The basics
It’s important to understand that contractors who work under an umbrella company will not normally have to fill in a self-assessment tax form.
This is because the umbrella company will deduct their income tax through PAYE and the tax on any small other sources of income can be collected through the PAYE system.
However, if you have received a Notice to File a tax return you will need to complete the return and file online with HMRC.
The deadline for submitting a tax return for 2017/18 electronically is 31 January 2019. This is also the deadline for paying any tax.
Registering with HMRC
You can check if you need to send a self-assessment form with the following tool on the www.gov.uk website - https://www.gov.uk/check-if-you-need-tax-return. This has been recently updated and fewer people will now need to submit a return.
Generally only those who are also self-employed, partners in a partnership, or who have rental or investment income of more than £2,500 will need to make a return.
If you meet the criteria for completing a self-assessment tax form, the first step is to register with HMRC. This must be done by the 5th October following the end of the tax year that you are required to file a tax return (e.g. contractors filing for the 2018/19 tax-year should register by 5th October 2019).
You can register by post, by phone or online, but make sure that you give yourself a ‘buffer’ to account for any delays. Once you’ve registered, HMRC will send you a Unique Taxpayer Reference (UTR) number by post. This is the number you will use to register for HMRC Online Services. HMRC will then send you a PIN number in the post to access Online Services where you can file your self-assessment tax form. The good news is that you only need to complete the registration process once. After this, HMRC will send you an annual reminder to file your self-assessment tax form unless you notify them that your circumstances have changed.
Your Personal Tax Account
If you register with HMRC for a personal tax account at https://www.gov.uk/personal-tax-account then you can update your personal details online, including your income and benefits. You can also keep an eye on your tax code and your contribution record for the State Pension. This is well worth having.
Filling in the self-assessment tax form from your records
Keeping your records organised and up-to-date is essential when it comes to filling in your self-assessment tax form, including your invoices and business expense receipts. Many contractors struggle to find time to regularly file their paperwork and you may find that using accounting software helps to simplify this process. If your paperwork is complex, for example, if you work both public and private sector contracts, it may be beneficial for you to use specialist accounting services. A specialist accountant will be able to ensure that your paperwork is accurate and can also advise you on any areas of doubt, such as IR35. In order to protect yourself in the event of a tax enquiry, its best to keep thorough records, including copies of all your contracts and any documents that support your status for at least six years. Although you won’t necessarily need to fill in this information on your self-assessment tax form, it’s good practice to keep detailed records that can substantiate the information you provide. For the purposes of the form, you will need the following basic information:
How much will I have to pay?
The tax return collects income tax, class 4 NICs (for the self-employed), capital gains tax, student loan repayments and Child Benefit Charge.
You will have to pay income tax on any earnings that exceed the personal allowance on your total income and the others where the relevant thresholds are crossed.
What are ‘payments on account’?
You will have to make payments on account unless:
Changes to the tax on dividends which came into force from 6th April 2016 mean that many more taxpayers need to make payments on account. Each payment on account is 50% of the amount due for the previous year.
The deadlines for paying your payments on account tax bill are:
You will note that the final or balancing payment for the previous year is also due on 31 January.
How much should I budget for my self-assessment tax bill?
Tax experts generally advise contractors to reserve around 30% of their self-employed earnings each month. Although you might not end up paying this amount, it’s good practice to accumulate a ‘buffer’ so that you can cover any unexpected tax payments that are required.
What do I do once I’ve completed my self-assessment tax form?
It’s a good idea to double-check the accuracy of the information that you provide on your self-assessment tax form. If you miss out sections or provide insufficient information, this could result in a delay in processing your form, which could cause issues with deadlines. After you’ve submitted the form online, HMRC will notify you of how much tax you owe. Details of how to pay your self-assessment tax bill can be found here.
For guidance on all your contracting issues, speak to a member of our Umbrella Exchange team by calling us on: 0203 393 3881