Comply with self assessment
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Once a person becomes self-employed and no longer under the PAYE
system, it is up to them to comply with the annual self assessment tax return
that has to be paid each year. So if you are a freelancer, consultant or a
sole trader this applies to you. Under self assessment, you are obliged to estimate your own tax, and
to pay accordingly. One of the first calculations you have to make is your
National Insurance contributions. If you are self-employed then you have to pay
two types of contribution: - Class 2 - a flat rate payment which must be paid each week
unless you are exempt. Normally class 2 contributions are paid in arrears by a
quarterly bill every 13 weeks or direct debit every month
- Class 4 these are paid on profits and gains at or above a set
level. These are normally collected by HM Revenue & Customs
As regards your employees, self assessment means that you
must: - Provide P60 forms to employees by 31 May after the end of the
tax year
- Calculate the cash equivalent of benefits in kind
- Provide details of their expenses and benefits in kind ('P11D
details') to relevant employees as well as the Inland Revenue by 6 July after
the end of the tax year
A vital feature of the self assessment system is the obligation it
imposes on the tax payer to keep adequate and extensive records. This is in
case the revenue needs to check the figures in your return. You need to keep: - Documentation of all your business transactions
- All receipts, bills bank statements and cheque stubs to support
them up
- Make sure your separate your business and personal financial
records
These records must be kept for five years starting from the date on
which your annual Tax Return is due back. If you become registered for VAT you will need to keep a record of
all the supplies you make. Invoices normally form the basis of your VAT
records. VAT records should be kept for a total of six years. Although called self assessment there is no problem in hiring someone
to complete your return. If you do decide to go down this road be aware
that: - They will need time to complete the forms and work out the
figures
- They can only go on the information you provide. If you forget
some important piece of information then it could have a negative
impact
- Accountants do vary in quality, so it is good to go through the
return at some stage to see if you agree with their figures
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