Self-assessment taxpayers are usually required to pay their Income Tax liabilities in three instalments each year. The first two payments are due on 31 January during the tax year and 31 July following the tax year.

These payments on account are based on 50% each of the previous year’s net income tax liability. In addition, the third (or only) payment of tax will be due on 31 January following the end of the tax year. If you think that your income for the next tax year will be lower than the previous tax year, you can apply to have your payment on account reduced. This can be done using HMRC’s online service or by completing form SA303.

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

There are no restrictions on the number of claims to adjust payments on account a taxpayer or agent can make. The payments are based on 50% of your previous year’s net income tax liability. If your liability for 2023-24 is lower than 2022-23 you can ask HMRC to reduce your payment on account. The deadline for making a claim to reduce your payments on account for 2023-24 is 31 January 2025.

If taxable profits have increased there is no requirement to notify HMRC although the final balancing payment will be higher.

In a recent press release, HMRC addressed some common misconceptions about who needs to file a self-assessment return before the 31 January 2025 deadline and clarifies some of the most widespread myths.

The press release seeks to dispel the following myths:

Myth 1: “HMRC hasn’t been in touch, so I don’t need to file a tax return.”

Reality: It is the individual’s responsibility to determine if they need to complete a tax return for the 2023 to 2024 tax year. There are many reasons why someone might need to register for self-assessment and file a return, including if they:

• are newly self-employed and have earned gross income over £1,000;
• earned below £1,000 and wish to pay Class 2 National Insurance Contributions voluntarily to protect their entitlement to State Pension and certain benefits;
• are a new partner in a business partnership;
• have received any untaxed income over £2,500; or
• receive Child Benefit payments and need to pay the High Income Child Benefit Charge because they or their partner earned more than £50,000 (this limit increases to £60,000 for 2024-25).

Myth 2: “I have to pay the tax at the same time as filing my return.”

Reality: False. Even if someone files their return today, the deadline for customers to pay any tax owed for the 2023-24 tax year is 31 January 2025.

Myth 3: “I don’t owe any tax, so I don’t need to file a return.”

Reality: Even if a taxpayer does not owe tax, they may still need to file a self-assessment return to claim a tax refund, claim tax relief on business expenses, charitable donations, pension contributions, or to pay voluntary Class 2 National Insurance Contributions to protect their entitlement to certain benefits and the State Pension.

Myth 4: “HMRC will take me out of self-assessment if I no longer need to file a return.”

Reality: It is important taxpayers tell HMRC if they have either stopped being self-employed or they don’t need to fill in a return, particularly if they have received a notice to file. If not, HMRC will keep writing to them to remind them to file their return and we may charge a penalty.

Taxpayers may not need to complete a tax return if they have stopped renting out property, no longer need to pay the High Income Child Benefit Charge, or their income has dropped below the £150,000 threshold and have no other reason to complete a tax return.

Myth 5: “HMRC has launched a crackdown on people selling their possessions online and now I will have to file a self-assessment return and pay tax on the items I sold after clearing out the attic.”

Reality: Despite speculation online earlier this year, tax rules have not changed in this area. If someone has sold old clothes, books, CDs and other personal items through online marketplaces, they do not need to file a self-assessment return and pay Income Tax on the sales. 

It should be noted that you are required to notify HMRC by 5 October 2024 if you need to submit a self-assessment tax return for the 2023-24 tax year and haven't done so previously.

The mandatory rollout of Making Tax Digital for Income Tax (MTD for ITSA) is scheduled to begin in April 2026. The process will significantly adjust how businesses, self-employed individuals, and landlords engage with HMRC. The system will require businesses and individuals to register, file, pay, and update their details through an online tax account.

It is important to begin to consider using accounting software that is equipped to send updates to HMRC in preparation for the launch of MTD for ITSA in April 2026.

According to HMRC, the software must be capable of:

• creating and storing digital records of your business income and expenses — you can choose to use spreadsheets with compatible software to do this;
• sending quarterly updates;
• submitting your tax return by 31 January after the end of the year; and
• receiving information from HMRC.

The MTD for ITSA rules will initially apply to businesses, self-employed individuals and landlords with an income of over £50,000 annually. MTD for ITSA will then be extended to those with an income between £30,000 and £50,000 from 6 April 2027. A new system of penalties for the late filing and late payment of tax for ITSA will also apply. At present there are no plans to extend ITSA to smaller businesses with income below £30,000 or to Corporation Tax.

Readers affected by this forthcoming change who have not yet converted to the use of an MTD compatible accounting software should consider their options, and we can help. Please call.

There are special rules to observe when employing an apprentice in the UK. Basically, an apprentice takes part in a structured training program that combines working with studying. Apprentices gain practical experience while earning a wage and working towards a recognised qualification. An apprentice can be a new or current employee.

Employers must pay an apprentice at least the minimum wage. The minimum rate is currently £6.40 an hour. Apprentices are entitled to the minimum wage for their age if they are aged 19 or over and have completed the first year of their apprenticeship.

The following steps to hiring an apprentice are detailed on GOV.UK:

1. Choose an apprenticeship for your business or organisation.
2. Find an organisation that offers training for the apprenticeship you’ve chosen.
3. Check what training funding you can get.
4. Create an account – you need this to manage funding and recruit apprentices.
5. Advertise your apprenticeship – find out how to create an advert or give your training provider permission to do this for you.
6. Make an apprenticeship agreement and training plan with your chosen apprentice.

Employers that do not want to hire and train the apprentice themselves can use a flexi-job apprenticeship agency. The apprentice will be employed by the agency but will work in their organisation.

This guidance is for employers in England. There are regional differences for those hiring an apprentice in Scotland, Wales or Northern Ireland.

There is a basic principle that dividends or other distributions must not be paid out of capital even if the Articles of a company authorise such a payment. For the purposes of this article, reference to distributions includes dividends.

This is stated as follows in Companies Act 2006, section 830:

Distributions to be made only out of profits available for the purpose

(1) A company may only make a distribution out of profits available for the purpose.

(2) A company's profits available for distribution are its accumulated, realised profits, so far as not previously utilised by distribution or capitalisation, less its accumulated, realised losses, so far as not previously written off in a reduction or reorganisation of capital duly made.

(3) Subsection (2) has effect subject to sections 832, 833A and 835 (investment companies and Solvency 2 insurance companies).

HMRC’s internal manuals go further and states that the Act lays down what may be termed the ‘balance sheet surplus’ method of determining profits available for distribution. Under this, a company can distribute the net profit on both capital and revenue at the particular time, as shown by the relevant accounts.

Section 830 lays down the basic rule, but it does not apply to investment companies and is qualified in respect of public companies by section 831. It states that a company’s profits available for distribution are its accumulated, realised profits (on both revenue and capital) not previously distributed or capitalised, less its accumulated realised losses (on both revenue and capital) not written off in a proper reduction or reorganisation of capital.

These definitions for smaller companies can be summarised as, dividends can only be paid if there are sufficient revenue reserves – excluding issued and paid up share capital – to cover the payment. Directors should have sight of up-to-date management accounts when making a judgement regarding a proposed dividend payment and the accounts should include a realistic estimate for any current year corporation tax liability.

If you are uncertain if your company meets these obligations, please call. We can help you crunch the numbers.