How do I deal with HMRC? And other top questions answered…

For most people picking up the phone to speak to HMRC seems like a daunting task, will I get in trouble, am I doing something wrong? Even making sense of all the terminology on Direct.gov or the HMRC websites can be overwhelming, making finding answers to some simple questions not that easy. Here we aim to give you a little bit of help.

HMRC

You can call, email or even chat to them via a chatbot, and they are there to help. So, if in doubt give just get in touch, they are not that scary, promise. Or get yourself and accountant or bookkeeper that will also have the answers that you are looking for.

Read on for some more frequently asked questions, answered.

Terminology – what does it mean?

As a sole trader, entrepreneur or small business owner, you need to make sense of this jargon, whilst understanding what this means to you in real terms of running your business, so here’s some keywords and phrases to get you started.

UTR: Unique Tax Reference – this is like your Payroll number, only its what you are provided with to confirm that you are registered with HMRC as self-employed.

User ID: The 12 digit number that allows you to access your HMRC Gateway account.

Income Tax Threshold

This is the amount of money you can earn each year, before you have to pay tax – for example from 6th April 2023 to the 5th April 2024 if you earn below £12,750 across the whole year or less than £242 per week, you will not need to pay any tax, as this is your Personal Allowance.

Tax rates and thresholds the self-employed should know

These are the income tax rates and thresholds self-employed should be aware of in 2023-24:

· Basic rate: 20 % on income between £12,571 and £50,270

· Higher rate: 40% on income between £50,271 and £150,000

· Additional rate: 45% on income above £150,000

Self-employed National Insurance thresholds

National Insurance payments pay into supporting the public pension program and welfare benefits.This includes the state pension, statutory sick pay or maternity leave, or entitlement to additional unemployment benefits.

Self-employed need to be aware of the two types of NI contributions. Class 2 and Class 4 National Insurance, which are calculated on completion of your annual Self Assessment tax return.

Class 2 NICs and Class 4 NICs

The bands and rates:

· Class 4 National Insurance kicks in when you earn above £12,570 (this is the threshold at which self-employed people start paying Class 4 National Insurance, at nine per cent)

· If you earn over £50,270, you then pay the self-employed pay a lower rate of two per cent above this limit.

· Class 2 National Insurance threshold kicks in when you earn above £12,570 – Class 2 National Insurance contributions of £3.45 a week in 2023 - 2024.

*There are different rates for Scotland.

HMRC Tax Returns and Self-Assessment

Anyone who is self-employed needs to file a Self-Assessment tax return every year. This is a legal requirement and used to declare your earnings from employment and other income to HMRC, who will then calculate how much you will need to pay in National Insurance and Income Tax. To do this effectively, your bookkeeping must be organised.

The deadline: 31st of January the year following to submit self-assessment tax return

Whether you are a sole trader or partnership, you will need to know what taxes and other payments will be due at the end of your tax year, so you can pay this when it is due by the 31st of Jan.

The Making Sense of the Money Words

· Expenses: money spent on anything wholly business related, that you want to list.

· Receipts: this is evidence of payments made for any business related expenses that you have.

· Income: this is the total for all payments received for products or services sold.

· Profit: this what is left after you take your expense figure of your income figure (e.g. Income £20,000 – expenses £10,000 equals a profit of £10,000.

· Loss: If you spend more than you bring in, then you would be in a deficient or loss (e.g. Income £10,000 – expenses £20,000 equals a loss of £10,000, or minus £10,000.

To find out how we can assist you to manage this essential part of your business more efficiently, saving time, money and reducing stress and potential bills, just get in touch, by email, call, text or connect with us on Facebook.