Q1. What to do if I paid extra tax?
If you are self-employed and you think you have paid the extra tax, you can ask IR (inland Revenue) to repay you by filling it in the next tax return. IR can also credit extra tax to your account if you didn’t ask for it, but your account shows you are due a refund.
Q2. I’m a full-time student. Do I need to pay tax?
You are liable to pay tax regardless of your age or what you do, depending upon your income. If your income exceeds the personal allowance, you need to pay income tax.
The income tax rates are specific to four different bands defined by certain income groups. These bands are as follows:
|Personal allowance||Up to £12,570||0%|
|Basic rate||£12,571 to £50,270||20%|
|Higher rate||£50,271 to £150,000||40%|
|Additional rate||over £150,000||45%|
You can also apply for tax relief if you are married or in a civil partnership, by claiming marriage allowances to reduce your partner tax, given that your income less than taxable income.
Q3. What are tax implications when I become self-employed?
After becoming self-employed, the first thing you need to do is notify HMRC and IR. You can use the CWF1 form to notify both departments. You also need to keep a complete financial record of your business to file your tax returns. For more information regarding self-assessment, click here.
Q4. What Incomes are liable to income tax?
Income tax is a tax that you pay on your income if it exceeds a certain amount. You are not liable for paying tax on all income types; some are exempt from income tax.
|Income tax is liable on||Income tax is not liable on|
|Earning from employment||Trading allowance (first £1,000 of income from self-employment)|
|Self-employment profits (website and apps included)||first £1,000 of income from your property you rent|
|Taxable State benefits more information||Nontaxable benefits more information|
|Pensions i.e., personal and company professional, retirement allowance, and state pensions||Income from National Saving Certificates and Individual Saving Account|
|Income from renting a property||The income you get from renting your house below rent a room limit|
|Interest on your saving allowance|
Q5. I suspect someone of evading tax. What can I do?
If you suspect someone evading tax, you can report to your local tax office. You can also make a complaint through a call to IR Anti-fraud helpline (0800788887).
Q6. What is Self-Assessment?
Self-assessment is a system of HMRC to collect income tax. HMRC usually collects tax automatically from the pension, wages, and savings but the self-employed or the people having other income sources must report it in a tax return, also known as self-assessment.
Q7. Who needs to complete a Self-Assessment tax return?
You need to complete your self-assessment for tax returns if you are:
- partner in a business
- trusty or executor of an estate
- minister of any religion
Q8. Where to file Self-Assessment?
You can file your self-assessment online if you are self-employed or not self-employed but still need to file self-assessment because you receive income from other resources like property rent. In some cases, you cannot file self-assessment online such as:
your income comes from a trust
you need to report multiple chargeable gains
you lived outside the UK as a non-resident
you are in a business partnership
you run a trust or estate
In such cases, you shall use commercial software or other forms. You can also contact us for expert advice regarding filing your Self-assessment.
Q9. What records will I need to file the self-assessment?
It is necessary to keep all your financial records. Keeping efficient records might help you in applying for any tax relief you are eligible for. You can either keep your records digitally or on paper. HMRC can also impose penalties on incomplete and inaccurate records. If you are not self-employed but filing self-assessment, it is necessary to keep the records of the last 22 months. Whereas if you are self-employed, you have to keep records of the five years.
Q10. I pay tax through the PAYE (Pay as You Earn) system, but I have received a Tax Return. Do I have to fill it in?
Yes, you are legally bound to file your tax return. If you don’t have any taxable income or asset other than what your job provider has already paid through PAYE, you will not get any tax bills.
Q11. What is PAYE?
In the UK, employees do not need to file their self-assessments. The tax is deducted through PAYE from the salaries. PAYE (pay as you earn) is a system introduced by HMRC. If you are an employer, you have to file the tax returns of your employees and pay the employees’ PAYE bill to HMRC. PAYE is also used to collect tax from those who receive pension income
Q12. What does a PAYE bill include?
A PAYE bill might include:
- Income tax deductions
- National Insurances
- Student Loan repayments
- CIS deductions
- Levy payments
The PAYE is calculated based on your earning. The tax rates for calculating PAYE for the tax year 2021-22 are:
Allowance (nontaxable amount): £0-£12,570
Basic-rate (20%): £12,571-£50,270
Higher-rate (40%): £50,271-£150,000
Additional-rate (45%): £150,001 plus
Q13. Why do I have a PAYE rebate on my salary?
It is because you are taking a lower salary than your previous employment. Your salary has shifted from a higher to a lower rate taxable income. Either some or all of the extra tax paid on a higher tax rate will be refunded to you in your salary account.
Q14. When must you register for VAT?
You have to register for VAT if:
Your turnover on VAT taxable products goes over £85,000.
Your total VAT taxable turnover is expected to exceed £85,000 over the next 30 days.
Your VAT taxable turnover has been over £85,000 over the last 12 months.
Q16. What is value-added tax?
Value-added tax (VAT) is collected at every stage of the supply chain cycle; from the manufacturer when he buys raw material, from the retailer when he buys certain products from the manufacturer, and from the consumer, where all tax is paid by the end-user that is the consumer.
Valued added tax is directed towards the end of the supply chain, where tax is deducted at every step of the sale cycle while the consumer pays the cumulative VAT.
Q17. What is corporation tax?
Corporation tax applies only to limited companies, foreign companies having an office or a company branch in the UK, and co-operative or unincorporated associations. While corporation taxes are not billed to you and require certain legalities from you.
Q18. How do I file corporation tax?
Keeping account records, and preparing the company’s Tax Returns, and filling them by the deadline (usually 12 months after the end of your accounting period).
Paying Corporation Tax or providing reports if the company is not liable to pay in the given time frame which is 9 months and 1 day after the end of the accounting period.
Q19. When do I register?
A company is obliged to register with HMRC within three months of commencing its trade i.e. buying, renting a property, selling, advertising, or hiring employees. Late registration might be liable to penalties.
Q20. What company’s income is liable to corporate tax?
A Company is liable to corporate tax on its profits from business, investments, and selling assets which include, company shares, machinery, land, equipment, and property.
Q21. When does HMRC perform a tax investigation?
You are most likely to be called for a tax investigation for one of the following reasons:
HMRC received a tip of your wrongdoing.
You are filing returns late constantly.
There are inconsistencies in your financial statements.
Your business is in a high-risk area i.e., businesses in your area have high cash flow.
Your business is randomly targeted to ensure HMRC compliance.
There is a gap between your way of living and your finances filed in tax returns.
You are not making a profit for multiple years as shown in your tax returns.
HMRC finds about your dealings with another firm under investigation or in their tax return that you failed to mention in your tax returns.
Q22. What taxes come in tax investigation?
The taxes investigated by HMRC usually depend on the type of inquiry. A tax inquiry is not limited to your income tax, HMRC may look closely at a variety of accounts such as VAT, Capital Gain Tax, Corporation Tax, CIS, IR35, and other taxes HMRC is suspicious about.
If you have complicated tax affairs, it’s best to hire a tax expert to ensure your accounts are efficient.
Q23. How far back does a tax investigation go?
How far back HMRC goes into your accounts depends on the type of investigation you are facing and whether they found anything suspicious or wrongdoings in your accounts in an initial investigation. In a normal investigation, HMRC can investigate your previous four-year records. If they find any obvious mistakes in your accounts, they can go back 6 years into your accounts. But if they find you have deliberately tried to avoid paying tax, the investigation can go as far as 20 years back into your accounts.
Q24. What happens after the investigation?
If HMRC finds any mistakes that are obvious to be an error or negligence, you will be told to straighten your accounts and pay what you owe to HMRC. For any corrections, HMRC will give you 30 days but if you fail to do so HMRC will correct the return itself.
If HMRC has any reason to believe that you fraudulently filed your tax return to lower your tax, you will be liable to pay extra tax and interest on the tax you didn’t pay. You can also face imprisonment if there are any serious frauds found in your tax statements. It is best to get legal help if any such thing happens to you.
Q25. How can I prepare for the tax investigation?
If you are contacted by HMRC for tax investigation, it is best to revisit your accounts before HMRC visits. Here are some things you need to do for a stress-free investigation:
Revise your accounts and look for any shortcomings.
Make sure your records are in order while gathering all the relevant information like payment receipts.
Make sure your account balance matches the balance shown on accounting software.
It is best to hire a tax or accountancy expert before and during HMRC investigation. This will help in straightening your account before an investigation and efficient compliance of HMRC demands during an investigation.
Q26. What are statutory accounts?
Statutory accounts are also known as annual accounts. These accounts are a set of financial reports which are prepared after each financial year by limited companies. Statutory accounts are not just legal requirements but important in determining progress, failures and in predicting the future of a business. The statutory account reports must be shared with all the stakeholders and the HMRC for annual tax returns. The stakeholder of your limited company might include shareholders, company houses, and other relevant company personals.
Q27. How do I prepare statutory accounts?
You have to prepare your statutory accounts according to either the New UK GAAP or IFRS Standards
Your statutory account report must include:
Balance sheet and a profit loss statement. A balance sheet is a financial statement that includes money the company owns or owes at the end of the financial year. It must also be signed by the director of the company.
A profit and loss statement that shows the total profit or loss a company has made in the given time.
You might also need additional reports from a director unless you are a micro-entity or reports from an auditor depending on the size of your company.
Q28. How do I know if I need busines mentoring?
It is easy to determine whether you need business mentoring or not. Ask yourself the following Yes or No questions:
Do you have limited connections and want to increase your business circle?
Do you feel you are alone when certain dire situations pertain?
Do you feel like not having a clear understating of certain aspects of your business?
Do you feel like you need to redefine your approach, but you are not sure how to?
Is your business not being able to achieve its set goals?
Do you find it difficult to make business decisions?
Do you think sharing a problem with someone for advice could help your business?
If the majority of the answers are yes then this the right time for you to opt for business mentoring.
Q29. What is the construction industry scheme?
The construction industry scheme (CIS) sets out the rules and regulations on payments made by contractors to subcontractors. These rules apply to construction industries and other businesses where contractors and sub-contractors are involved in construction work.
Q30. How to determine whether my business is the eligible gross payment status under CIS?
For your business to be eligible for GPS status, it must:
be providing its services within the UK and carries out its transaction through a bank account
have followed all the tax deadlines and always have submitted appropriate tax returns
have an annual turnover of at least £30,000 for every shareholder or a sole trader
Q31. When do I have to register for CIS?
You have to register for the scheme if you are hiring a subcontractor for construction work or your business doesn’t specifically involve construction work but your yearly expenditure on construction is more than £3 million.
You have to register for the scheme before paying your first subcontractor.
You have to register as an employer with HMRC and set up PAYE.
If you have to pay an employee before getting your employer PAYE reference number, you should run a payroll, store all payment submissions, and send late payment submissions to HMRC.
Q32. What is capital gain tax?
Capital gain tax is deductible from the profits you make by selling or disposing of certain assets. The assets liable to capital gain tax may include; a second property or buy-to-let, sale of a business, and sale of valuables like jewelry, art, and antiques.
Q33. On what do I have to pay capital tax?
You are liable to pay capital tax on:
Personal possessions worth £6,000 or more (you don’t have to pay capital tax on profits you make on selling your car)
If your main home is large, it is for business purposes, or you receive rent from it
Shares (not in an ISA or PEP)
Selling crypto assets such as bitcoins, click here for more information on if you are liable to pay CGT
Q34. What is exempt from capital gain tax?
You don’t pay capital assets on:
Betting, lottery, or pool winning
Government gifts and premium bonds
ISAs or PEPs
You might not be liable to pay capital tax on property you inherit
For more information, click here.
Q35. What do I need to report capital gain tax returns?
To report any capitals gain, you will need:
Calculation of each capital gain or loss you report
The dates of selling or buying an asset
Details of the total amount you paid to buy or received for selling of the assets
Other details such as tax reliefs you are entitled to
Q36. What are the capital gain tax rates?
For residential property: 28% if taxable gains and income are above the income tax basic rate band, 18% below that limit.
For trustees of a deceased person: 28%
For non-residential property, other assets: 10% for shared properties, 20% for individuals .
non-publicly listed business: 10% if you are eligible for the Entrepreneurs’ Relief scheme