Understand your Tax Calculation
Your tax calculation will show you the following things:
- Income tax due
- Class 2 National Insurance due
- Class 4 National insurance due
- Payments on account due
Most people understand their Income Tax bill, class 2 and class 4 National Insurance (even if that figure is sometimes a bit of a shock!). But where people come unstuck is with the concept of payments on account.
‘Payments on account’ are advance payments towards your tax bill (including Class 4 National Insurance if you’re self-employed).
You have to make 2 payments on account every year unless:
- your last Self Assessment tax bill was less than £1,000
- you’ve already paid more than 80% of all the tax you owe, for example through your tax code or because your bank has already deducted interest on your savings
Each payment is half your previous year’s tax bill. Payments are usually due by midnight on 31 January and 31 July.
If you still have tax to pay after you’ve made your payments on account, you must make a ‘balancing payment’ by midnight on 31 January next year.
So what does that mean in plain English? It means that for your first tax bill as a self-employed person, you may well have to pay 18 months’ worth of tax in one go – yikes! And what’s more, payments on account do not include anything you owe for capital gains or student loans (if you’re self-employed) – you’ll pay those in your ‘balancing payment’.
We quite often come across clients who have completely forgotten about the payments on account – so forewarned is forearmed. Make sure that you’re putting money aside to make any payments on account. And if you can, get your tax return done before July each year so that the balancing payment in your tax calculation can be adjusted down if necessary – there’s no point paying tax over to HMRC only to have to reclaim it later!
Is it worth your time doing your Tax Return Online?
With so much to consider to file your tax return correctly, is it really worth your time doing it?
How many hours will it take you to do your self-assessment vs how much money you may be able to make in that same time?
How many hours do you sacrifice with your loved ones in order to do your self-assessment tax return?
For most of our clients, the idea of doing their own self-assessment is completely alien – they know how tricky it can be and value services like ours that can take that stress of their hands.
Our clients never worry about having to understand their tax calculation, because we are here to explain it to them.
Our clients let us get on with their tax return while they get on with their business!
So if you’re adamant that you want to file your self-assessment tax return yourself, we hope that you’ve found these tips useful.
And if you’d like to learn more about how Mazuma can help with your self-assessment tax returns, click here.