On this blog post we want to discuss the idea of self-assessment base periods for self-assessment tax return. We will discuss taxable periods, filing deadlines and tax liability deadlines. Please check our YouTube Video here
Let’s start with the standard self-assessment tax period, where your taxable income is derived? Let’s work on the basis of the tax year ending within the next few weeks (2018/19). The base period for this return is 6thApril 2018 – 5thApril 2019. Any taxable income received in this period will need to be declared on your self-assessment tax return. Examples of taxable income can be dividends, U.K. bank interest (foreign interest can also be liable), profits from your sole trader accounts, a pension (if you have other income along side) and much more. If you are unsure as to what classes as taxable income, please refer to HM Revenue & Customs here .
The tax return for 2018/19 needs to be filed by the 31 January 2020. Failure to file your return on time will land you with 100.00 fine instantly. Failure to file for further periods will incur yet more penalties. Please see here for more fine details.
Where people’s thoughts tend to get clouded are between tax balancing liabilities and tax payments on account.
Let’s start with your tax balancing liability. This is your tax liability for the period ending 5thApril 2019. This is in essence your tax and NI liability on any taxable income received in the period. This payment is due by the 31stJanuary 2020. If you do not pay your taxes by this deadline you will be charges interest. For details on how much please see here.
Now let’s talk about payments on account. Payments on account are payments which are paid in advance for your future tax returns, as clear as mud right? So, let’s break it down.
Your 2018/19 balancing tax liability was 2,000. You paid that in January 2020. Payments on account are due when your balancing tax liability is over 1,000. So as your liability is 2,000 as above, you will have to make X2 payments on account of 1,000 each on the 31stJanuary 2020 & 31 July 2020. The theory behind this is that you have covered your tax liability for the 2019/20 tax year. In reality, as we do not earn the exact same each year you will either owe a balancing tax liability or be due a tax refund based on your earnings. The idea is to split your liability and lessen the burden of payments at the end of each year.
I hope this has helped clear some of the confusion around base periods and tax payments. If you have any further questions please do get in touch sam@skaccountancy.net