Keeping on top of tax

      Quick links to sub topics

• Income tax
• Corporation tax
• VAT
• National Insurance

As we’ve already mentioned, we all pay tax to the government so it has the cash to pay for everything from schools and roads to the military. If you work for someone else, they pass your tax on before you get your wages so you don’t really have to think about it. Unfortunately, as a self-employed person, it’s all down to you and there are certainly plenty of examples of people who have come unstuck because they’ve forgotten to put aside money to pay their tax, or kept dipping into it to keep their business afloat.

Failing to pay your tax is a really serious issue that will land you a hefty fine or even another spell in prison so we can’t stress enough how important it is for you to understand what your responsibilities are and to plan ahead to pay your taxes.

The first thing you need to do, which we’ve already mentioned above, is register with HM Revenue & Customs within three months of going self-employed. This is the part of the government that is responsible for collecting tax from you.

There are a number of different taxes so it’s important to find out which are relevant to you.
HM Revenue & Customs has a helpline for newly self-employed people – 08459 15 45 15 – that can give you the help you need. But, to give you a brief idea, the main taxes you’re likely to come across are:

Income tax

If you’re a sole trader or a partnership, this is the tax you’ll pay and the amount you pay is based on how much your business has earned. It’s up to you to tell HM Revenue & Customs how much you’ve earned using your self-assessment tax return. Once you’ve registered as selfemployed, you should get sent a tax return automatically. They usually come soon after the beginning of the financial year, which starts in April, and you have to fill it in and return it by 31 January or you get fined. If your tax return doesn’t turn up, it’s important to contact HM Revenue & Customs to get hold of one. The Self Assessment helpline number is 0845 900 0444. But professional advice is always good to seek as falling foul of the taxman is easily done.

Corporation tax

If you’ve decided to set up a limited company, you’ll pay Corporation Tax and the amount you pay will be based on your company’s profits. Again, it’s up to you to tell HM Revenue & Customs about your company and to fill in a company self assessment form.

VAT

VAT stands for Value Added Tax, which is a tax charged on the supply of goods and services. Outside your working life, you pay this most of the time without noticing – look at a receipt you get given when you buy something like some clothes and you’ll see some information saying how much of the cost you’re paying is VAT.

When you’re self-employed, you need to pay VAT if your business is bringing in more than a certain amount a year. To find out more about VAT, contact HM Revenue & Customs on 0845 010 9000.

National Insurance

National Insurance is a tax that the government collects from most people who work. The money goes into the National Insurance Fund, which is used to pay for benefits such as pensions. As a self-employed person, you’ll have to pay National Insurance unless you earn less than a certain amount. To find out more about National Insurance, contact the HM Revenue & Customs helpline for newly self-employed people on 0845 915 4515.