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What is the tax life cycle

What is the tax life cycle and how does it affect my business?

The tax life cycle is a way of paying tax by sending a return to HMRC each year. It affects every self employed person as HMRC will require you report your income and expenditure. If your trading income is less then £1000 per tax year you may not need to submit one.

What is self Assessment

HMRC require different types of businesses and individuals to complete a tax return, this blog will concentrate on the self employed.

If you are self employed HMRC will require you to report your trading income and trading expenses to them each year, in order to work out what your tax and NI liability is. You will also need to report other forms of taxable income for example income from a property or from savings. You will have to report facebook and ebay sales – something not a lot of people realise.

You do get a trading allowance each year, so it is worth investigating with HMRC if you do need to submit a self assessment or if your income is part of the trading allowance. The trading allowance is £1000 and if your turnover is over this you can choose to use the trading allowance or your actual trading expenses, which ever is greater.

How do I register for self assessment?

Usually you should register with HMRC by the 5th October following the end of the tax year, in which you first traded. If you don’t penalties will be applied. You can register here.

For example if we look at the 2021 tax year which starts on the 6th April 2021. You decide to start a business in June 2021. The tax year ends April 5th 2022. You have until 5th October 2022 to let HMRC you have started trading.

When should I submit a tax return?

You can submit anytime during the following tax year e.g. you could submit your 19/20 tax return from 6th April 2021. You do have until 31st Jan the following year do for 20/21 you have until Jan 31st 2022 to pay and submit. We would recommend that you submit as early as possible, that way if you haven’t save towards your tax bill the year of trading, you can spread out the liability and pay in monthly instalments. This only works if you submit early. HMRC wil expect the liability to be paid in full by Jan 31st.

What is a payment on account and how do I pay?

A payment on account is an advanced payment towards your tax bill, these include class 4 NI. They are made twice a year by self assessment taxpayers and help spread the cost of the upcoming tax that due.

It is calculated based on your previous year’s tax bill. It can be quite unsettling to submit your tax return then discover you then have to make another payment towards the following year. You will have to make a payment on account unless your last self assessment tax bill was under £100 or you have already paid 80% of all the tax that you owe.

Each payment is half of your previous years tax bill. They are due in 31st January and 31st July. This can really catch people out so it really helps to either submit early or work out the tax due as you go.

If you think your income for the next year will be a lot then the previous tax year, you can apply to reduce the payment in account.

If you underpay you will ne charged interest and if you overpay HMRC will send you a refund.

What if I can’t pay my self assessment tax bill?

Contact HMRC as soon as possible and you should be allowed to spread out the payments.

How can I plan for my self assessment?

Be organised, the more organised that you are the easier it will be. Keep records; these will be receipts, invoices, bank statements. Try to keep these in some sort of order. We’d recommend that you set up a separate bank account that just deals with your self employed business income and expenses.

Submit as early as possible. This allows you time to pay your tax bill, if you haven’t save for it. If you do have to make a payment on account you won’t suddenly have to find extra money.

Calculate your tax liability as you go, you can see if you are likely to make a payment on account, which means you will be prepared for it.


If you worry that you won’t submit a correct tax return, or feel lost, outsourcing to an accountant can really give you peace of mind. If you would like to outsource your personal tax return to us please get in touch on 01209 702920 or use our contact page here Contact.

The information featured in this article is for guidance only, no liability is accepted for the opinions it contains.


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