Question
Is it true that new sole trader businesses have two years to complete their tax return?Answer
Not as such, although depending on when you start the business you could have well over a year before your tax return is due and any tax paid.
Sole traders must declare and pay tax on their business profits via the self-employed section of the self-assessment tax return. The tax return must be completed by 31 October following the end of the tax year if a paper version, or 31 January if online.
So, suppose you start trading on 6 April 2010, your first tax return (for the 2010/11 tax year) will cover from 6 April 2010 until 5 April 2011. This return must be submitted by 31 October 2011 or 31 January 2012 depending on whether it’s paper or online.
The self-employed must usually pay any income tax owed in instalments, on 31 January and 31 July. The 31 January payment is during the tax year concerned and usually equal to half of your previous year’s tax bill, it’s called a payment ‘on account’. A second payment, usually the same amount, is then due on 31 July that year. The following January 31 payment will then include a balancing payment (or refund) based on your actual profits, as well as the next payment on account.
However, as a new sole trader you won’t have paid tax in the previous year so your payments on account will be zero (payments on account only apply if your previous year tax bill was at least £1,000).
To carry on our above example, you won’t have to pay tax on 31 January 2011 or 31 July 2011, just a single payment by January 31 2012 (for the 2010/11 tax year).
If you set up a limited company your business will then come under the corporation tax regime, which has a different set of timescales based on your company’s financial year.
For example, if you set up a company now with a financial year end of 28 February, your first accounting period would end 28 February 2011. Your company would have to pay corporation tax for this period by 31 November 2011 (9 months after the end of the accounting period) and file a company tax return by 28 February 2012 (12 months after the end of the accounting period).
Is it true that new sole trader businesses have two years to complete their tax return?Answer
Not as such, although depending on when you start the business you could have well over a year before your tax return is due and any tax paid.
Sole traders must declare and pay tax on their business profits via the self-employed section of the self-assessment tax return. The tax return must be completed by 31 October following the end of the tax year if a paper version, or 31 January if online.
So, suppose you start trading on 6 April 2010, your first tax return (for the 2010/11 tax year) will cover from 6 April 2010 until 5 April 2011. This return must be submitted by 31 October 2011 or 31 January 2012 depending on whether it’s paper or online.
The self-employed must usually pay any income tax owed in instalments, on 31 January and 31 July. The 31 January payment is during the tax year concerned and usually equal to half of your previous year’s tax bill, it’s called a payment ‘on account’. A second payment, usually the same amount, is then due on 31 July that year. The following January 31 payment will then include a balancing payment (or refund) based on your actual profits, as well as the next payment on account.
However, as a new sole trader you won’t have paid tax in the previous year so your payments on account will be zero (payments on account only apply if your previous year tax bill was at least £1,000).
To carry on our above example, you won’t have to pay tax on 31 January 2011 or 31 July 2011, just a single payment by January 31 2012 (for the 2010/11 tax year).
If you set up a limited company your business will then come under the corporation tax regime, which has a different set of timescales based on your company’s financial year.
For example, if you set up a company now with a financial year end of 28 February, your first accounting period would end 28 February 2011. Your company would have to pay corporation tax for this period by 31 November 2011 (9 months after the end of the accounting period) and file a company tax return by 28 February 2012 (12 months after the end of the accounting period).
Read this Q and A at http://www.candidmoney.com/questions/question113.aspx
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