Contractors, remember, remember the 5th of October

You made the January 31st deadline. You even heeded our advice about the July 31^st deadline!

But don’t relax just yet, because there’s another cut-off. And it’s probably the least publicised date in the tax calendar of them all. Yes contractors; remember, remember the 5^th of October, writes Amanda Swales, director of Simple Tax.

Most contractors operate through a limited company or via an umbrella company, so they may already fall within the Self-Assessment system. However, if you’re new to contracting and have a created a limited company, then you need to inform HMRC of this. And if you’re new to self-employment, then you’ll also need to take note of next month’s -- next week’s -- deadline.

Have you had a change?

In particular, if the make-up of your earnings changed during the 2016/17 tax year (which ended April 5^th 2017), you must notify HMRC before Thursday October 5th  to avoid a potential penalty. So remember it this way -- it’s a month earlier than Fireworks night, but you’ll potentially be the Guy on HMRC’s bonfire if you don’t act!

Examples of ‘changes in income’ in the Revenue’s eyes include:

• You are self-employed, or in a business partnership.
• Untaxed income in excess of £2,500 -- perhaps from rental property -- has come your way, or there are multiple streams of income to declare.
• Your earnings exceed £100,000.
• Yours or your partner’s income was over £50,000 and you were in receipt of child benefit.
• You have income from savings of more than £10,000.
• You have income from dividends and shares of more than £10,000.
• You were a trustee of a trust or registered pension scheme.
• You need to pay capital gains tax or claim expenses.

Don’t think any of that applies to you? Well check-out the case of Bill, below, because he didn’t think he’s covered either by the October 5^th deadline -- but he is.

Why Bill's caught

Contractor Bill is a Java developer living in Cambridge. He’s got his own limited company. During the tax year, Bill draws a mixture of salary and dividends totalling £49,000. But, additionally, Bill has started to carry out some IT repair work at weekends as a sole trader earning, around £500 per project. He also has a buy-to-let property in Stoke that he charges £650 a month for, which works out as £300 profit after mortgage and maintenance payments.  

That’s four separate forms of income. Salary from his limited company; dividends from his limited company; self-employed work and his rental property. To keep HMRC happy and pay the correct taxes, on time, Bill has to…

1) Act fast, because he must notify HMRC of his additional income, which will be the dividends (if over £10,000); his self-employed income and the rental income, before next Thursday.

2) Complete his Self-Assessment tax return before January 31^st (October 31st for paper returns) to declare these earnings, and make payment of any taxes due on or before January 31st 2018.

Register now to avoid penalties

As the system stands, Bill -- and potentially you -- may be liable for a penalty should no action be taken by the 5^th October, and if income is subsequently omitted at Self-Assessment tax return time. This is known as ‘failure to notify.’ More details on this can be found on HMRC’s website here. Worryingly, the penalty can be as high as a 100% of any tax due on undeclared income! 

Things may change in November at Autumn Budget 2017, as a HMRC consultation suggested to some that a rethink on penalties was afoot. But for now, we recommend being doubly sure that your Self-Assessment responsibilities are on-record to the appropriate schedule.

If it helps to know, signing up for Self-Assessment is easy, and only takes a few minutes. There’s a form to fill in on the HMRC website, asking for your NI number, residential status and business address, among other information.

Once registration is complete, a UTR (Unique Taxpayer Reference) code will be sent to you within ten working days. This will then be used on every subsequent Self Assessment. Lastly, some good news. With all these tax deadlines to remember; in January, July and October, HMRC can helpfully remind you of your UTR if you lose or forget it!