SA302 and Tax Returns

self employed mortgages

The tax system for the self-employed

Our thanks to our friends at David Howard Accountants for this background information on tax for the self-employed. If you are self-employed and hope to arrange a mortgage in the future you need to ensure you are submitting your tax returns so that you can access your SA302 certificates.

Registering with HM Revenue and Customs

Once you become self-employed, the tax rules are different from those that may have applied when you are an employee. Instead of tax and national insurance being deducted at source from your income, you will receive a bill at some point in the future from HMRC. This can be an unwelcome surprise if you are not prepared.

What profits do HM Revenue and Customs Tax?

The starting point for the calculation of taxable profits is your profit and loss account. In order to calculate your taxable profits, you are entitled to claim expenses incurred for the purposes of trade (with some small exceptions) from your business income. This would give you the profit (or loss) for your self employment which would be reported on your Tax Return.

There are certain rules for any equipment or motor vehicles you may use for the business. You may not be entitled for the full allowance each year but may be able to claim the expenses through capital allowance adjustments.

Tax is payable on the whole of the profits of a trade, and so payments for your own ‘wages’ (drawings) are not deductible.

How is tax collected?

Tax returns

Tax returns covering the income and expenses for the year ending 5 April are to be submitted to HM Revenue & Customs by 31 October for paper returns or 31 January for online returns. The return will include a self assessment of your liability to income tax and capital gains tax.

If you don’t want to work out your own liability, you should have sent the tax return back by 31 October or file online by 30 December.

There are automatic penalties for late filing of tax returns.

Payment of Tax

Payments on account of income tax and Class 4 NIC will be due on 31 January and 31 July. These interim payments will be based on one half of the total liability from the previous year (less any tax deducted at source). You will have the right to reduce payments on account if you believe the income tax for the current year is less than the previous year.

The balance of any income tax due is due to be paid by 31 January. Interest and surcharges will be charged for late payment.

Further help with tax and self-employment registration

If you would like any further advice or would like to take advantage of a free 1 hour consultation, please contact Frank Andreas at David Howard:

Tel: 020 8977 0905

More about Self Employed Mortgages

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