What does ‘end of tax year’ mean?
The end of the tax year is typically referring to the personal tax year period, which runs from April 6th until April 5th the following year. This is also known as the ‘fiscal year’
The end of the tax year means you will have to file an income tax self-assessment tax return for that specific year. You have until October 31st to file paper returns and January 31st if you are filing online. If you would like any unpaid tax to be collected through your tax code, you must file a paper return by 31 October or online by 31 December. If you do happen to miss the tax self-assessment deadline, you will need to submit and pay your tax as soon as possible to avoid further interest and penalties.
Business owners usually start out as sole traders or as a partner within a partnership. The taxman will consider you as a self-employed individual and you should be registered accordingly. The end of the tax year means that you will need to file an income tax Self Assessment.
Becoming a limited company
At some point, you may feel it is the right move to operate your business as a limited company. This creates a separate legal ‘person’ which is taxed separately from you and any other co-partners of the business.
Corporation tax adds a few extra dates for you to be aware of. The tax year for corporation tax is called the ‘financial year’ also known as the ‘accounting period’. This period runs from the date the company was set up and ends 12 months from then, so if you have a company that was set up 30 January 2021, the first ‘financial year or accounting period’ will be 30 January 2021 to 31 January 2022.
As a director of a company, the end of the personal tax year is still important if you are receiving any taxable dividends or benefits in kind, in which case you will be obliged to complete a self assessment tax return as well.
How should I prepare for income and end of year tax?
Preparing for tax deadlines should be considered as an ongoing task, rather than a job that is done in one day – or multiple days. This will have you best prepared with all the correct information for your taxes.
File paperwork as it arrives
Those who are self-employed will be taxed on business profits after deductions for expenses. This means you need to be able to account for every transaction made by your business. In the beginning, the transactions may be small but they will grow as your business grows. Filing paperwork as it arrives will alleviate the stress of preparing for the tax period, and allow for fewer errors. Track each transaction from your business in a folder with ‘incoming’ and ‘outgoing’ . Self-employed are taxed on profits after deductions for expenses.
A simple spreadsheet is all that is required to give you an overview of what’s happening with your transactions. By scheduling yourself an hour or so a week to review your books will be useful to keep on top of invoices and spendings. If bookkeeping starts taking over, it may be time to invest in a dedicated invoicing and accounting software to take the ease off of you.
Keep track of every investment you make for your business, whether that be travel cost, home office, phone bills, capital allowance on equipment etc all of these factors need to be considered. Don’t leave it until the last minute to think about how much you’ve put into your business
Cash basis accounting
If income is £82,000 or less you can work out your income and expenses for your self-assessment tax return through cash basis accounting. Keep records of all business income and expenses throughout the tax year.
To put it simply:
- Get organised – put systems in place that you understand
- Keep your receipts – this is the quickest way to calculate your spendings
- Get advice – As your business grows, consider outsourcing to a tax specialists company to help you keep on track.
Who must send a tax return?
You must send a tax return if, in the last tax year, you were:
- Self-employed as a ‘sole trader’ and have earned more than £1,000 (before anything is taken off you can claim tax relief on)
- A partner in a business partnership
- Have earnings over £100,000
- Receive property income of more than £2500 after allowable expenses (not including mortgage costs)
- Receive more than £2000 in dividends
- Receive more than £1,000 from savings
- Have received any other income that has not been taxed.
You can also choose to file a tax return to:
- Claim some income tax reliefs
- Prove you’re self-employed, for example, to claim Tax-Free Childcare or Maternity Allowance.
There are a set of deadlines in regards to the tax process, they are as follows:
- Registering for Self Assessment if you are self-employed, sole trader, not self-employed, or registering a partner or partnership – 5th October
- Paper tax returns – Midnight October 31st
- Online tax returns – Midnight 31st January
- Pay tax you owe – Midnight Jan 31st
- If you are due to make payments on account for the following year, you must pay these in 2 equal installments on 31 January and 31 July.
If your tax return or payments are late you’ll pay a penalty and interest depending on how late the submission/payments are, you will have to pay a late filing penalty of £100 if your tax return is up to 3 months late, after which a daily penalty is charged. However, you can appeal against the penalty if you have a reasonable excuse.
Calculated UK Accountants and tax specialists in the UK, and are offering tax consultations to help you best prepare for the end of the tax year. You can contact us or email firstname.lastname@example.org and book a consultation.