Each year as a contractor you will be required to complete a self assessment tax form (SA100). This will allow you to assess how much personal income tax you should be paying over to HM Revenue & Customs (HMRC).

Benefits-of-Tax-Returns-with-an-Accountant

The year of assessment for the self assessment return always covers the period 6 April to 5 April. If you are filing a paper return, this has to be submitted to HMRC by the 31 October, after the end of the tax year finishing on 5 April. HMRC will calculate your tax liabilities for the year.

If you submit your Tax Return online, you have nine months after the end of the tax year, which means that the Return has to be submitted by 31 January.

If you do fail to submit your Tax Return by the relevant 31 January, following the end of the tax year, you will automatically receive a £100 penalty, whether you owe any tax or not. If you have not submitted your Return within three months after the filing deadline, then HMRC may apply additional penalties of up to £10 per day.

Your Tax Liability

If you have a tax liability for any tax year you must pay this from your own personal funds by 31 January. For example, 2013/14 tax year is the year 6 April 2013 to 5 April 2014. Any tax due for this year would be payable by 31 January 2015.

In addition to this, if your tax liability is more than £2,000 and/or more than 20% of the tax liability is not collected from source, then you will be liable to make payments on account towards the next year’s tax liability. These payments on account would be due by the 31 January and 31 July. Using the example below, if your tax liability was £20,000 in the 2013/14 tax year, then the payments you would be required to make are as follows:

Payment Amount
Income Tax Liability for 2013/14 due 31 January 2015 £20,000
First payment on account for 2014/15 due 31 January 2015 £10,000
Second payment on account for 2014/15 due 31 July 2015 £10,000

 

Payments on Account

The payments on account are calculated by HMRC on the basis that your tax liability will be the same in the next year, based on the information that you submit on your Tax Return.

HMRC then split the total tax liability in half, with the first half being collected in the January prior to the end of the tax year, and the remaining half being collected in July, after the end of the tax year.

The payments on account can be reduced by completing a form SA303, if you think that your income will be lower in the next tax year. However, if you lower your payments on account too much and your actual liability is higher than the total reduced payments on account, then you will be liable to pay the difference immediately, and interest will be charged by HMRC.

Contractors and the IR35 Legislation

For information on the issues regarding IR35 that affect contractors, please see the section on IR35.

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Contractors Tax Advantage is a leading accountancy practice providing accountancy services for contractors across the UK.