Author: Glenn

Self-assessment taxpayers typically need to pay their Income Tax liabilities in three instalments each year. The first two payments on account are due by 31 January during the tax year and by the 31 July after the tax year has ended. Each payment on account is based on 50% of the previous year’s net Income Tax liability. Additionally, the third (or balancing) payment is due on 31 January after the tax year ends.

If you expect your income for the following tax year to be lower than the previous year, you can apply to reduce your payments on account. This can be done through HMRC’s online service or by submitting form SA303.

It’s important to note that you do not need to make payments on account if your net Income Tax liability for the previous year is less than £1,000, or if more than 80% of your tax liability was collected at source.

There is no limit on the number of times you can apply to adjust your payments on account. If your liability for 2024-25 is lower than for 2023-24, you can request HMRC to reduce your payments. The deadline to submit a claim to reduce your payments on account for 2024-25 is 31 January 2026.

If your taxable profits have increased, there is no obligation to inform HMRC, but your final balancing payment will usually be higher.

Self-employed individuals are usually required to pay Class 4 National Insurance contributions (NICs) if their annual profits exceed £12,570. For the 2024-25 tax year, Class 4 NIC rates are set at 6% (down from 9% in 2023-24) on profits between £12,570 and £50,270, with an additional 2% charged on profits above £50,270.

Certain groups are exempt from paying Class 4 NICs, including:

• Individuals under 16 at the start of the tax year.
• Individuals over State Pension age at the start of the tax year. If someone reaches State Pension age during the tax year, they remain liable for Class 4 NICs for the entire tax year.
• Trustees and guardians of incapacitated individuals are exempt from paying Class 4 NICs on that income.

The Class 4 NIC rate is lower than the corresponding rate for employees, who pay 8% on the same income levels. Both employees and the self-employed contribute 2% on income above the higher rate threshold.

The majority of individuals pay Class 4 National Insurance via self-assessment.

The Tax-Free Childcare (TFC) scheme helps working families manage childcare costs by providing support through a wide network of registered providers, including childminders, breakfast and after-school clubs, and approved play schemes across the UK. Parents can also contribute to their TFC account regularly and save their allowances for use during school holidays.

The scheme is available to parents with children up to 11 years old, with eligibility ending on 1 September following the child’s 11th birthday. For children with certain disabilities, the age limit is extended to 1 September after their 16th birthday.

Through the TFC scheme, the government tops up parental contributions by 25%. For every £8 contributed, the government adds £2, up to a maximum of £10,000 per child per year. This offers parents annual savings of up to £2,000 per child (or up to £4,000 for disabled children up to age 17).

The scheme is open to all qualifying parents, including the self-employed and those earning minimum wage. It is also available to parents on paid sick leave, as well as those on paid and unpaid statutory maternity, paternity, and adoption leave. To be eligible, parents must work at least 16 hours per week and earn at least the National Minimum Wage or Living Wage. However, if either parent earns more than £100,000, neither can participate in the scheme.

Most personal pensions set a minimum age at which you can start withdrawing money, typically not before age 55. Some pension benefits can be taken tax-free. Generally, you can withdraw 25% of your pension pot as a tax-free lump sum, with a maximum of £268,275. If you have protected allowances, the amount you can take tax-free, as well as your overall tax-free limit, may be higher.

After making a tax-free withdrawal, you usually have up to 6 months to decide how to take the remaining 75% of your pension fund which will typically be taxed. The options for withdrawing the rest of your pension include:

• Taking all or part of it as cash.
• Purchasing an annuity for a guaranteed lifetime income.
• Investing it for a flexible, adjustable income (known as 'flexi-access drawdown').

It’s important to understand the tax implications of receiving pension income. Aside from the tax-free benefits, pension income is considered earned income and subject to Income Tax under the standard rules. Income tax is also due on the State Pension, employment or self-employment earnings, and any other taxable income.

Employees with more than one job may be eligible to defer or delay paying Class 1 National Insurance in certain situations. This deferment can be considered if any of the following apply:

• You pay Class 1 National Insurance to more than one employer.
• You earn £967 or more per week from one job over the tax year.
• You earn £1,209 or more per week from two jobs combined over the tax year.

This deferral may allow for reduced NIC deductions of 2% on weekly earnings between £242 and £967 in one of your jobs, instead of the standard 8% rate.

At the end of the tax year, HMRC will review your National Insurance contributions and notify you if you owe NIC arrears.

Most self-employed individuals are also required to pay Class 4 NICs. While it was previously possible to defer these contributions, that option is no longer available. However, you may be able to claim a refund for past tax years.