I have just done mine this morning. Not to be smug, I promise, although I am feeling a little smug about it right now, but because a) I have all the information ready, and b) I want to know what I owe the taxman, especially as this is the year I will have to start paying my tax on account (AKA “The double tax year”). You can read all about that in my guest post with Emily Coltman.
And, I am pleased to say, I had a nice surprise. I went a bit wrong and wildly overestimated when I worked out what I thought I was going to owe. But even if it had been a nasty surprise, I’d still rather know what was going on and what I owed: wouldn’t you?
What did I do wrong when working out my tax?
I really thought that, given the Payment on Account thing, I was going to give back around 65% of my income from Libro. This was based on the following fallacies:
- I thought I’d earned my personal allowance at my library job and that was that – actually I overpaid tax on that job, and I thought it would be refunded to me personally, whereas actually it just (sensibly) came off the total tax amount I owed
- You know when you are employed and the general rule is that if you knock 25% off your gross pay you’ll pretty well come up with what you’ll end up with after tax? Well I was working on that assumption, forgetting that includes National Insurance payments that I don’t pay now (don’t worry: I do pay others!)
- I thought that NIC 4 National Insurance payments, which I have to pay now I’m earning a certain amount, a) were 12% and b) applied to my full profit. Actually they are a) 9% and b) apply to all profit over a certain threshold
Basically, I have ended up needing to give the tax man about 49% of my Libro income, rather than 65%. Which is quite a difference.
Why do my tax return in April?
So I can put aside my tax and know I’ve got it there when I need to pay it. As I said, the main reason is that I want to know what I owe and make sure I put it aside. I’m not going to PAY it until it’s due (in January 2012 and July 2013), but it’s put safely aside, as of this morning, in an account that pays interest.
To release funds to live on. I could also do with some more money to live on for the year. Now I know what the tax bill is, I can happily withdraw the rest of the money in my Libro account to my personal account (NOTE: this is because I’m a Sole Trader: it’s a bit different if you’re a Limited Company), and I now know what I’ve got to live on until next April. Sure, I could take money out as I go along, and lots of people do that, but personally I like to know exactly what I can take – especially in this slightly confusing double tax year.
Because I could. I’m lucky in that I have a simple business model and I do my accounts as I go along, and I’m not VAT registered. So I could finalise my end of year accounts quite easily, and just had to wait for my statements of interest from my banks to come through (you have to state all interest earned from bank accounts on your tax return, even though they are already taxed. The HMRC takes this into account when it tots it all up). Other years, I’ve had to wait for my P60 to come from the library, but this time I had a nice P45 from December and copied the numbers from that. Next year, I won’t even have to worry about that!
How the Payment on Account has worked out
I was really pleased and relieved to have a screen come up at the end of submitting the figures, which states very clearly:
- my tax burden for 2011-12 and how much I have to pay by 31 Jan 2013
- the half of my Payment On Account amount for 2012-13 that is also due by 31 Jan 2013
- the half of my Payment On Account amount for 2012-13 that is due by 31 Jul 2013
It’s all very clearly set out, which was something I was wondering about.
So that’s it: done. Minimal fuss.
My suggestions for you
If you run your own business (and surely you won’t have read this far if you don’t??!!), I strongly suggest you …
- Register to complete your self-assessment online if you haven’t done so already
- Finalise your 2011-2012 accounts
- Order your Statements of Interest from your banks (some will print these off, some need to send one for each account through the post) and get together any other documentation you need
- When you’ve received your letter confirming your online registration, complete your self assessment online
- Set aside the amount of tax you now know you will need to pay
- Relax, knowing what you’ve earned and what you owe
- Avoid the frenzy in January 2013 because YOU’VE ALREADY DONE IT!
Note: I am not your tax advisor. I am not an accountant. This information is for personal illustrative purposes only. Please consult an accountant or tax advisor or the HMRC if you have any questions, worries, queries or complications. I am not responsible for anything you do with your tax return or tax affairs.