Guide to Filing Personal & Business Accounts

If you run your company as a sole trader or partnership, the HRMC dictates that you report your business income or losses on your taxes. However, when it comes to corporations (or limited companies), the rules are different.

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Corporations are regarded as independent tax-paying entities with their tax form (Form CT600) and deductions. Simply put: they are required to report their personal and business incomes separately.

But where do you begin? How do you calculate what you owe? What are the deadlines?

Regardless of your business structure, doing your taxes can be daunting. Fortunately, we've got you covered. To get you started, we've put together a simple guide explaining everything you need to know about filing business and personal taxes in the UK.

Steps to File Business and Personal Taxes

Step 1 — Register with HMRC

To initiate the tax filing process, you need to register with HMRC and acquire your activation PIN. It takes approximately a week to arrive in the post, so plan accordingly.

You'll find a Unique Tax Reference (UTR) on your HMRC paperwork to be quoted on your tax return.

Step 2 — Get your expense records in order

Before you file your accounts, round up all your invoices, receipts, and the necessary paperwork in one place. This includes all statements, earnings, and expenses — personal or business — recorded in that tax year.

If you use an accounting software to organise your expenses, calculating your deductions and taxes will be significantly easier. Dext and FreshBooks are some of the best accounting software in the UK.

Step 3 — Learn about the tax

Depending on your company's business structure, different tax rules are applicable. A good place to begin learning about your reporting obligations is the HRMC — the entity responsible for collecting it. However, the sheer volume of information can seem a little overwhelming. So, here's a quick rundown of the tax deeds that apply to your legal structure:

    1. Sole traders or (self-employed)

Filing taxes as an unincorporated business where you are the sole owner is reasonably straightforward. You are required to report your income on your business’s taxable profits. As per the UK tax law (2020/21), the threshold is set as below:

• Below £12,570: Nil
• Between £12,571-£50,270: 20% income tax
• Between £50,271-£150,000: 40% income tax
• Over £150,000: 45% income tax payable

Sole traders also have National Insurance contributions (NICs) applicable to their business.

    2. Partnerships

Business partners (or owners) are treated as self-employed individuals. The same tax rules apply to them — each partner must report his/her share of business profits and losses after considering the deduction of their allowances.

• Below £12,570: Nil
• Between £12,571-£50,270: 20% income tax
• Between £50,271-£150,000: 40% income tax
• Over £150,000: 45% income tax payable

They must also pay Class 2 and Class 4 NICs and their income tax after they file a Self Assessment tax return.

    3. Limited companies

Limited companies must report their profits by filing the Corporation Tax Return called Form CT600 once every year. The corporation tax is determined after business expenses and salaries have been accounted for, with personal dividends withdrawn. There is a flat 19% tax rate applicable to limited companies regardless of the profit they generate. 

In addition to this, VAT-registered companies whose annual turnover exceeds £85,000 must pay a standard 20% Value Added Tax (VAT).

If you are struggling with the right forms, you can seek limited company accountants' advice. You can also rely on accounting software which helps determine your tax obligations based on your income and expense details.

Step 4 — Be aware of deadlines

Pay close attention to the different filing deadlines. The due date to file a self-assessment tax return for the 2021/2022 tax year is 31st January 2022. The income tax year for individuals falls between 6th April to 5th April.

For corporation tax, you need to submit a CT600 form to HMRC once every year, depending on when you registered your company. Your first annual accounts are due 21 months from the date you start your business. The next is nine months and one day from the accounting date.

Make sure you file your income tax returns during these windows, so you don't end up attracting HMRC's late-filing penalties and fines. They tend to increase with time!

Plan ahead

There's plenty you need to keep tabs on tax-wise, so you know what and when you owe HMRC and Companies House. The key is to squeeze in some prep time getting your affairs to avoid fretting about at the eleventh hour.

It makes sense to find yourself a good bookkeeper or invest in accounting software if you can't figure out the filing procedure. Yes, get the burden off of your shoulder!

Dreading the big deadline and need some help? Feel free to reach out to us!