Hey there, future entrepreneurs! So, you've decided to embark on the exciting journey of running your own self-employed business? Congratulations! We, at Wyatt & Co Chartered Accountants, are thrilled to be by your side as you navigate through the ins and outs of tax compliance. Our 3rd generation family accountancy practice is not just approachable and professional, but we also love to make things simple for you. In this blog post, we'll cover all the essential tax-related information you need to kickstart your venture. So, let's dive right in!
1. Income Tax Rates and Personal Allowance
As a small business owner venturing into the world of self-employment, understanding the income tax rates and personal allowance for the tax year 2023/24 is vital. Here's what you need to know:
For the tax year 2023/24, the income tax rates in the UK are as follows:
Basic Rate: For taxable income between £12,571 and £50,270, the tax rate is 20%.
Higher Rate: For taxable income between £50,271 and £150,000, the tax rate is 40%.
Additional Rate: For taxable income above £150,000, the tax rate is 45%.
The Personal Allowance for the tax year 2023/24 is £12,570. This means you can earn up to £12,570 before you start paying income tax. However, if your income exceeds this allowance, you will be subject to the corresponding income tax rates on the additional earnings.
It's essential to keep these thresholds in mind while managing your business finances to ensure proper tax compliance. If you have any questions or need further assistance, don't hesitate to reach out to us at Wyatt & Co Chartered Accountants.
2. National Insurance
National Insurance (NI) contributions play a crucial role in supporting state benefits, including the State Pension, and it's important to be aware of the rates for the tax year 2023/24. As a self-employed individual, you will likely be liable for both Class 2 and Class 4 National Insurance contributions.
For the tax year 2023/24, here are the specific details:
Class 2 National Insurance:
If your annual profits are £6,515 or more, you will be required to pay Class 2 NI contributions.
The weekly rate for Class 2 NI contributions in 2023/24 is £3.40.
Class 4 National Insurance:
For profits between £9,880 and £50,270, you will pay Class 4 NI contributions at a rate of 9%.
For profits above £50,270, the Class 4 NI rate reduces to 2%.
It's essential to calculate your total profits and determine the National Insurance contributions you owe based on these rates. Properly managing your National Insurance contributions ensures you are fulfilling your obligations while safeguarding future entitlements to state benefits.
3. Tax Return Deadlines
Taxes can be overwhelming, but fear not! We're here to help you stay on top of deadlines. As a self-employed business owner, you'll need to file a Self Assessment tax return annually. The deadline for submitting your tax return online is the 31st of January following the end of the tax year. Remember, late submissions may incur penalties, so mark your calendars!
4. Payments on Account Process
As a self-employed business owner, it's essential to understand this system and how it affects your tax payments. Let's dive into the nitty-gritty details for the tax year 2023/24:
What are Payments on Account?
The Payments on Account process is designed to help you meet your tax liability in smaller, regular installments throughout the year. It's like spreading the tax bill into manageable chunks rather than facing a substantial payment all at once. These payments act as advance contributions towards your tax bill for the following tax year. You will be added to the payments on account system if your tax liability is over £1,000
When and How Many Payments on Account are Made?
For the tax year 2023/24, you'll make two Payments on Account, and each installment is typically due on the following dates:
First Payment on Account: Due by January 31, 2024.
Second Payment on Account: Due by July 31, 2024.
Each Payment on Account is calculated based on the total tax you owed for the previous tax year (in this case, 2022/23). Each installment is usually half of that amount. Sounds straightforward, right?
Is There Anything Else to Consider?
Absolutely! While Payments on Account can make tax payments more manageable, there are a couple of things to keep in mind:
a) Possibility of Overpayment or Underpayment:
Your Payments on Account are calculated based on the previous year's tax liability. If your profits fluctuate significantly between tax years, you might end up overpaying or underpaying your tax.
If your profits are lower in 2023/24, resulting in a lower overall tax bill, you might be entitled to a tax refund after submitting your tax return.
On the other hand, if your profits have increased, you may need to make an additional "balancing payment" by January 31, 2025, to settle the remaining tax due.
b) Exceptional Circumstances:
If you believe your tax liability for 2023/24 will be lower than the previous tax year, you can apply to reduce your Payments on Account. However, it's essential to provide solid evidence supporting this claim.
c) Stay Proactive and Plan Ahead:
Keeping a close eye on your business's financial performance and seeking advice from professionals like Wyatt & Co Chartered Accountants will help you plan for your tax obligations more effectively.
It's wise to set aside funds for tax payments throughout the year, so you're prepared when the payment deadlines approach.
5. Top Tips on Financial Record Keeping
Accurate financial records are the backbone of your business, making accounting and tax compliance a breeze. Keep track of all your income and expenses in a structured manner. Consider using accounting software or even a simple spreadsheet to record your transactions. Don't forget to keep receipts and invoices too! We are a partner organisation with Sage, Quickbooks and Xero all whom provide fantastic book keeping products to help you save time. See our partner page for more details.
6. Top Tips on Having a Separate Bank Account
Keeping your personal and business finances separate is crucial. It simplifies record-keeping and ensures you don't mix up personal expenses with business ones. Opening a separate bank account solely for your business is a smart move!
7. Tax Deductible Expenditure
Good news! As a self-employed business owner, you can claim tax deductions for certain business-related expenses. This reduces your taxable profit and, consequently, your tax bill. Common tax-deductible expenses include office supplies, travel expenses, and professional fees. Just remember to keep receipts and evidence for all your claims.
If you use your personal vehicle for business purposes, fear not! You can claim a tax deduction for the mileage you've covered while conducting business-related trips. For the tax year 2023/24, you can claim 45 pence per mile for the first 10,000 business miles and 25 pence per mile for each additional business mile.
It's crucial to maintain an accurate mileage log, recording the date, starting and ending locations, and purpose of each journey. This documentation will support your claim and demonstrate the business nature of your travel.
8. How Many Years to Keep Financial Records
Staying organized is essential, especially when it comes to keeping financial records. HMRC requires you to keep your financial records for at least six years from the end of the relevant tax year. So, set up a reliable system for storing your records securely.
9. How We Can Support and Help
At Wyatt & Co Chartered Accountants, we're more than just number crunchers. Our team of friendly professionals is here to provide expert guidance throughout your self-employed journey. From setting up your business structure to navigating complex tax rules, we've got you covered. Our approachable nature and years of experience mean you can focus on growing your business while we take care of the numbers.
So, there you have it - a comprehensive guide to tax compliance for your small self-employed business. Remember, we're always just a phone call or email away whenever you need support or advice.