If you are still confused about UK taxes, read on as we uncover when and how to pay them. Avoid the dreaded penalties and fines; read this blog post to stay on top of your tax obligations!
When and How to Pay Different Types of UK Taxes?
Whether you have a business or a job, you must know how challenging it is to be tax compliant all the time.
With this, you need to be able to grasp the basics of different UK taxes if you want to avoid losing money from costly penalties and fines from HM Revenue & Customs (HMRC).
In this blog, we will explore these UK taxes, when they are due, and how to pay them. We will break down the information into easy-to-understand sections so you won’t feel overwhelmed. Let’s get started!
Value Added Tax (VAT)
VAT is the most common type of tax that is present in goods and services that you buy and sell.
Once your business exceeds the current threshold of £85,000 turnover per annum, you must register it for VAT. This can be done online through the HMRC website. Once registered, you will need to submit VAT returns and make payment to HMRC.
The due dates for VAT payments are usually one month and seven days after the end of the VAT accounting period. The VAT accounting period can be quarterly, monthly, or annually depending on your business needs.
It is recommended to consult with a tax professional to ensure compliance with HRMC VAT regulations.
Corporation Tax
Corporation Tax is a tax on the profits of limited companies, foreign companies with a UK branch or office, and unincorporated associations.
A corporation should register for Corporation Tax within three months of starting the business. They can register online through the HMRC website.
Regarding tax payment, paying Corporation Tax is typically up until nine months and one day after the end of the accounting period. The accounting period is usually the financial year of the business.
For more detailed advice on their company accountants, corporations may consult an accountant to help them comply with HRMC rules.
Income Tax
Income Tax is a tax on the income you earn from your business. If you are a sole trader, you will pay income tax on your profits. If you are a limited company director, you will pay income tax on the salary you receive.
The due date for income tax payments is generally on the 31st of January after the end of the tax year. The tax year runs from the 6th of April of one year to the 5th of April of the following year.
To prepare for timely income tax payments, maintain an accurate record of your income and expenses throughout the year. You will need this to compute your taxable income and, ultimately, income tax payable.
If you are unsure how to go about your income tax, seek professional advice from an accountant.
National Insurance Contributions (NICs)
NICs are a form of social security tax that goes towards funding state benefits, such as the State Pension, Maternity Allowance, and Jobseeker’s Allowance.
The amount of NICs you pay depends on your income and your employment status. If you’re employed, your employer will deduct NICs from your salary before you receive it. If you’re self-employed, you must calculate and pay your own NIC to HMRC twice yearly, in January and July.
For a more detailed and accurate reference of the different employment statuses and the NIC payment computation, visit the HMRC website. You may also consult an accountant for accurate calculations, especially if you are self-employed.
Capital Gains Tax
Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. Your income and the amount of profit you’ve made will determine the CGT you need to pay to HMRC.
In addition, keep in mind that CGT is not just limited to UK assets. If you’re a UK resident and sell an asset overseas, you may still be liable to pay CGT.
The due date for CGT payment is usually on the 31st of January following the end of the tax year in which the disposal was made.
Inheritance Tax
Inheritance Tax (IHT) is a tax on the estate of a deceased person. If you inherit an estate, you may be liable to pay IHT if the estate is worth more than the current threshold of £325,000.
IHT is payable on the portion of the estate that exceeds the threshold. However, if the deceased left everything to their spouse or civil partner, there is usually no IHT to pay.
The due date for IHT payment is typically six months after the end of the month the person died.
For both CGT and IHT, it is best to consult with an accountant to ensure compliance with the rules around these complex types of UK taxes.
Frequently Asked Questions
Can I claim tax relief for working from home?
If you’re an employee working from home, you may be eligible to claim tax relief for additional expenses, such as heating and electricity. You may further check this through the HMRC website.
What is the difference between a tax credit and a tax deduction?
A tax credit is an amount subtracted directly from your tax liability, while a tax deduction reduces your taxable income, which in turn reduces your tax liability.
Tax credits are generally more valuable than tax deductions since they reduce your tax liability pound for pound.
What happens if I don’t pay my taxes on time?
You may face penalties and interest charges. HMRC can also take legal action against you to recover the unpaid taxes and push criminal charges in case of habitual, deliberate non-compliance.
Conclusion
Understanding UK taxes and their payment requirements is of utmost importance for anyone doing business or working in the country since each type of tax has its own rules and deadlines for payment.
If you need professional advice about your tax compliance, visit us at Sterlinx Global.
Related posts to Types of UK Taxes
How Do You Know How and When to Pay Your UK VAT? Easiest ways to know to file your VAT
VAT in the UK: When to preferably talk to Professional Accountant or Tax Adviser
