Find out how self-employment tax returns work, how to choose the right accounting period and everything you need to know about payment on account.
Paying tax when you're self-employed
If you're self-employed, you’ll need to file a self-assessment tax return each year.
This will offset your income against any expenses and allowances, meaning that your resulting tax bill will only be based on your taxable profits.
Broadly, taxable profits are your yearly takings, minus allowable business expenses, annual investment allowance, capital allowances and losses.
You'll often need to pay the tax you owe in two chunks twice a year - a method known as 'payment on account'.
Self-employed tax payments: need to know
What is the 'tax year'?
6 April-5 April Each tax year runs from 6 April to 5 April - so the 2020-21 tax year covers any profits you've made during your accounting year, which will have ended between 6 April 2020 and 5 April 2021.
What profits do you pay tax on?
The profits you made in this period must be declared in your 2020-21 tax return. Deadlines for submission are 31 October 2021 for a paper tax returns and 31 January 2022 for an online return.
When are tax payments due?
31 January Any tax due for the 2020-21 tax year must be paid by 31 January 2022.
What if you're filing late?
If you send in your return later, you must file it online, and the HMRC software will tell you how much tax is due. Note that this calculation doesn't always include your most recent payment on account.
Are there other ways to pay?
If you owe no more than £3,000 tax, are paid a salary or pension, and get your return in by 30 December, the tax can be collected in instalments during the coming year through PAYE.
What is payment on account?
After your first full year of business, as well as paying tax for the tax year that’s just ended, you are also required to pay tax for the current year in two instalments. These are known as 'payments on account.'
Submit your 2020-21 tax return with First Choice Accountancy now ! Click below to see our Self-Employed website page.
Richardson, D., 2021. Paying tax: self-employed. [online] Which? Money. Available at: <https://www.which.co.uk/money/tax/income-tax/income-tax-for-the-self-employed/paying-tax-self-employed-a7gzb4c1wucx> (Accessed 19 October 2021).