HMRC Tax Update

The HMRC releases periodic updates reminding tax payers of deadlines and associated penalties for missing those deadlines. The latest communication includes:

Construction Industry Scheme (CIS)
If you are a contractor under the CIS scheme you will send a monthly return to HMRC telling them about payments you have made in the last month.
This return has to be submitted by the 19th of the month.

If this deadline is missed the following penalties will apply:

Length of delay	Penalty you will have to pay
1 day late	A fixed penalty of £100. This applies even if your return has no subcontractors on it - a nil return.
2 months late	A fixed penalty of £200. This applies even if your return has no subcontractors on it - a nil return.
6 months late	£300 or 5% of the CIS deductions shown on the return, whichever is the higher. This is as well as the penalties above.
12 months late	£300 or 5% of the CIS deductions shown on the return, whichever is the higher. In serious cases you may be asked to pay up to £3,000 or 100% of the CIS deductions shown on the return, whichever is the higher. These are as well as the penalties above.

PAYE Payments
If you are an employer you will deduct tax and national insurance from your employees and these need to be paid over to HMRC by the 22nd of the month following the month of payment. I.e. Tax and NI deducted from salary paid in November needs to be paid to HMRC by 22nd December.



If this payment date falls on a weekend or bank holiday the funds must be cleared with HMRC on the last business day before.

If the deadline is missed the following penalties apply:

No. of times payments are late in a tax year	Penalty percentage	Amount to which penalty percentages apply
1	No penalty (as long as the payment is less than six months late)	Total amount that is late in the tax year (ignoring the first late payment in that tax year)
2-4	1%
5-7	2%
8-10	3%
11 or more	4%

Self Assessment Tax Return
If you are required by HMRC to complete a self assessment tax return they will inform you by letter, usually in April.





Return can either be completed on paper or online. The deadline for paper is 31 October and has now passed for the 2010-11 tax year. The deadline for online is 31 January, 7 weeks from today.

If the deadline is missed the following penalties apply:

Length of delay	Penalty you will have to pay
1 day late	A fixed penalty of £100. This applies even if you have no tax to pay or have paid the tax you owe.
3 months late	£10 for each following day - up to a 90 day maximum of £900. This is as well as the fixed penalty above.
6 months late	£300 or 5% of the tax due, whichever is the higher. This is as well as the penalties above.
12 months late	£300 or 5% of the tax due, whichever is the higher. In serious cases you may be asked to pay up to 100% of the tax due instead. These are as well as the penalties above.

Doing Your Own Books

When you start a business the main focus is on promoting that business as without sales there is no business. However, maintaining your finances or doing your own books is an essential part of being self employed and ignoring them will lead to complications later.

This task can seem quite daunting if you don't know where to start but if you maintain your income and expenditure records from day one you shouldn't run into any problems. You don't need a sophiscated accounting package to maintain your records, a manual process will do but at the least a spreadsheet will make record keeping easier.

If you intent to use an accountant or a bookkeeper it is probably best to check with them what system they prefer, some of them may even offer a free spreadsheet to help you start.

If you stay on top of paperwork and not let it slip to weeks or months the job will not seem to big.

Make sure you claim for all costs incurred 'wholly and exclusively for business use', don't forget to include all the business mileage you do as well. If you use your home as your office you can claim a proportion of your utilities and even a proportion of your rent or mortgage interest.

If you're in any doubt about what you can claim speak to your accountant.

Once you have calculated how much profit you have made (income less costs) you then need to budget for tax and national insurance costs. If you save 25-30% of your profit as you go you will easily be able to afford your tax and national insurance bill. Open a separate saving account and put the money in there each month.

If you're still not sure about maintaining your finances speak to a bookkeeper.