Top Tips on filing a self-assessment form
ContractingWISE’s Jon Millar takes the pain out of tax returns and provides some expert tips on filing a self-assessment form
Published on 17th October 2016
For those of you starting a career as a locum social worker, becoming self-employed might be the first time that you have had to file a self-assessment form and pay tax directly to HMRC. Filling out a tax return can be time consuming and does require careful consideration - with a bit of planning, and a good sense of personal finance, it can be a relatively simple and even painless experience.
There are various pitfalls to avoid and good practice guidelines that you should follow. Here are our top tips for how you can prepare for self-assessment.
Know your deadlines
If you want to file your tax return as a paper copy – and this is sometimes necessary for people with complex tax situations or those who do not trust or want to use an online alternative – you must file by 31st October. If you are happy to file an online tax return, you have until 31st January. But beware that HMRC’s website will be flooded with people who have left their tax return to the last minute and it does not always cope with the stress. This also means that their helplines are incredibly busy should you need any advice or help at this time. If it is your first self-assessment, be aware that you need to activate an online account and receive a unique tax reference and this can take a week or more so bear this in mind when filling in your return. There is zero tolerance by the tax man for late submissions and you could risk facing a fine.
Get your paperwork in order
If you’re new to working on your own and recently finished a permanent position, make sure you have your P60 or P45. You’ll also need details of bank account interest, loans, investment profits and losses, and of course any dividends you may have drawn down if you have a limited company or personal service company.
Figure out how to deal with other income
If you have invested in a rental property and have any income from tenants, you’ll be able to use your property losses – mortgage interest costs for some landlords, repairs, estate agent fees, insurance etc – to offset any income you make. This will be the last year you will be able to take into account mortgage interest relief on residential buy to let property.
Put money aside to prevent cash-flow problems
If you were a permanent employee, you didn’t need to worry about tax as it was deducted from your monthly salary cheque. As a locum social worker the situation is not so different if you have been working and earning solely through an umbrella company arrangement as your umbrella company would have made the deductions for you. However, if you have combined your umbrella earnings with any other earnings during the year then you will need to review and consider how and if you need to declare on your self-assessment return. If you have utilised a personal service company then you will need to pay both income tax and national insurance on your salary, income tax on your dividends and possibly VAT if you earn enough. Although you should be able to maximise your income through various tax efficiencies available to self-employed people, you will – hopefully – earn enough to cover a tax bill. Estimate how much you think you’ll pay and set money aside every month so that you can more than cover a tax bill at the end of the year. HMRC sometimes asks for payments on account – advance tax payments based on what it expects you to owe in the forthcoming financial year.
Watch out for fake tax websites
HMRC has taken action to shut down more than 22,000 bogus websites in the last two years, so double check the website URL before you enter any details.
Do make pension contributions, especially if you are a higher rate taxpayer
Working outside the NHS as a locum means that you aren’t party to Superannuation and need to make your own pension arrangements. If you have done this then the good news is that you get an automatic tax relief of 20% on pension contributions. Higher rate taxpayers should pay close attention to their pension contributions. Since they pay tax at 40%, they can reclaim an additional 20% of tax relief on pension contributions.
Keep a record of your gift aid donations
Higher-rate taxpayers can also claim tax relief on gift aid, as this is also calculated only at the 20% basic rate.
Be meticulous about your expenses
Every business expense you make through your company needs to be accounted for so that at the end of the year you can make proper deductions from your tax bill. Travel and obvious expenses – like a new laptop to keep up to date with your administration– are easy enough, but there are other options. There is more information here on the HMRC website about other expenses that can be included in your return.
Consider whether you need an accountant
If you’re using an umbrella company, you may be happy to do your own tax return to cover off other earnings. If you have a personal service company, or receive income from a wide range of sources then you may find that an accountant is a worthwhile investment. As a broker intermediary offering advice right across the contracting industry, ContractingWISE can help you to consider the best way forward so you don’t miss your self-assessment deadline.
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