Monday, June 6, 2016
There are many benefits to forming a limited company. Freedom to grow your business, greater financial rewards and control over your work/life balance to name just a few.
However, becoming a company director also means that you’ll have to take on some new responsibilities. If you are used to being an employee or an umbrella contractor, chances are you won’t have had to complete a self-assessment tax return before.
As director of your own limited company, you’ll need to complete a self-assessment tax return every year. You must include all sources of income, not just what you earn via your company.
Here’s our guide to what’s involved.
Your main responsibilities are to ensure:
You’ll receive notice to complete your tax return just after the end of the tax year (6th April to 5th April the following year).
The deadline for filing your return is January 31st. If you miss this deadline, you will automatically be charged a late payment penalty of £100.
Calculating your tax bill
You can choose to calculate your own tax bill, or you can use a specialist accountant such as CharterRED, who will work everything out on your behalf.
If you have tax to pay, full payment will be due by the 31st January self-assessment deadline.
You may also have to make two payments towards your estimated bill for the next tax year. This is known as ‘Payments on Account.’ However, this will only apply to you if your income tax/NI liability is greater than £1000, or if more than 80% of your income tax/NI liability was paid at source (e.g. by PAYE).
If you do need to make an advance payment, this will be due in two instalments:
You’ll receive statements from HMRC to help you keep track of your payments.
Interest and late payments
If you don’t pay the tax you owe by the deadline, you’ll be charged interest until everything is settled. A 5% surcharge will also be added to any tax that is still outstanding on 28th February. This rises to 10% if you still haven’t cleared the unpaid amount by 31st July. Plus, an additional 5% will be applied if your tax still hasn’t been paid by the following 31st January.
Corrections to your tax return
At any point within 12 months of the filing date, you can make changes to your tax return. However, you should be aware that any changes may result in additional interest and tax being charged.
HMRC cannot query your tax return without starting an enquiry. An enquiry doesn’t necessarily mean your tax return is wrong.
Should HMRC wish to enquire into your tax return, you will receive written notice within 1 year of the filing date. If you don’t hear back within this timeframe, you can consider the document final unless an error is discovered.
If the current year’s tax liability looks likely to be lower than last year’s, you can choose to put in a request to decrease your payments on account.
You should keep accurate records of all your income, including pay, benefits, tax deducted, business expenses claimed, share options awarded, investment income, pension details etc.
Need more advice?
If you would like more information about self-assessment, or how CharterRED can help with your self-assessment tax return, just get in touch.