The end of the UK tax year is a great time to knuckle down and get your books organised – making sure all of your invoicing, expenses and banking are under control and ready for the start of the new tax year.
As such, we’ve put together a guide with everything you need to know about the tax year ahead for your business, starting with one of the most-asked tax questions we’ve had.
Why does the tax year start in April instead of January?
The tax year in the UK starts on the 6th April and lasts until the 5th April the following year. But why doesn’t it start and finish with the beginning and end of the calendar year instead?
Well, it’s because we switched calendars in the 18th century. Between 1155 and 1752, we followed the Julian calendar and our new year started on the 25th March.
However, as time went on, the Julian calendar slowly started to fall out of sync with the solar system. To solve the problem, Europe adopted the Gregorian calendar (the one we currently use) but this meant we were now out of sync with Europe.
In 1752, Britain decided to line up with Europe and follow the Gregorian calendar too. Because we were 11 days ahead, this meant we had to lose 11 days in September.
The Treasury were concerned about missing out on taxes so to make up for it, they extended the tax year by adding 11 days. This took the tax year to the 5th April, and it was later moved to the 6th in 1800 due to a leap year.
What are the key dates for the 2020/2021 tax year?
The dates you need to remember for the new tax year are:
5th April 2020
- End of the 2019/20 tax year
6th April 2020
- Start of the 2020/21 tax year
- IR35 comes into force for the private sector
19th April 2020
- Deadline for 2019/20 year-end payroll form submissions
7th May 2020
- VAT return and payments deadline for Q1 (ending 31st March 2020)
31st May 2020
- Issue 2019/20 P60 documents to employees
6th July 2020
- Issue 2019/20 P11d documents to employees
31st July 2020
- Second payment on account (POA) for income tax for the 2019/20 tax year
7th August 2020
- VAT return and payments deadline for Q2 (ending 30th June 2020)
31st October 2020
- Deadline for postal self assessment tax returns for the 2019/20 tax year to arrive at HMRC
7th November 2020
- VAT return and payments deadline for Q3 (ending 30th September 2020)
30th December 2020
- Filing deadline for online self assessment tax returns for the 2019/20 tax year
31st December 2020
- Filing deadline for corporation tax for companies with year-end of 31st December 2019
- Filing deadline for company accounts with Companies House for limited companies with year-end of 31st March 2019
1st January 2021
- Due date for corporation tax payment for period ending 31st March 2020
31st January 2021
- Filing deadline for self assessment tax returns for the 2019/20 tax year
- Filing deadline for capital gains tax for the 2019/20 tax year
- Balancing payment of tax due for the 2019/20 tax year
- First payment on account (POA) for income tax for the 2019/20 tax year
7th February 2021
- VAT return and payments deadline for Q4 (ending 31st December 2020)
5th April 2021
- End of the 2020/2019 tax year
6th April 2021
- Start of the 2021/22 tax year
What are the main UK business taxes?
Depending on the type and performance of your business, you may be subject to different taxes. Make you know what taxes you need to consider for your business and meet the deadlines to avoid any unpleasant fines from HMRC.
The main taxes small business owners like you need to know about are:
You must pay income tax as a sole trader on the profits your business makes above the personal tax allowance.
If you run your business as a limited company, you’ll pay income tax on your salary or any dividends taken from the company.
Usually, income tax is collected via PAYE (pay as you earn) on a monthly basis and directly paid to HMRC.
You only need to pay corporation tax if you run your business as a limited company. It’s self-assessed and worked out as a percentage according to the profit of the business or taxable income.
Corporation tax needs to be paid for nine months after your business’s accounting period.
VAT (value added tax)
Your business may need to charge VAT if you offer a service or product. In the UK, VAT is set at 20% across most products and services and you can register your business at any time for VAT.
If your annual turnover is more than £85,000, you must register your business for VAT by law. If your annual turnover falls below £83,000, you can “deregister” for VAT, which means you no longer have to pay it.
Your business can claim back VAT on products or services it needs once you have registered.
You may need to pay business rates depending on your location and the nature of your company. If you operate your business in a dedicated office or space, you will usually have to pay these rates. However, there are many business tax relief grants and schemes you can apply for.
Your business must pay National Insurance if you employ staff. It’s paid to HMRC when you pay your staff’s salaries.
There are different classes of National Insurance depending on the type of business you run.
Small business owners like you often have enough on your plate without having to sift through reams of jargon to understand what you owe HMRC. Hopefully this article has helped to define some of the most common taxes you’ll encounter.
Just remember – they may seem daunting but it’s vital you complete your taxes fully and in good time. The faster they’re done, the faster you can get back to managing your day-to-day and growing your business.
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Bear in mind: This post is for general information only and isn’t meant to replace professional advice. Check with your accountant before you make any important decisions.