In the UK, self employed professionals find HMRC’s tax system to be a daunting task to navigate. Not paying your taxes on time or not taking advantage of allowable expenses can be quite costly; it can cost you in terms of transactions, but more so, in penalties. Many rely on an accountant for the self employed individual to make tax obligations easier, but it is just as important to know the basics yourself. This HMRC guide for contractors unwraps the obstacles and offers implementable information to ensure you follow the rules and remain financially sound.
Self employed individuals are different from employees who have taxes automatically deducted from their pay. This includes:
Registering with HMRC: You need to register for Self Assessment before 5th October after the end of your first tax year.
Self Assessment Tax Return: This is due by 31st January every year online for your income and expenses.
Managing VAT (if applicable): If your turnover exceeds £90,000 in a 12 month period (2024 threshold), you must register for VAT and submit quarterly returns under Making Tax Digital (MTD), managing VAT (if applicable).
Any of these areas can have mistakes or delays and fines addition interest. It is therefore important to follow up on deadlines.
Underestimating Your Tax Bill
A lot of self employed people overestimate how much they owe in taxes. HMRC has a “Payments on Account” system whereby you have to pay in advance based on your previous year’s bill. Your earnings will either be fluctuating, so you overpay or get an unpleasant surprise with an earnings shortfall.
Solution:
In fact, it is a good idea to allocate around 20 to 30 percent of your income for taxes.
You can use HMRC’s tax calculator to estimate liabilities.
To get accurate calculations, consider an accountant for self employed professionals.
Expenses that can be claimed by self employed persons reduce the taxable income. However, claiming ineligible expenses can draw the attention of HMRC.
Solution:
You, however, can only claim expenses that are ‘wholly and exclusively’ for business use (for example, office supplies, travel costs and marketing costs)
If you are using a home office, calculate a fair percentage of rent, utilities and internet.
Keep all receipts and invoices in detail.
Missing Tax Deadlines
There are automatic penalties for late filings or if you miss the Self Assessment deadline, at £100 and up for each month late or for each month you are late paying, depending on when you are late.
Solution:
Set calendar reminders for key deadlines: 31st January (tax return & first payment), 31st July (second payment on account).
Automate payments via HMRC’s direct debit option.
If you get stuck with strikes that prevent you from meeting deadlines, seek for professional help.
Keep Digital Records
MTD is changing the way self employed people report their income. MTD for ITSA won’t be mandatory until April 2026 for those who earn over £50,000 but staying ahead now will avoid future headaches.
These must also be tracked in real-time using cloud accounting software. There are many platforms that integrate directly with HMRC to ensure compliance with MTD requirements.
Mixing business and personal m oney makes the tax filing sounds quite complex. A dedicated business account allows banks and any organization to keep records simple and clear as well as for making tax calculation easier.
Although HMRC also provide online guidance, tax laws can be complex. A professional accountant for self employed individuals will tailor advice to optimise deductions, manage VAT and avoid compliance risks.
Self employed people have a HMRC compliance responsibility and knowing tax obligations can save you from costly mistakes. You can manage your taxes well by staying organised, meeting deadlines and use the digital tools. If you are someone trying to manage your finances and the business in a right way this is the best way to safeguard, consulting a self employed accountant can keep your finances in check so you can concentrate on the business growth without worrying about any compliances.
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