The 6th of April 2021 marks the first day of the new tax year. This moment often brings about changes to taxes and kicks off some financial admin, like tax returns.
Despite the extraordinary circumstances we are all currently facing, this year is no different. So, we wanted to help you start the new tax year right.
Get to know the 2021/22 tax rates
Most of the rates will remain the same this year based on the budget announced a few weeks ago. Here’s the key information you need to know:
- Personal Allowance - £12,570, a £70 increase on last year
- Income Tax - 20% for those earning between £12,571 and £50,000, no change from last year (more detail linked below)
- Class 2 National Insurance - amount payable is £3.05 a week for those with profits above £6,515
- Class 4 National Insurance - the threshold has increased to £9,568
- VAT - the VAT registration threshold (£85,000) and VAT rates (20%) remain the same
Key dates to keep in mind for the year
Here are some dates that you need to bear in mind throughout the year.
They may not all be relevant to you, but it’s worth putting these in your diary and we'd always recommend speaking with an accountant if you're unsure about what you need to do and how to prepare.
- 6th April 2021- Start of a new financial year: Check the latest tax rates here. This is also a good opportunity to get your finances in order for your next Self-Assessment tax return. While it isn’t due until January 2022, having everything ready ahead of time means you can avoid the pressure of the last-minute panic and make sure you’ve got enough money set aside to pay your tax bill.
- 31st July 2021 - second payment on account installment: A payment on account is a tax payment made twice a year by those who complete a Self-Assessment tax return in order to spread the cost of the upcoming year’s tax. This only applies if your Self-Assessment bill was over £1,000 for that tax period.
- 5th October 2021 - telling HMRC you’re self-employed: this ensures HMRC is aware that you will be completing a tax return next year. You only have to do this once, so if you have done this before, you don’t have to do it again.
- 31st October 2021 - deadline to submit your paper Self-Assessment: For anyone who wants to file their Self-Assessment via the paper return instead of doing it online.
- 30th December 2021 - Self-Assessments for PAYE tax collection: If you’re running your own business alongside being employed by someone else, then the tax that you owe can be collected through your PAYE. To do this, you have to complete your Self-Assessment by December 30th, and your Self-Assessment bill must be less than £3,000.
- 31st January 2022 - deadline to submit your online Self-Assessment for 2020/21 Tax Year and pay the balance on any tax due. 1st payment on account for Tax Year 2020/21 is also due.
- 5th April 2022 - deadline for claiming overpaid tax: As well as being the last day of the tax year, this is also the last day that you can reclaim taxes that may have been overpaid in previous years. Your claim can go back by a maximum of 4 years (e.g. during the 2021/22 tax year, you can reclaim overpaid tax for each year going back to the 2018/19 tax year). More often than not, these things are picked up by HMRC, but if you spot anything, you can: write a letter to HMRC ahead of the 5th of April or submit the claim in your next Self-Assessment.
First tax return? Register with HMRC
If 2020/21 was your first year of being self-employed and you didn’t complete a tax return last year, the first thing you need to do is register for Self-Assessment and Class 2 National Insurance.
The deadline to register is the 5th of October the tax year after you started trading. So, for example, if you started working as self-employed on 1 May 2020 you've got until 5 October 2021 to register. Although it’s best to get this done sooner rather than later. You'll need to wait for a code to arrive in the post, so make sure you leave plenty of time to do it.
When you register, HMRC will:
- Send you a letter with your 10-digit Unique Taxpayer Reference (UTR)
- Set up your account for the Self-Assessment online service
We strongly recommend that you do this as soon as you can because it’s best to be in HMRC’s system ready to go if any additional Government support is announced for the response to Covid-19.
We've also outlined all of the Covid-19 government support that's available for the self-employed community.
Get started on your tax return
If you’re registered with HMRC you can now submit your 2020/21 tax return. Although you have until 31st January 2022 to do so (this is also the deadline to pay your tax bill), it’s always good to get ahead of the game and get it out of the way whilst everything is still fresh in your mind.
If you do it now and find you haven’t saved enough money to cover it, you’ve still got plenty of time to pull the funds together.
Have all your information ready
When you’re ready to tackle your tax return, here’s a list of everything you’ll need:
- Your Unique Taxpayer Reference Number (UTR)
- Your National Insurance number
- Details of your untaxed income from the tax year, including income from self-employment, dividends, and interest on shares
- Records of any expenses relating to self-employment (there is plenty of guidance in the app on this, but this article may also be useful as well)
- Any contributions to charity or pensions which might be eligible for tax relief
- P60 or other records showing how much income you received which you’ve already paid tax on
Watch out for payments on account
One point worth noting is that you may need to make advance payments towards your tax bill, these are known as ‘payments on account’ and are made twice a year - 31st January and 31st July.
They’re designed to help you spread out your tax payments, but they often come as a surprise when your first tax bill arrives.
So for those of you completing your tax return for the first time this year, it would look a little like this:
Imagine you’re preparing your Self-Assessment tax return for the 20/21 tax year. You’ve worked as a sole trader for the full tax year and have no other sources of income. After all, calculations are considered your tax bill comes to £5,000.
Your payments to HMRC will then be broken out as follows:
- Self-Assessment 20/21 balancing payment: £5,000 - due 31st January 2022
- 1st Payment on account for 2021/22: £2,500 - due 31st January 2022
- 2nd Payment on account for 2021/22: £2,500 - due 31st July 2022
So, that means rather than just paying the £5,000 you owe for 2020/21, you’ll be asked for an additional £2,500 as an advance on next years’ tax bill.
We’re here to help
If you have any questions or would like to chat anything through feel, please free to get in touch with the team through the app anytime. We’re always happy to help. And if you're ever in doubt or in need of some reassurance, it’s always worth speaking with an accountant.