Your Guide to Tax & Dividends in the UK

If you're approaching self-assessment for the first time, it can seem overwhelming. However, the process shouldn't be that complicated if you have kept the right records for the period you'll be submitting for.

To avoid complications, it may be easiest for self-employed professionals and small businesses to submit regularly rather than waiting until the deadlines are approaching to submit their records. This means you then have plenty of time to resolve any issues you have with HMRC without the risk of being fined for missing the deadline.

Our short guide will help you understand the key points you will need to get your head around to make an accurate submission to HMRC.

Self-assessment

As well as paying for any tax owed from 2016/17, most self-assessment payers also need to pay for the first half of 'payment on account' for the year ahead (2017/18). This is half the total expected to be paid in the tax year ahead, which is based on what you have earned during the previous year.

If you don't think the amount calculated by HMRC is fair, you can dispute it, but you need to have a valid reason, such as an expected drop in profits. You can also challenge any fees incurred for late payments, though again you'll need to have a legitimate reason to explain you missing the deadline for payment.

If you are registered as a limited company, you may also have to pay corporation tax. This means the responsibility for calculating how much tax you owe falls on you rather than HMRC.

Each year the rate for corporation tax is set so it's likely to change from one tax year to the next. If your company's accounting period straddles two different tax years, then you should determine your profits based on the corporation tax rate set for each individual year. This may mean that you have to divide your earnings and apply two different rates to your income based on what period it was earned in.

To find out more about Corporation Tax visit the government's website. There are also a number of online calculators that make it easier to work out what tax you may owe as a company.

What if you miss the deadline?

Payments can be made online by bank transfer, debit and credit cards, though you can no longer pay from your personal account so must make sure you have a card registered for your business. HMRC accept payments on the day you make it, not on the day it reaches their account, even on weekends.

You will be charged a £100 penalty if you don't submit your payment before the deadline and you will incur a £10 fee every day after three months. You will also be charged an extra 2.75% of whatever you owe if you file after the deadline.

If your bill is accurate but you can't afford to pay it, you need to contact HMRC as soon as possible to avoid incurring penalties. You may be able to spread your payments out over a number of months.

Dividends

Dividends are a sum of money paid to the company directors after corporation tax has been deducted. It's common for people to pay themselves a small salary and top this up with dividends.

You can either calculate your salary at just below or just above National Insurance levels to ensure you are only making small contributions and take the rest of your earnings through dividends.

Directors can pay themselves dividends whenever they like, though it may make more sense to do it at certain times of the year rather than others. For example, after you have paid your corporation tax it may be much easier to see how much profit your company has actually made.

You need to be careful not to overpay dividends as you will effectively owe your company money and become overdrawn. This is relevant because 25% of the overdrawn amount will need to be paid as additional corporation tax.