Understanding the tax system
Paying tax can be confusing, so we've highlighted the important areas
If you are self-employed with a number of different clients, you will receive a Schedule D coding from the taxman which allows you to offset business expenses against tax.
You will pay tax in two lump sums on January 31 and July 31. The tax system has just undergone a major overhaul and self-employed people now pay tax on a current year basis.
Using the previous year as a guide, you pay a first instalment on January 31 and the second on July 31. If you earn more than the previous year, you will have to pay the excess on the following January 31.
So most people face a bigger tax bill each January – never good news just as the Christmas shopping bills come in. But your accountant should be able to tell you well in advance what this bill is likely to be and hopefully give you enough time to save.
If, in contrast, you are doing less work in the current year and expect your tax bill to be less than previously, you can appeal to the taxman to reduce the payments – as long as you do it before the January 31 deadline.
With the arrival of self-assessment, the taxman has toughened up the rules on payment. Non-payment or late payment can result in an instant £100 fine, with larger penalties and interest charges for the worst offenders.
There are also reports that late payment may trigger a full investigation by the tax office. Even if you do pay the correct amount of tax, these investigations are something to be avoided purely because of the paperwork involved – and the accountant’s bill that you may have to run up.