Contractors' guide to self-assessment tax deadline
It’s time to dust off those old invoices, bank statements and expenses receipts. That’s right – the season of self-assessing with HM Revenue & Customs is upon us, writes Derek Kelly of ClearSky Accounting, an accountant specialising in contractors’ tax affairs.
With HMRC tightening its grip on tax avoidance, and with its increasingly draconian approach to tax debts, not to mention charging late-filers £100 even if no tax is due, it has never been more worthwhile to self-assess correctly and on time.
Follow this step-by-step guide to ensure that you treat the Jan 31st tax deadline with the respect it deserves, and to double-check that your accountant is minimising your exposure to any nasty, costly surprises.
Ready all the necessary data, including your UTR
Step one to any successful tax return is to ensure that you have been issued with a Unique Taxpayer Reference Number. It’s a popular misconception among limited company contractors that UTRs, as they’re more commonly known, are issued automatically. However, these 10-digit codes must be requested directly from HMRC.
But if as a limited company contractor you haven’t been issued with a UTR Number, then your accountant should ask you to sign a Form SA1. This is submitted to HMRC to confirm that the individual falls within self-assessment.
A contractor’s UTR Number will never change, as long as they continue to file a self-assessment tax return each year. In the event that you, the contractor, reverted back to permanent employment and therefore weren't required to complete a self-assessment tax return during 2011/12, then it is vital that you are re-registered with HMRC in order to receive a new UTR.
Step two for you to take is to gather together all the relevant financial records from 2012/13, including details of any self-employed income, dividend payments, interest, expenses and capital gains.
From your accountant’s perspective…
With thousands of self-employed workers scrambling to meet the self-assessment deadline each year, an accountant will often begin preparations up to four months in advance.
Most contractor accountants offer their clients a web-based portal. This can provide a more secure platform in which to submit financial information, compared to email or postal correspondence, for example. Either way, submitting is step three.
Try to do this as early as possible because, once all the necessary figures have been submitted by you, an accountant then needs time to review the information to ensure all the details have been entered accurately and that any errors or anomalies are swiftly resolved.
From here, your accountant should supply you with the completed self-assessment tax return along with a summary of any tax owed to HMRC. Signing on the dotted line, step four, is then all that should be required of you in order for the tax returns process to be completed.
Filing late just isn’t an option
Every limited company contractor who is required to submit a self-assessment tax return for 2012/13 must do so before midnight on January 31st 2014 - step five. Failure to meet the deadline incurs a £100 late filing penalty as well as a potential surcharge on any tax paid after January 31st. The HMRC penalty regime is quite unforgiving, so don’t get caught up in it.
Tardy taxpayers also risk coming under HMRC’s watchful eye, which increases the risk of a tax investigator probing through your financial history – unpleasant even if everything’s in order.
Filing a self-assessment tax return in advance of the deadline – step six if you can manage it - enables you to receive any tax refunds (if applicable) soon after submission - better in your pocket than the taxman’s! Moreover, filing or returning early helps to organise your finances before any balancing payments and payments on account must be made to HMRC.
Keep records of everything, including those from five years ago
Even with the help of a professional accountant, it is crucial that as a limited company contractor you maintain up-to-date and accurate financial records, step seven. This can often seem a laborious task, yet when it comes to self-assessment these documents can help to significantly reduce any administrative duties.
In some instances, HMRC may ask to review your financial records to ensure all the information is correct. For you, as a limited company contractor, this means maintaining records for the past five financial years, step eight. Doubters of this step bear in mind, HMRC imposes a maximum penalty of £3,000 for each tax year in which records have not been held.
Five tips for limited company contractors set to self-assess
- Dig out all the relevant financial information and organise paperwork into date order.
- Don’t underestimate the complexity of a self-assessment tax return. Be sure to leave yourself plenty of time prior to the deadline.
- Accuracy is crucial, with careless mistakes potentially costing you dearly in penalties and interest repayments.
- Where exact financial figures aren’t available then enter estimates. Ensure these are as accurate as possible and don’t forget to state that these are ‘provisional figures’. Exact figures must be submitted to HMRC at a later date.
- If in doubt during the process, seek expert advice from a specialist contractor accountant, especially if you want help ensuring that you’ve paid the lowest amount of tax possible, such as by claiming all relevant expenses and utilising any appropriate tax reliefs.
The author, Derek Kelly, is a director at the Optionis Group, parent company of ClearSky Accounting and Parasol.
Editor’s Note: Further Reading –