We’ve teamed up with Finmo who are here to take the mystery out of tax and give expert guidance through their platform and resources.
Finmo offers an innovative and supportive place for self-employed professionals to handle their taxes with confidence. Its user-friendly finance tracking app, Self Assessment portal and on-hand experts take the stress out of tax returns, once and for all.
Remember: as a Shepherd, you’re classified as self-employed. Read on to find out exactly how you can pay your tax – don’t worry, it’s not as scary as you think!
How to pay tax when you’re self-employed
Self-employed professionals pay tax through HMRC’s Self Assessment system – otherwise known as a ‘tax return’. It’s usually done online (more on the various methods later) and involves stating how much you’ve earned in the financial year, as well as how much you’ve spent on business expenses.
You’ll need to submit a Self Assessment if you’re self-employed and earn more than £1,000 of self-employed income.
To do your tax return, you’ll need to follow these steps:
1. Register as self-employed
It’s an absolute must that you do this by no later than 5th October in your business’s second year.
For example, if you started working as a self-employed professional in March 2019, you’d need to be registered as self-employed by no later than 5th October 2020.
There’s no reason to leave it that long though. We’d recommend getting registered as soon as possible – it won’t cost you anything and it means you’ll be better prepared for filing your tax return early, rather than leaving everything to the last minute.
2. Receive and keep hold of your Unique Taxpayer Reference (UTR) number
When you register as self-employed online, you’ll get a Unique Taxpayer Reference (UTR) number in the post. You’ll need this when it comes to doing your tax return. It can take a few weeks to receive from registering as self-employed – another reason to register sooner rather than later.
3. Record all of your income
From the minute you start working as a sole trader, you’ll need to keep tabs on everything you earn. This is where intelligent tracking software like Finmo can save you a whole lot of time and stress (and money too). Using the Finmo app or web portal, you can get a live view of your bank account and tag all of your income in real-time.
Don’t forget – ‘income’ covers all types of earnings, including profits from asset sales, earnings from any PAYE work (where you get a salary), and rental income if you own properties.
4. Record all of your business expenses
In exactly the same vein as above, you’ll need to keep track of everything you spend on things for your business. Again, using a platform like Finmo streamlines this process, enabling you to track and tag your business expense transactions as and when they happen.
Head to our hub on self-employed expenses for everything you need to know about what you can claim.
If you decide not to use an app like Finmo to track your income and expenses, another route is to store all of this information manually. This would involve creating a spreadsheet or some other kind of document where you can store all data about your income and expenses.
5. Record all of your tax relief outgoings
There’ll be certain things outside of business expenses that you also don’t need to pay tax on. These can include things like pension contributions and charitable donations.
Once you’ve got all of the above information in one place, you’re ready to submit your tax return.
Methods for submitting your Self Assessment
To actually file your Self Assessment, you’ve got a few options:
- Do it by yourself through the HMRC portal
- Hire an accountant to sort everything for you
- Use Finmo’s Self Assessment software and dedicated accountants
Learn more about how Finmo can save you time and money, and offer tailored support to guide you through the entire Self Assessment process by clicking here.
When you need to pay your tax bill by
You need to pay your tax bill by no later than the 31st of January In your business’s second year.
But that doesn’t mean you should wait until then to actually file your Self Assessment. There are tons of benefits to filing your Self Assessment early, and this doesn’t mean you have to actually pay early.
You’ll then pay all following Self Assessments by the 31st of January every year.
Payments on account
It’s also important to note that you’ll likely be required to make payments on account twice a year, too – on the 31st of January and 31st of July. These are payments made ahead of time for your next tax bill, and are worked out by looking at your tax for the previous year. So in January you’ll make a payment of half what you owed the previous year, and in July you’ll pay the second half.
What if you can’t pay your tax bill?
If you can’t pay your tax bill by the deadline, it’ll be crucial to let HMRC know as soon as possible. Aim to do this well before the tax deadline, or you’ll incur fines and interest.
What happens if you miss the payment deadline?
If you miss the tax return deadline you’ll be faced with an immediate £100 fine. If you still haven’t submitted your return and paid your tax bill by three months after the deadline, you’ll start to incur a £10 daily fine for the next 90 days, increasing the fine to a potential £1,000. It’s for this reason that it’s crucial to submit your tax return and pay your bill on time, even if that means having to go back and amend it at a later date.
How to amend your Self Assessment after you’ve already filed it
You can amend your tax return in the HMRC portal if you find that you’ve made a mistake. You can do this anytime up until 31st of January the following year.
How long does it take for a tax refund to be processed?
If you’ve paid too much tax, this should show up on your Self Assessment, and you’ll be due a refund. This can take anywhere between five days and eight weeks to process.
Hopefully we’ve helped to demystify some of the questions you may have around tax. For more helpful articles on all things tax, check out Finmo’s handy guides.
This is part of an original article from Finmo https://finmo.co.uk/how-to-file-your-self-assessment-and-pay-tax-bill/