Employed and Self Employed

Changes to Self Assessment this year

by Madaline Dunn

The Self Assessment deadline is just around the corner, and by 31st January self-employed individuals must file and submit their Self Assessment tax return and pay any tax owed to HMRC.

While there’s still time to submit, it’s always best to complete your tax return as soon as possible, so you don’t risk making any silly mistakes and avoid getting hit with late penalties. Also, this year, there are some changes to Self Assessment to look out for.

At The Salary Calculator, we’ll walk you through:

  • How to report Capital Gains Tax
  • How to report Covid support measures
  • How to access Self-serve Time to Pay
  • What to watch out for

Capital Gains Tax reporting

Capital Gains Tax applies to those who have sold or ‘disposed of’ an asset, for example, a house that’s increased in value. From 6 April 2020 to 26 October 2021, this had to be reported and paid for within 30 days of completion. However, there is an update here, and for property disposals made on or after 27 October 2021, the “report and pay” deadline has been extended to 60 days.

If you’re registered for Self Assessment, it’s important to remember that you must report this on your tax return in the capital gains pages. That said, there are exemptions. If your only disposal is of your home and private residence relief applies, you don’t have to report this on the capital gains pages.

Reporting any Covid support measures

HMRC recently issued a warning to self-employed individuals that they must declare any COVID-19 grants they received on their tax return for the year 2020-2021. According to HMRC, over 2.7 million people claimed at least one Self-Employment Income Support Scheme (SEISS) payment up to 5 April 2021, and if you did indeed receive SEISS, this must be recorded.

Likewise, other Covid support measures that must be included in one’s Self Assessment are:

That said, it’s also important to note that if you received a £500 one-off payment as a working household receiving Tax Credits, this does not need to be reported in your Self Assessment.

Self-serve Time to Pay

For many, the last couple of years has been a struggle financially. In 2020, according to a study by LSE, over a third (34%) of self-employed workers struggled to pay for basic expenses such as rent and mortgage payments. So, if you’re feeling the pinch this year, you’re not alone. That said, for those feeling anxious and overwhelmed at their tax bill this year, there is help out there if you’re worried you can’t pay your tax bill in full. You can now spread your tax bill over a period of time online via HMRC’s self serve Time to Pay system.

The Time to Pay system is available to eligible to Self Assessment taxpayers who:

  • Don’t have other outstanding tax returns or any other tax debts
  • Have debts between £32 and £30,000
  • The plan made must be set up no later than 60 days after the tax payment’s due date (30 March 2021)

When setting up your payment plan online, you’ll need to be equipped with:

  • Your unique Tax Reference number
  • Your VAT registration number, if applicable
  • Your Bank account details
  • Details relating to any previous payments you’ve missed

When arranging your payment plan, HMRC will ask you some questions about your financial circumstances to gauge what will be affordable for you. Questions may include how much you’re earning, what an affordable payment scheme would look like for you, what your outgoings are, whether you have any savings or investments.

What to watch out for

HMRC has issued a warning around ​​copycat websites and phishing scams ahead of the Self Assessment deadline. As the deadline approaches, scammers are more likely to target taxpayers who are in a rush to submit their tax returns and have their guard down. According to HMRC, 800,000 tax-related scams have been reported in the last 12 months alone.

Myrtle Lloyd, HMRC’s Director General for Customer Services, has subsequently published advice on what to look out for if you think you might be being approached by a potential fraudster. Lloyd says to be wary of anyone who contacts you claiming to be from HMRC and rushes you. Likewise, anyone “threatening arrest” will not be calling from HMRC. Lloyd outlined: “If you are in any doubt whether the email, phone call or text is genuine, you can check the ‘HMRC scams’ advice on GOV.UK and find out how to report them to us.”

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Monday, December 20th, 2021 Income Tax, National Insurance No Comments

None of the content on this website, including blog posts, comments, or responses to user comments, is offered as financial advice. Figures used are for illustrative purposes only.

The gender pension gap

by Madaline Dunn

While many are all too familiar with the gender pay gap, the gender pension gap gets a lot less coverage but is, unfortunately, a reality for many women. Now, warnings are being issued around the gap, with many calling on the government to do more as women live longer with smaller pensions.

At The Salary Calculator, we’ll walk you through and explain:

  • What the gender pension gap is
  • How the gap has widened
  • How to navigate the gender pension gap

What is the gender pension gap?

The gender pension gap refers to the percentage difference in pension income between female and male pensioners. According to research from Legal & General, the gap is 17% at the beginning of a woman’s career, reaching 56% at retirement when compared to men.

Moreover, the average pension pot of a woman is less than half that of a man’s, and the gap even penetrates female-dominated industries.

Research from Prospect outlines that some of the reasons behind the gender pension gap include:

  • An imbalance in the level of occupational and private pension saving between men and women
  • The gender pay gap
  • Indirect gender discrimination
  • Women taking breaks or reducing hours to look after family

This imbalance, of women having to work 14.5 more years to access the same pension savings as men, occurs despite women contributing more of their income to pension savings.

Research from SunLife’s survey also found 30% of women hope to depend on their partner’s pension when they get older. However, this doesn’t take into account potential separation, divorce or early widowhood. On top of that, when it comes to divorce, research shows that three in five divorcees fail to bring up pensions when discussing their financial settlement.

Commenting on the inequality relating to pensions, Juan Yermo, Chief of Staff to the OECD Secretary-General, said: “Still today, the design of retirement savings arrangements sometimes disadvantages women compared to men, for example when eligibility criteria based on working hours or earnings restrict plan access, when contributions stop during periods of maternity leave, or when women do not get their share of retirement benefit entitlements upon divorce.”

How has the pension gender gap widened?

The pandemic has, unfortunately, worsened an already dire situation. Research from More2Life and the Centre for Economics and Business Research outlined that during the pandemic, the gap widened to £184,000 in 2021. That was £26,000 more than the previous year.

The study also found that 30% of women had found their financial situation worsened, impacting their ability to save; comparatively, 24% of men agreed.

More2Life said that the research revealed 62% of women worried about being able to “pay enough into their pension” compared to 57% of men.

How to plug the pension gap

Many pension experts and organisations are calling for government intervention to plug the pension gap.

Some of the recommendations made by Prospect include:

  • Introducing a statutory requirement for the government to report to Parliament on the gap and outline plans for closing it
  • Commencing an inquiry by the Work and Pensions Committee into the gender pension gap
  • Implementing changes to the tax system to address and resolve the ‘net pay anomaly’, which means low earners “do not benefit from tax relief on their contributions.”

While these recommendations, if implemented, could be fruitful, change isn’t going to happen any time soon, and in the meantime, there are ways that you can safeguard your future.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, outlined there are steps that women can take: “It’s not too late to make a difference to your pension value by continuing to contribute after the age of 55. You should also check with your employer to see if they will match any further contributions as this can give your retirement planning a real boost.”

It’s a good idea to check in on your National Insurance contributions and review whether there are any gaps to ensure you’re eligible for the full state pension. Also, plan ahead of time, and if possible, pay into your pension if you take maternity leave.

If you’re planning on taking a career break for another reason, it’s wise to top up your pension, too, as a way of compensating for any losses.

Ultimately, saving as soon as possible is a wise plan because even if you contribute a small amount to your pension each year, you can make full use of compound interest.

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Monday, December 13th, 2021 Jobs, Pensions No Comments

All you need to know about UTR numbers

by Madaline Dunn

[Sponsored Post]

Self Assessment: It’s coming around to that time of year again. While some may have already completed and sent off their annual tax return, there are also many who have not! In 2020, 700,000 taxpayers waited until the last day to file their return, and a staggering 26,562 taxpayers left it to the last hour.

So, if you haven’t filed your tax return yet, and perhaps are doing so for the first time, you may have a few questions, including; what on earth is a UTR number?

Don’t worry; there’s still plenty of time to file your tax return before 31st January and make sure you’re not faced with late payment fines. At The Salary Calculator, in this article, we’ll get you to speed and explain:

  • What a UTR number is
  • When you need a UTR number
  • How to register for a UTR number if you don’t have one
  • What will happen after registering for a UTR number
  • Where you can find your UTR number

What is a UTR number?

UTR stands for Unique Taxpayer Reference, and this is a 10-digit number that is unique for each person or business. Just as with a National Insurance (NI) number, once you have one, you have it for life. So, even if you’ve been out of business for a while, you’ll never lose your UTR number, your number will just become dormant.

A UTR number is issued by HMRC and sometimes includes the letter K at the end of it.

When do you need to provide a UTR number?

A UTR number is required if you:

  • Need to create an online account with HMRC
  • Are self-employed or have a limited company
  • Owe tax on savings, capital gains, and dividends
  • Must register individual taxes
  • Work within the Construction Industry Scheme (CIS)

How do you register for a UTR number?

If you don’t already have a UTR number and need one, the most simple and fastest way to get one is to apply online on HMRC’s website.

Of course, not everyone’s preferred method involves a computer or laptop, so rest assured, you can also apply to get your UTR number via letter too. That said, this way is, unfortunately, much slower and will involve postage fees as well.

When it comes to registering for a UTR number, this must be done within the first three months of opening your business, regardless of your occupation.

In order to register, you must also submit a few different pieces of information. This information includes:

  • Your name, DOB and address
  • Your contact information (preferred number and email address)
  • Your NI number
  • When you commenced self-employment
  • The type of business you have
  • Basic business information (address, number, name)

What happens after registering for a UTR number?

Once you’ve applied for your UTR number, there are a few things to bear in mind. First of all, it can take up to ten days for your UTR number to arrive, sometimes longer.

In addition to this, once you’ve heard back from HMRC and received your activation code, don’t wait around too long before using it, as it expires at 28 days.

Where can you find your UTR number?

Your UTR number can be found in a number of places, including:

  • Statements of accounts
  • Your Self Assessment Tax Return
  • HMRC payment reminders
  • HMRC Self Assessment notices

If you think you’ve either misplaced or lost your UTR number, don’t panic. Contacting HMRC is your best bet. When reaching out to HMRC, you should have your NI number to hand, as you will be asked for it when you call.

HMRC can be contacted via:

  • 0300 200 3310 (UK)
  • +44 161 931 9070 (Outside UK)
  • 0300 200 3319 (Textphone)

Final thoughts

Navigating the world of tax returns can be anxiety-inducing for some; that said, there are several sites out there that can lend a helping hand. HMRC are always available if you need guidance on your tax return and can answer any burning questions.

Go Simple Tax also helps to make things simple and straightforward. The software provides guidance, as well as hints and tips on how to save money.

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Thursday, December 2nd, 2021 Economy, Income Tax, National Insurance No Comments

Should you register as a sole trader or form a limited company?

by Admin

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A key decision when starting a business is which legal structure do you choose when registering. The three most common options are sole trader, limited company and ordinary business partnership, although most people become a sole trader. Sole traders make up about 59% (3.5m) of the total UK business population of 5.9m, and they include many freelancers, contractors and agency workers.

Ordinary business partnership members make up about 7% (405,000) and basically these are sole traders who go into business together. The UK also has about 2m (34%) active private limited companies. So, why do so many people in the UK who work for themselves operate as sole traders?

What is a sole trader?

Being a sole trader is the same as being self-employed. In law, you and your business are the same thing, which makes you personally responsible for your sole trader business debts. If you don’t build up large debts and your business is successful, this won’t be an issue, of course.

To become a sole trader, you must register for Self Assessment (SA), the system (UK tax authority) HMRC uses to collect tax from sole traders. You’ll then pay Income Tax on your profits during the tax year (20%, 40% or 45% depending on your income/earnings). You work out your profits by deducting your expenses and any allowances from your income/earnings/sales.

Sole trader NICs

Most self-employed people pay their National Insurance contributions (NICs) via SA:

  • Class 2 if your profits are £6,515 or more a year (£3.05 a week) and
  • Class 4 if your profits are £9,569 or more a year (9% on profits between £9,569 and £50,270 and 2% on profits over £50,270 – all figures quoted are for the 2021/22 tax year).

Declaring sole trader earnings and VAT

Sole traders aren’t required to submit annual accounts to HMRC, but they must maintain accurate financial records (which can be checked) and submit details of their income and business costs in their annual SA100 tax return, which must be filed each year.

If your VAT-taxable earnings/turnover goes over £85,000 a year (the current VAT threshold) or you know they will, you must register for VAT. You’ll then have to charge VAT, collect it and pay it to HMRC. This also applies to limited companies.

The advantages of being a sole trader

It’s very easy to register online for Self Assessment so you can start your sole trader business. There are no costs and the process is very quick (minutes not hours or days). The tax admin is much easier when compared to a limited company, which means it can be done quicker. This saves cost, whether you do it yourself or pay an accountant to do it for you.

The paperwork and financial record-keeping requirements when you’re a sole trader are minimal; completing your SA tax return is more straightforward and any losses you make can be offset against other income.

Many customers won’t care whether you’re a sole trader or not, as long as your prices, products and/or services meet their expectations. In any case, you can easily change to a limited company structure later if you wish. And sole traders can employ others and their businesses can grow and prosper.

Being a sole trader can give you much more flexibility and control over your business, because you’re not answerable to shareholders – and you won’t have to share your profits with them either. You will enjoy more privacy, too, because the annual accounts of limited companies must be published on the Companies House website, which means anyone can view them. Sole traders do not have to publish their annual accounts.

Sole trader v limited company: which is more tax-efficient?

Example 1

Sole trader profit = £50,000 Net income = £38,717

Ltd co profit = £50,000 Net income = £40,109

Difference = £1,392

 

Example 2

Sole trader profit = £100,000 Net income = £67,752

Ltd co profit = £100,000 Net income = £69,469

Difference = £1,717

 

Example 3

Sole trader profit = £150,000 Net income = £91,723

Ltd co profit = £150,000 Net income = £92,057

Difference = £334

 

These examples assume that all profits are extracted from the business, salary up to Secondary National Insurance threshold (£8,840) is taken and the remainder paid as dividends (2021/22 rates).

Conclusion

As the above examples show, operating as a limited company can reduce your tax bill. However, if you need to pay an accountant each month to look after your tax admin and complete your annual accounts and Corporation Tax returns, in reality, any financial advantage as the director of a limited company can be minimal or non-existent.

Each year, hundreds of thousands of people in the UK who decide to work for themselves register as a sole trader and many go on to establish and grow highly successful small businesses. In many ways, being a sole trader is the easier and cheaper choice and it need not hamper your business or your ambitions.

About GoSimpleTax

Income, expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.

The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you so there is no need for an accountant. Available on desktop or mobile application.

Try for free – Add up to five income and expense transactions per month and see your tax liability in real time – at no cost to you. Pay only when you are ready to submit or use other key features such as receipt uploading and HMRC direct submission.

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Thursday, September 9th, 2021 Income Tax, Jobs, National Insurance No Comments

How to claim mileage allowance when you’re self-employed

by Admin

If you use your own car for business, you may be able to claim a proportion of the actual total cost of buying and running your vehicle, including such things as insurance, repairs, servicing, fuel, etc. However, keeping track of every cost and working out the exact proportion of business use for your vehicle takes time and effort.

Instead, many self-employed people claim mileage allowance, a flat-rate scheme that provides a much simpler way to claim back the cost of using your own vehicle for business. Mileage allowance is part of a range of “simplified expenses” options that HMRC offers to self-employed people. They’re designed to make tax admin easier and quicker.

How much mileage allowance can you claim?

If you’re self-employed, you can claim a mileage allowance of:

  • 45p per business mile travelled in a car or van for the first 10,000 miles and
  • 25p per business mile thereafter
  • 24p a mile if you use your motorbike for business journeys.

If you travel with someone else who also works for your business, as the driver, you can claim an additional 5p per mile for each extra passenger. So, if three of you travel together, you can claim 45p + 10p per mile (two x 5p per mile for the two additional passengers) for the first 10,000 miles, then 25p + 10p per mile thereafter.

Need to know! Claiming mileage allowance doesn’t stop you claiming for other business travel expenses, such as train tickets and taxi rides. Parking tickets and toll fees while on business can also be claimed as a legitimate business expense.

When can’t mileage allowance be claimed?

You can’t claim mileage allowance for personal journeys, they must be made “wholly and exclusively for business purposes”. And neither can you claim mileage allowance for journeys to and from your usual place of work (ie your commercial business premises). You can claim for travel to a temporary workplace, for example, if you’re a plasterer who needs to travel to different sites and jobs.

Need to know! You cannot claim simplified expenses for a vehicle you’ve already claimed capital allowances for or one you’ve included as an expense when you worked out your business profits. Where necessary, seek guidance from an accountant.

Working out your business mileage

Logging your business mileage is a good idea, as it can make it far easier to later work out and claim your mileage allowance. And your claim is more likely to be accurate and credible if HMRC can see precise details of dates, miles travelled, journeys and reasons. HMRC can request proof during an investigation.

Manually recording your business mileage takes more time and effort, while scraps of paper and notebooks can go missing, so it’s better to record and store your mileage details in a spreadsheet/software, with data stored safely online. Many apps have been created to help business owners track and record their business travel mileage (some even use GPS to automatically measure business mileage).

Some self-employed business owners simply estimate their business mileage, by claiming for a percentage of their vehicle’s total annual mileage. So, if your car does 1,000 miles a month and you can show that half of that is for business use, you can claim mileage allowance of 6,000 miles a year (ie £2,700).

How to claim mileage allowance

Good accounting software will do all of the hard work for you, saving you lots of time and hassle. You enter your business mileage and it calculates your mileage allowance, which you enter into your Self-Assessment tax return. The amount is taken into account and your tax liability is reduced as a result.

If you use simplified expenses to claim mileage allowance, you cannot claim for motoring costs such as insurance, road tax or fuel, because these are accounted for within the mileage allowance.

Need to know! Deliberately inflating your mileage allowance claim can lead to penalties. HMRC takes a very dim view of anyone who deliberately enters false information into tax returns.

Further reading

Visit government website Gov.uk to read Travel – mileage and fuel rates and allowances. There is also an online tool that enables you to Check if simplified expenses could save your business money.

About GoSimpleTax

Income, Expenses and tax submission all in one. GoSimpleTax will provide you with tips that could save you money on allowances and expenses you might have missed.

The software submits directly to HMRC and is the solution for the self-employed, sole traders and anyone with income outside of PAYE to file their self-assessment giving hints and tips on savings along the way. GoSimpleTax does all the calculations for you so there is no need for an accountant. Available on desktop or mobile application.

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Wednesday, July 14th, 2021 Income Tax, Jobs No Comments

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