When I Start Self-Employment How Are My Business Profits Entered On My Tax Return?

Most people are aware that the tax year starts on the 6 April of each year and ends on the following 5 April. Any self-employment income/business profits you make have to be entered on the return. If you commence self-employment during the tax year your income will have to slot in with HMRC’s tax year to the 5th April. The most simple method is to line up your accounting year end with the taxman’s to 5 April, in fact HMRC will now treat the 31 March as if it was the 5 April. This avoids the odd 5 days in April because most accounting systems run to the end of a month. Now here is an example which may help me explain this.

Mr Smith commenced business on the 6 September 2011 and will make his accounts up to the 31 March 2012 in line with the tax year. He will have to enter on his 2012 tax return his first period of trading from 6 September 2011 to 31 March 2012 and then annually thereafter having established his accounting year end as the 31 March. Any tax on profits arising from his first period of trading to the 31 March 2012 will not be payable until 31 January 2013. This will give him time to make a provision for any tax due. But also bear in mind that in addition to the tax due there will also be payments on account due for the current year which is based on the 2012 tax due in January.

For example:

• Your tax liability for tax year to 5 April 2012 say £3000 due 31 January 2013

• 1st Payment on account for tax liability for tax year to 5 April 2013 £1500 ( 50% of £3000) due 31 January 2013

• 2nd payment on account £1500 (again 50% of £3000) due 31 July 2013

• £4500 will be payable 31 January 2013 and £1500 31 July 2013

If you would like to have more details our tax advisors are on hand to help with a free consultation.