June, 2010

Do I need to file a tax return if I am unemployed?

According to the most recent labour force survey, nearly 29 million workers were unemployed between February and April. Certainly, this is a stressful time for many, and the thought of filing a tax return may seem like a pointless endeavor.

But despite your misgivings, it is highly likely that if you have been out of work for any length of time, you are due some tax back as your annual tax allowance would not have been calculated correctly. Tax refunds can provide you with this much needed boost in your income. But only if you apply.

This article will attempt to address a variety of scenarios in which you could find yourself receiving a tax refund.

Timing makes a difference.

Although nearly everyone who became unemployed in 2009 is eligible for a tax refund, the longer you’ve been without work will increase the likelihood of receiving, and the amount of, your tax refund.

First things first

If you were working for any part of 2009, make sure your employer has given you a form P45. Your P45 will show much you have earned and paid in tax. Add to your income and JSA you received between the date you lost your job and April 5th 2010

If you leave at the very end of the tax year, you should be given a P45 on leaving and, by 31 May, a P60.

Form P45 is in four parts. Part 1 will be kept by your old employer who will give the other parts to you. Part 1A is for you to keep safely as your record of pay and tax taken off. Parts 2 and 3 are for your new employer if you start to work again or claim Jobseeker’s Allowance or contributory Employment and Support Allowance.

I will not be working again during the tax year

Typically if you’ve been out of work for some time, your tax refund would be paid when you started working again. However in a situation where you can show you would not be working again in the tax year, such as if you’ve retired or become a full-time student, you can claim a refund immediately. You should write to your tax office and ask for a final calculation or alternatively you can complete a claim form P50 which you can download from the HMRC website at www.hmrc.gov.uk.

I am claiming Jobseeker’s Allowance or Contributory Employment and Support Allowance

You will have to give the P45 to the Jobcentre Plus office. If you start work again before the end of the tax year, Jobcentre Plus will give you a P45U or P45ESA which includes details of the taxable benefit you have received as well as the normal P45 details.

I am unemployed and claim benefits

You cannot normally claim a tax refund immediately. You will either get a refund automatically under PAYE if you go back to work, or at the end of the financial year, whichever is sooner.

I am temporarily on short-time working

Your employer should make whatever tax refund you are entitled to on your normal paydays.

I am on strike or involved in a trade dispute

You will not be able to claim a tax refund whilst on strike. Instead, you will have to wait for a refund under PAYE – in other words when you either leave the job or return to work. If you are still on strike at the end of the tax year, you will not get a refund until you leave the job, or return to work. However, your employer will give you your P60 which will show the refund which is due as if it had been paid. Your employer must also give you an additional note saying how much tax refund under PAYE is being withheld until you leave or return to work.

Any more questions? We are happy to help. Alternatively, why not apply for some expert help with your tax return?

Claim a tax Rebate

apply for a tax rebate

Do I need to file a tax return if I am self-employed?

If you are self-employed, you are required to fill out a Self-Assessment tax return with HM Revenue & Customs. However, you may wonder if you are self-employed? This article will help you determine if your employment status for tax purposes and provide practical advice to make filing simple.

In essence anyone who is in business either as a sole trader or part of a partnership and receives income that is not taxed under the PAYE system is effectively self-employed.

So the simplest question to ask is: Do you work for another person or company to receive income? Certainly there may be other factors to consider, but the answer to that question can sum it up for most taxpayers.

If you’re still unsure, here are some other questions to ask.

Do you …

  1. Have the final say in how your business is run?
  2. Risk your own money in the business?
  3. Have responsibility for the losses as well as profits of your business?
  4. Provide the main items of equipment you need to do your job?
  5. Hire other people on your own terms to do the work you have taken on and pay them at your own expense
  6. Have responsibility for correcting unsatisfactory work in your own time and at your own expense

How do I register as self-employed?

There are three ways to register:

  1. Online to HMRC. This is the quickest and most convenient way to register.
  2. By phone. The HMRC has set up a self-employed helpline on 0845 915 4515. Lines are open from 8.00 am to 8.00 pm Monday to Friday and 8.00 am to 4.00 pm Saturday and Sunday (closed Bank Holidays).

3.  By post. You can download and print an application (PDF 201K) to post to HMRC.

If you have an agent who will be completing the form for you, you must first ensure that you have signed a form 64-8: This authorizes your agent to act on your behalf.

You will need to provide the following information:

  • Name
  • Address
  • National Insurance Number
  • Date of  Birth
  • Contact Telephone Number
  • Contact Email Address
  • Date Self-Employment Started
  • Nature of Your Business
  • Business Address
  • Business Telephone Number
  • Unique Taxpayer Reference (UTR) if you were previously within Self Assessment
  • Your Business UTR if you are joining an existing partnership
  • Full Name(s) and Date(s) of Birth or Your Business Partner(s)

If you are self-employed in a partnership, each of the partners must register separately.

What if I have income taxed by the PAYE system, but am also self-employed?

It’s possible for you to be employed and self-employed at the same time. If you earn income from both employment and self-employment then you Income Tax and National Insurance contributions are due separately and collected in different ways.

If you work as an employee you pay any Income Tax and Class 1 National Insurance contributions due through PAYE (Pay As You Earn). Your employer deducts these from your pay before you get it.

If you have any income from self-employment it’s your responsibility to pay any Income Tax and National Insurance contributions due. Depending on how much you earn from self-employment you may have to pay Class 2 and Class 4 National Insurance contributions.

You pay Class 2 National Insurance contributions at a flat rate, either by monthly Direct Debit or by quarterly bill.

The total amount of tax and National Insurance contributions you pay is based on:

  • Your combined income from both jobs – or all your jobs if you have more than two
  • Any allowances and reliefs you get

If you expect to be both employed and self-employed you may be able to ‘defer’ some of your Class 2 and/or Class 4 National Insurance contributions. You’ll pay what’s due after the end of the tax year when the actual amount has been worked out. Doing this will make sure you don’t pay too much National Insurance on your self-employment income.

What Is My Deadline?

There are four key deadlines for sending in your tax return and paying any tax due:

  • 31 October – this is the deadline for sending in the majority of paper tax returns
  • 31 January – the deadline for sending in your tax return online
  • 31 January – this is the payment deadline for what you owe for the previous tax year, and the deadline for making your first payment towards the current year’s tax bill (called ‘a payment on account’) if one is due
  • 31 July – the deadline for your second payment on account – if one is due

Penalties and surcharges may apply if you miss these deadlines.

The deadlines for sending in your tax return are only later than the dates above in special cases, for example if you received your tax return late.

For more details about tax relief and expenses you can check out the official HMRC site. Any more questions? We are happy to help. Everybody has tax questions, why not apply for some expert help with your tax return?

Self Employed
Tax Returns – £99

apply for a tax rebate

How much can you make before you have to pay taxes?

The current amount that you can earn before paying any tax is: £6,475

If you earn below the tax free allowance you can claim back any tax that you have paid. Any amount earned over £6,475 will be taxed at 20% until you become a higher rate tax payer when you will pay 40% tax.

Even if you have earned above £6,475 you may still be due a tax rebate, you can check if you have your P60 by using our tax rebate calculator.

If you have any questions, leave them in the comments below.

How Much Can You Earn Before Paying 40% Tax?

There are currently 3 rates of  tax on wages:

1. The basic rate of tax – 20%

2. The higher rate of tax – 40%

3. The additional rate of tax – 50%

2008-09 2009-10 2010-11
Basic rate: 20% £0-£34,800 £0-£37,400 £0-£37,400
Higher rate: 40% Over £34,800 Over £37,400 £37,401-£150,000
Additional rate: 50% Not applicable Not applicable Over £150,000

Even though the above table shows that you start paying the 40% rate of tax after earning £37,400, remember that everyone that works in the UK is given a tax free allowance (currently £6,475). This means that you could earn:

37400+6475 = £43,875 before paying the higher rate of tax of 40%

Remember that you only pay 40% on any income above the higher rate of tax, not your entire salary. So any pound over this amount will be taxed at 40 pence but any amount before will still only be taxed at 20 pence in the pound.

Let us know if you have any questions about this, in the comments below.