tax liability must be paid by 31 January following the tax year ended. For an example, the income tax for 05 April 2023 must be paid by 31 January 2024. However, you may be subject on payment account if your tax liability is more than £1,000 and you paid less than 80% of the previous year’s tax. Payment on account means you need to pay two payments in a year; one is on 31 January and another one is on 31 July.

HMRC will charge penalty and interest on your late payment if you missed the deadline. The penalty depends on how long the payment is overdue and the amount of income tax liability. However, you may pay only the interest, not the penalty on the late payment if you have a payment plan arrangement with HMRC for your tax liability.

Incorrect Tax Return

HMRC will charge penalty on your wrong tax return if you have lack of reasonable care, deliberate error or concealed and the penalty depends on the reasons of the error and the potential lost revenue. Penalty may be reduced to nil and it depends on your quality of disclosure.

Here to Help on Your Tax Return?

At The Stan Lee, we can confidently help on your self assessment tax matters with reasonable fees. For further information and about your income tax affairs, please get in touch with one of the friendly team and let’s find out how we can meet your tax return deadline and minimise your tax legitimately.

Disclaimer: The above information is just as a general information that might help you. However, we highly recommend having expert advice suited for your circumstances. The Stan Lee and its author are not liable if you rely on this and have any consequences.

Self Assessment Tax Return – Deadlines and Penalties Read More »

Extension of Making Tax Digital for Income Tax (Individuals)

Extension of Making Tax Digital for Income Tax (Individuals)

On 19 December 2022, the government announced the extension of Making Tax Digital (MTD) for Income Tax (individuals) from April 2024 to April 2026 (except general partnerships). In this article, a brief of the changes in MTD for ITSA will be explained.

MTD for ITSA Extension

  • From April 2026, you must meet the MTD compliance if you have more than £50,000 qualifying income.
  • From April 2027, if your qualifying income is more than £30,000, you must comply with MTD requirements.

The qualifying income refers to your gross self-employment income or rental property income or both in together. Gross income means the total income before the deduction of expenses.

Example 1: You have gross income of £30,000 from self-employed and property rental income of £25,000, so the total income is £55,000. Here, you are subject to MTD for ITSA from April 2026 as having total qualifying income more than £55,000 from both self-employed and property rental.  

MTD for Jointly Owned Property:

You may have property rental income from jointly owned property and in this case, your share of the property income will count as your qualifying income rather than the total income of the jointly owned property.

Example 2: You have jointly owned property income of £50,000 (equal share to you and your partner, £25,000 each). You also don’t have any income from self-employed. Here, you are not subject to MTD for ITSA from April 2027 as having less than £30,000 income per individual.

Other matters of MTD for ITSA:

  • You may use MTD for ITSA in voluntary even if your income is less than the qualifying income.
  • Your residency and domicile status will effect on your qualifying earning. For instance, you are UK resident and domicile and having self-employed income in the UK, but property rental income from overseas. Here, your overseas property rental income will count as qualifying income along with your self-employed income here in the UK. However, if you are domiciled outside of the UK then only your UK self-employed and property rental income will count as qualifying income.
  • You may apply for exemption from MTD for ITSA if you can not use software due to your age, disability, location or other unavailable circumstances.
  • However, you can not sign up for MTD in case of you are trustee, personal representative of someone who has died, Lloyd’s member and non-resident company.

Here to Help on Your MTD for ITSA?

At The Stan Lee, we have MTD compatible software for you and pleased to support confidently. For further information and about your MTD for ITSA, please get in touch with one of the friendly team and let’s find out how we can help you.

Disclaimer: The above information is just as a general information that might help you. However, we highly recommend having expert advice suited for your circumstances. The Stan Lee and its author are not liable if you rely on this and have any consequences.

Extension of Making Tax Digital for Income Tax (Individuals) Read More »

Tax Return 2022 – Key Benefits of Early Self-Assessment Tax Filing

Tax Return 2022 – Key Benefits of Early Self-Assessment Tax Filing

The self-assessment tax return for tax year ended 05 April 2022 is due to submit online by 31 January 2023 to avoid late filling penalties. However, submitting the return well in advance could get several benefits including saving your time and money. In this article, we will mention the key benefits of being self-assessment early bird.

Key Benefits of Being Self-Assessment Early Bird

 
  • Time to arrange finance: Doing early self-assessment means you know how much tax is due to pay and then you have more time to manage the finance to pay your tax bills on time. You know that late tax payment is subject to interest and penalty charges by HMRC.
  • Claiming tax refund sooner: If you have any repayment available from HMRC once you have submitted your tax return, you can claim early repayment and then able to manage your finance smoothly.
  • Right information ready for mortgage: If you have plan to buy a property and want to get mortgage or mortgaging your current property, the lender will look for your present circumstances with right information. Doing the early tax return submission means your information is ready for the lender to get sorted your mortgage.
  • No stress for first time: If you are doing the first tax filing means you may not quite familiar with self-assessment tax affairs. Therefore, plan for early tax return will give you more time to submit the tax return without any stress. There is a great chance of missing the deadline if you are waiting for the last minute.
  • Time to find your tax accountants: Self-assessment tax return is not always straightforward and easy to submit to HMRC, specifically if you have complex scenarios or new in self-assessment tax matters. Waiting for the last minute means you may not be able to find your suitable and trusted tax accountants that you are looking for.
  • Escaping any mistakes: Once you have more time in your hands, you can gather the required documents and information as you need for your tax return. Moreover, you can review your tax return and computation precisely before submitting to HMRC. As you know that submitting the incorrect tax return could lead to penalty charges by HMRC.
  • Avoiding late filing penalties: HMRC imposes late filing fines if you are failure to submit the return on time. The fine starts from £100 and then will be more if you are late for longer.
  • Avoiding January madness: Almost all accountants are usually busy during the January time and if you are waiting for last minute means you will not get your desire services. Moreover, Contacting HMRC in January involves a long wait. To avoid the January madness, you can consider submitting your tax return earlier.   

Disclaimer: The above information is just as a general information that might help you. However, we highly recommend having expert advice suited for your circumstances. The Stan Lee and its author are not liable if you rely on this and have any consequences.

Tax Return 2022 – Key Benefits of Early Self-Assessment Tax Filing Read More »

UK Property Rental Income Tax: Seven Things to Know When You Let Property

UK Property Rental Income Tax: Seven Things to Know When You Let Property

Are you a property owner here in the UK and having property rental income? You might have questions how to manage your property income and expenses for tax purposes and whether any new rules coming that will affect you. In this article, we will mention seven key things as a guidance regarding your UK property rental income tax and might help you.

Seven Things About Property Rental Income Tax: –

 
  1. Register for Self Assessment: You should register with HMRC for your self assessment tax so that you can declare your UK property rental income. You can do the registration online or via post. Doing online registration is quicker and time consuming. Please note that the registration deadline is 05 October (for example, you should register by 05 October 2022 for tax year ending 05 April 2022).
  2. Record Keeping: You need to keep your rental income records for 5 years and 10 months after the end of the tax year. We commend to use one dedicated bank account for your property rental income and expenses and keep all invoices accordingly so that we can manage your record smoothly.
  3. Use All Available Expenses: A range of expenses are available to deduct from your property rental income that are allowable for tax purposes. Please have a look in HMRC website and speak to your tax advisors how to minimise your tax liability legitimately. Please note that any expenses that are “wholly and exclusively” for rental income purpose can be deductible.
  4. Transferring Ownership Between Spouses: If you are newly married and having property in your name only, you may transfer the property between spouses without paying Capital Gains Tax (CGT). However, the transfer might be subject to Stamp Duty Land Tax (SDLT) and you should take careful decision when doing so.
  5. Mortgage Interest and Tax Relief: Since April 2020, you are no longer eligible to deduct interest as an expense on your property rental income. Instead, you will receive tax relief at 20%. Therefore, the basic taxpayers can utilise the interest fully. Unfortunately, the higher and additional taxpayers can do so.
  6. Ready for Making Tax Digital (MTD): The MTD for ITSA is compulsory for all from 06 April 2024 for those people having annual rental income of more than £10,000. You need to update your rental income and expenses every quarter along with your annual self assessment tax return that you do currently.
  7. Submission and Payment to HMRC: 31 January is the deadline for submitting the tax return by online and pay the tax to HMRC as well on the same date. For example, the tax return for year ending 05 April 2022 should be submitted by 31 January 2023. If you submit paper-based tax return, then the submission should be by 31 October. Moreover, some taxpayers may subject to pay their tax liability on account and the deadline is 31 January and 31 July.   

As a landlord, you should comply with the tax matters on your property rental income. You may also consider some other aspects along with the above mentioned. The Stan Lee is here to help confidently on your UK property rental income tax affairs.

The above information is just as a general information that might help you. However, we highly recommend having expert advice suited for your circumstances. The Stan Lee and its author are not liable if you rely on this and have any consequences.   

UK Property Rental Income Tax: Seven Things to Know When You Let Property Read More »

Tax-Free Company Benefits

Summer Event – Is This Tax-Free Employee Benefit?

Summer Event – Is This Tax-Free Employee Benefit?

Tax-Free Company Benefit

After the long stressful time during COVID-19 pandemic, you may offer the summer party for your employees and wonder whether the benefit is subject to the tax. In this article, we have a brief about tax-free events for your employees in the UK.

Conditions for tax-free events:

A statutory exemption exists where certain social events for employees are not triggering to tax or NICs liability once some conditions are satisfied as follows:

  • The total costs (including VAT) not exceed £150 per head (annually)
  • The event mainly for entertaining employees
  • Generally, the event open to all employees

The limit of £150 can be used in many events including Christmas Party, Summary Event and more. However, if there are two parties and the combined costs exceed the £150 limit, then £150 can be offset against the most expensive one and leaving the other one a fully taxable benefit.

You can also consider the tax-free trivial benefits (costs not more than £50) for your employees so that they may enjoy more the summer party. However, the benefits should not be in cash or cash voucher and not work recognised.

Tax treatment if £150 limit exceeds

If the costs per head (annually) exceeds the limit of £150, the full amount is subject to tax and NICs on the benefit-in-kind (BIK). However, the employees may not be taxed under PAYE or P11D if the employer agreed to pay HMRC under the PAYE Settlement Agreement (PSA). Under the PSA, the employer’s tax liability must be paid to HM Revenue and Customs by 19 October following the tax year ending.  

The costs of events (regardless of £150 limit) are tax allowable expenses for the employers and can be treated as “staff welfare” costs. The input VAT can be claimed back if the business is VAT registered.

If you have any questions and need further information about tax-free benefits, please feel free to get in touch with us. Also don’t forget to contact us for your accountancy, taxation and business support needs.

Summer Event – Is This Tax-Free Employee Benefit? Read More »

When Someone is Subject to Self Assessment Tax in the UK?

When Someone is Subject to Self Assessment Tax in the UK?

When Someone is Subject to Self Assessment Tax in the UK?

When Someone is Subject to Self Assessment Tax in the UK?

Self Assessment Tax is compulsory in the UK if you have undeclared taxable income. In this article, we have a brief on self assessment tax basics including what does it mean, when you are subject to this and the deadline for compliance.  

What is Self Assessment Tax?

The Self Assessment is a tax system that HMRC uses it to collect the income tax from Individuals here in the UK. You need to inform HMRC every year about your taxable income and any gains via self assessment tax system. You also need to pay any tax that you owe.  

When You are Subject to Self Assessment Tax?

You must submit your self assessment tax return If you have any untaxed (taxable) income or HMRC sent you notice to file your tax return. We have listed some common situations as follows when you might be subject to self assessment:

  • You are director of a company and having taxable income that is not taxed under PAYE tax system
  • You have land and property rental income in the UK. However, you don’t need to submit if your income qualifies for rent-a-room relief or income within annual property allowance of £1,000
  • You get taxable foreign income more than £300 a year
  • You receive annual income from trust or settlement
  • Your annual income exceeds £100,000
  • Your annual income is over £50,000 and you or your partner is getting Child Benefit payments
  • You have Capital Gains Tax (CGT) to pay on your assets’ disposal
  • You are sole trader or partner in a partnership business. No need to submit the tax return if your self-employed income is within trading allowance of £1,000
  • You are claiming tax relief on employment expenses of over £1,000 (£2,500 for professional fees and subscriptions) a year.
  • You have untaxed savings income more than £1,000 (£500 if you are higher taxpayers)
  • You have dividend income that more than dividend allowance of £2,000

Please note that this is not a complete list when you are subject to self assessment Tax and hence, please check with tax advisors or look HMRC website for more.

Self Assessment Tax Deadline?

You have compliance to meet the deadline for your self assessment. In the UK, the tax year starts on 06 April and ends on 05 April. Here is the key deadline for tax year ended 05 April 2022:

  • Register Self Assessment – 05 October 2022
  • Submit the tax return (paper) – 31 October 2022
  • Submit the tax return (online) – 31 January 2023
  • Pay the tax you owe – 31 January 2023

Failure to comply with your self assessment, you may have to pay interest with penalties and that may be costly. To have specific information suited to your circumstances, please get in touch with your tax advisors.

Looking for Self Assessment Tax Service?

The Stan Lee prides to offer confidently the self assessment tax service so that you have one step less stress on your personal tax compliance. We try our best to ensure that you meet your tax obligations and find the legitimate way to save your tax. Please contact us and let’s find out how we can support on your self assessment tax requirements.

When Someone is Subject to Self Assessment Tax in the UK? Read More »

Five tips for filing your self-assessment tax form

Five tips for filing your self-assessment tax form

Five tips for filing your self-assessment tax form

Filling out your self-assessment tax form can be a daunting task but if you are organised and prepare correctly then you can avoid any headaches or penalties. Below are five tips for filing your self-assessment tax form.

Hire an accountant

For some people, the thought of filling a self-assessment tax form can be filled with dread. So, the best solution is to hire an accountant who can do the job for you. Accountants will understand about all the deductions you can make if you are a freelancer or own a small business. Did you know that if you work from home you can claim a portion of your utility bills including internet usage? There can be a lot to consider, so to make sure you are claiming everything you are entitled to by hiring an accountant. 

Register with HMRC

Another important tip is to make sure that you are registered with HMRC first before you start filling in your self-assessment tax form. You do not want to encounter any problems further down the line. If you are starting a new business venture there are a lot of things to do such as organising marketing material and place of business, etc. But if you do not register with HMRC first when it comes to the tax year-end you could find yourself in trouble.

Do not ignore the deadlines

You have got to be organised when it comes to filling a self-assessment tax form as you meet the deadline on time. October 31st is the deadline for filing a paper tax return. However, most people will do theirs online and the deadline for that is January 31st which is also the date that you should pay any tax that you owe. So, do not ignore the deadlines before it is too late – highlight them in your calendar and diaries now and set online alerts so that you will not forget.

Include everything when filing your self-assessment

One of the most important things to remember when filing your self-assessment tax form is to include everything. HMRC are incredibly strict about this. Sales from an Etsy shop or even anything you sell on eBay all needs to be recorded. Basically, if your income for the tax year exceeds £1,000 then you will have to file a tax return.

Organisation is key

Throughout the year prior to filing your tax return, you need to get into the habit of keeping receipts and track of your expenses. One great tip to open a bank account that is purely for your tax money. This way you know not to touch it and you can keep track of everything going in. It needs to be your goal to keep hold of everything, even if you do not think it is important you may require it later.

If you are struggling with your tax return then the team at The Stan Lee can help. Get in touch with them today and find out how they can help take the stress out of your self-assessment tax form.

Five tips for filing your self-assessment tax form Read More »

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