If you are entitled to a refund of tax deducted from savings and investment income, you can claim the refund using form R40 if you do not complete a Self Assessment return. If you do complete a Self Assessment tax return, you do not need to make a separate claim as any tax due to you will be taken into account in computing the amount due or repayable under Self Assessment. A claim can be made on form R40 for the current tax year and the previous four tax years.

If you are making the claim for yourself, you make the claim online or by using the postal form. If you are making the claim on behalf on someone else, you will need to use the postal form, which is available on the Gov.uk website at www.gov.uk/guidance/claim-a-refund-of-income-tax-deducted-from-savings-and-investments.

To make the claim, you will need to provide your personal details and details of your income. This will include employment income, pension income, state benefits, interest and dividend income, income from trusts, settlements and estates and income from UK land and property. You will also need to provide details of payments made under gift aid, and indicate whether you are entitled to the blind person’s allowance and/or the married couple’s allowance. You must also provide details of the address to which the repayment should be sent.

Using an agent

An agent can also make a refund claim on your behalf. Since 30 April 2024, agents claiming a refund of income tax deducted from savings and investment income on behalf of their clients must use the new standard HMRC R40 form. In the event that the agent is the nominated third party to whom the repayment is to be paid, they must complete the nomination section on the new form and provide their agent reference number (ARN). If the claim is made on a different version of the form, it will still be accepted, but the nomination section will be disregarded and the claim will be paid direct to the client rather than to the agent. The client will also need to complete the section of the form indicating that they are nominating a professional to act on their behalf. If this section of the form is not completed correctly, the repayment will be made to the client rather than to the agent.

R40 claims for interest paid on payment protection insurance

Where the R40 repayment claim relates to interest on payment protection insurance (PPI), evidence of the original PPI payment must be submitted when making the claim. The document must show the gross interest, the tax deducted and the net interest. This could be a certificate from the company that made the refund, showing the tax deducted from the refund, or a final response letter from the company making the refund.

As outlined before the election, the new Government are to go ahead with their proposal to impose VAT on school fees. Legislation was published in draft on 29 July, together with a technical note.

From 1 January 2025, education services and vocational training supplied by a private school will be liable to VAT at the standard rate of VAT. Where fees are paid on or after 29 July 2024 in respect of a term starting on or after 1 January 2025, these too will attract VAT at the standard rate of 20%. Boarding services which are closely related to the supply of education services and vocational training will also be liable to VAT at the standard rate of 20% from 1 January 2025. The funds raised by the imposition of VAT on private school fees are to be used to fund education in the state sector.

For these purposes, a ‘private school’ is defined as a school at which full-time education is provided for pupils of compulsory school age, or an institution at which education is provided for those over compulsory school age but under the age of 19 (such as a sixth-form college), and in respect of which fees are paid for the provision of that education.

Nurseries, whether standalone or attached to a primary school, are to remain outside the VAT charge, which will apply from the first year of primary school.

Education provided at private sixth-form colleges, whether standalone colleges or attached to a private school, will be within the charge. However, education and vocational training which is provided by further education colleges will not be subject to VAT. Education and boarding provided by state schools remain exempt from VAT.

Private schools will also be required to charge VAT on any other services that they provide, for example, education provided before or after school and for extra-curricular activities, such as arts and sports clubs. However, where before and after-school clubs and holiday clubs only provide childcare and there is no education element, VAT will not be chargeable.

Pre-payments

The tax point is normally the time at which the services are performed. However, if a payment is made or a tax invoice is issued before the service is performed, this may instead be the tax point. To prevent parents from escaping VAT on payments for education services provided on or after 1 January 2025 by paying the fees in advance, retrospective legislation is to be included in the Finance Bill to provide that, where a payment is made on or after 29 July 2024 for education to be provided on or after 1 January 2025, VAT will be due on the fees. This will render attempts to save VAT by paying multiple years’ fees in advance ineffective. The Government have stated that they will challenge the validity of lump sums paid before this date which do not relate to specific fees and will seek to collect VAT on fees where they believe this to be due.

Private schools who are not currently registered for VAT will be able to register from 30 October 2024.

There are three ways in which former students with student or post-graduate loans can make loan repayments:

• from deduction from their wages or salary through the PAYE system;
• to HMRC through the Self Assessment system; or
• direct to the Student Loans Company (SLC).

Students will normally start making repayments from the start of the tax year after that in which they finish or leave their course.

Where an individual is employed, their employer deducts the repayments from their wages or salary and pays them over to HMRC, who pass them on to the SLC. Here, we look at how repayments are made through the Self Assessment system.

Repayment thresholds

Loan repayments are only made where an individual’s income exceeds the repayment threshold for the loan that they have. For 2023/24 and 2024/25, the annual thresholds are as follows:

Loan type	Annual repayment threshold
	2023/24	2024/25
Plan 1 student loan	£22,015	£24,990
Plan 2 student loan	£27,295	£27,295
Plan 4 student loan	£27,660	£31,395
Post-graduate loan	£21,000	£21,000

For Plan 1, Plan 2 and Plan 4 student loans, repayments are made at the rate of 9% of income in excess of the relevant threshold; for post-graduate loans, repayments are made at the rate of 6% of income in excess of the relevant threshold.

The repayments are the same regardless of the repayment method.

Repaying through Self Assessment

Taxpayers who are self-employed or who have another source of income (other than one taxed through PAYE) and who need to complete a tax return will make repayments through the Self Assessment system. Where an individual is employed but also has income which they need to declare on a tax return, for example, from a self-employment, they will make repayments both through PAYE and through Self Assessment. However, any amounts repaid through PAYE will be deducted in determining the amount to be paid through the Self Assessment system.

Unearned income

Unearned income is taken into account in calculating student loan repayments if it exceeds £2,000 in the tax year. This would include income from savings (before deducting the personal savings allowance) or rental income (after deducting the property allowance where relevant). However, if unearned income is less than £2,000, it is ignored in calculating student loan repayments.

Example

Martha has a job in 2023/24 in which she earns £30,000. She also has profits of £4,000 after deducting the trading allowance from her freelance knitwear business and interest on savings of £800 a year. She has a Plan 2 student loan.

Her earnings from her job in 2023/24 exceed the Plan 2 threshold of £27,295 by £2,705. Her employer deducts student loan repayments of £243 (9% (£30,000 – £27,295)).

Martha completes her 2023/24 tax return. Her total income for the year is £34,800. However, as her unearned income of £800 is less than the £2,000 threshold, it is ignored in calculating her student loan repayments for the year, and the repayments are calculated by reference to income of £34,000. Consequently, she is required to pay back £603 (9% (£34,000 – £27,295)). However, she has already paid back £243 through the PAYE system, leaving a balance of £360 to be paid by 31 January 2025 through the Self Assessment system.

Beware payrolled benefits

Last year HMRC were forced to apologise after they miscalculated student loan repayments. The error arose because payrolled benefits were taken into account in calculating the repayments when they should have been ignored. HMRC wrote to those affected, who were offered the choice of a refund or the option to leave the amount as a loan repayment. While HMRC are now aware of this, it is prudent to check that payrolled benefits have not been taken into account is calculating amounts due.

Class 2 National Insurance contributions are flat rate contributions which for 2023/24 and earlier tax years are payable by the self-employed where their profits exceed the relevant trigger threshold.

For 2023/24 and 2022/23, the liability to pay Class 2 contributions arose where profits exceeded the lower profits threshold (set at £12,570 for 2023/24). For those years, self-employed earners whose profits were between the small profits threshold (set at £6,725 for 2023/24) and the lower profits threshold were treated as having paid Class 2 National Insurance at a zero rate, giving them a qualifying year for state pension purposes for zero contribution cost. For years prior to 2022/23, self-employed earners whose profits exceeded the small profits threshold were liable to pay Class 2 contributions.

Self-employed earners whose profits from self-employment are below the small profits threshold can opt to pay Class 2 contributions voluntarily to secure a qualifying year. This is a cheaper option than paying voluntary Class 3 contributions.

The liability to pay Class 2 contributions was abolished from 2024/25. However, self-employed earners with profits below the small profits threshold remain eligible to pay Class 2 contributions voluntarily.

Collection through Self Assessment

Class 2 National Insurance contributions are collected through the Self Assessment system, as for income tax and Class 4 National Insurance contributions. They are payable by 31 January after the end of the tax year to which they relate. However, unlike Class 4 contributions, they are not taken into account in calculating payments on account.

The collection of Class 2 contributions has not been without problems, and there have been reports of HMRC reversing the Class 2 charge in the Self Assessment calculation because the self-employment has not been recorded correctly on HMRC’s National Insurance computer system. Further problems arose in respect of Class 2 contributions paid voluntarily for 2022/23 where the payment was made on or slightly before the due date of 31 January 2024.

Repayment of 2022/23 voluntary contributions

As a result of a delay by HMRC in processing payments, voluntary contributions paid on time for 2022/23 were treated as having been paid late, with HMRC reversing the voluntary Class 2 charge. As a result, the self-employed earner may have received a refund from HMRC. If they have not received a refund, the payment will either be showing as a credit in their Self Assessment account or have been allocated to a different Self Assessment liability.

If you are self-employed and you paid Class 2 contributions voluntarily for 2022/23, you can check on the HMRC app to see if the contributions paid for that year are showing on your National Insurance record. If the contributions have been refunded, held as a credit or allocated elsewhere, the year will not be a qualifying year, and this may affect your state pension entitlement. You can call HMRC on 0300 200 3500 for assistance.

The professional bodies have been pressing HMRC to resolve this issue. However, HMRC have now advised that they are unable to do so. The need for individuals to call HMRC for help will place further pressure on HMRC helplines which are already struggling to cope.

It is important that individuals check their National Insurance record and state pension forecast regularly so that errors can be rectified before it is too late.

Children may have their own income. This may be in the form of savings income on accounts that they hold or, for older children, income from a paper round or a Saturday job. Like adults, children have their own set of allowances, including a personal allowance and savings and dividend allowances. However, anti-avoidance provisions apply to prevent parents effectively using their children’s tax-free allowances to reduce the tax that they pay.

Earned income

For tax purposes, the same rules apply to income earned by children as apply to adults. Children have their own personal allowance, and income sheltered by the allowance will be tax-free. Where a child has trading income, for example, selling items on eBay, they too will benefit from the £1,000 trading allowance. However, a child under the age of 16 is not liable to pay National Insurance contributions.

Savings income

Unless it is significant, it is unlikely that a child will need to pay tax on their savings income. The same rules apply as apply to adults, and their savings income will be tax-free where it is sheltered by the savings allowance, the personal allowance and, where available, the savings starting rate band.

The exception to this rule is where the child receives interest of more than £100 on income given to them by a parent. At an interest rate of 5%, this would be the case where the child has received income of £2,000 or more from their parent. Where a child receives interest of more than £100 on money given to them by a parent, the interest is treated as that of the parent rather than of the child, and to the extent that it is not sheltered by the savings allowance or any unused personal allowance, it will be taxed at the parent’s marginal rate of tax. The gift from the parent is treated as constituting a settlement. It is important to keep an eye on the interest received – rising interest rates may take the annual interest, previously less than £100, over the £100 limit, triggering the anti-avoidance rules.

This rule does not apply to money given to a child by grandparents, other relatives or friends – the income is taxed as that of the child, regardless of the amount.

Example

Hannah is 11. Her mother Louise inherits some money and puts £10,000 into an account for Hannah. Interest is paid at the rate of 5% per annum – a total of £500 a year. As the interest exceeds £100 a year, it is taxed as Louise’s rather than as Hannah’s, and if Louise has used up her personal and savings allowances, she will pay tax on it at her marginal rate of tax.

Hamish is also 11. His grandfather downsizes and from the cash released from the sale of his home puts £10,000 in an account for Hamish, on which interest is paid at the rate of 5% per annum, earning Hamish £500 a year. However, in this case, the money is treated as Hamish’s and, as it is covered by his personal savings allowance, it is tax-free. To overcome the tax trap where the money is given by a parent, consideration could be given to investing in a Junior ISA. Parents or guardians with parental responsibility can open a Junior ISA, but the money in the account belongs to the child. There are two sorts of Junior ISA – a cash ISA and a stocks and shares ISA. A child can only have one of each. Money can be added to the account(s) each year up to the Junior ISA limit, set at £9,000 for 2024/25. The limit applies across both types of account rather than per account. Income earned on money in a Junior ISA is tax-free, as are dividends on stocks and shares in a stocks and shares Junior ISA.

Earlier this year, HMRC wrote to wealthy taxpayers who had not submitted tax returns for 2020/21 and/or 2021/22. A letter was sent where the taxpayer had submitted a return for 2020/21 and 2022/23 but not for 2021/22 or where a return had been submitted for 2019/20 and 2022/23 but not for 2020/21 or 2021/22. Taxpayers who received a letter from HMRC had previously been sent a notice to complete a Self Assessment tax return.

The letter asked taxpayers with outstanding returns for the missing year(s) to submit them by 12 July 2024. Where this has not been done, HMRC will issue a determination of the amount of tax that they think is due based on the information that they hold. They will also charge late filing penalties. However, the taxpayer can appeal against the penalties if they have a reasonable excuse for filing late.

Taxpayers who received a letter but who do not think a return is required should contact HMRC on 03000 516640 or email them at response2@hmrc.gov.uk rather than simply ignoring the letter.

When a return is required

Where a taxpayer is wholly within PAYE, it is understandable that they may not realise that they need to file a return as the tax that they owe should be collected through the PAYE system. However, despite this, HMRC have historically required wealthy taxpayers to submit tax returns, even if they are taxed under PAYE. Presumably, this is because wealthy individuals are more likely to have savings and investment income on which tax may be due.

For 2022/23 and earlier tax years, PAYE taxpayers with income or £100,000 or more needed to file a tax return even if they had no other income to declare. This threshold is increased to £150,000 for 2023/24 returns and abolished completely for 2024/25 returns onwards.

However, a wealthy taxpayer within PAYE will still need to file a return if they have other income to declare.

This will be the case if they were also self-employed and had trading income in excess of £1,000, they were also a partner in a partnership, they fell within the scope of the High Income Child Benefit Charge, they have chargeable gains to declare, they had rental income in excess of £1,000 to declare or received taxable foreign income.

A tax return may also be required where the taxpayer has savings and investment income to report. It is important to review this as recent changes may mean that a PAYE taxpayer now has a tax liability on their savings or dividend income for the first time.

The reduction in the additional rate threshold to £125,140 for 2023/24 onwards meant that taxpayers with income of between £125,140 and £150,000 lost their personal savings allowance as the allowance is only available to higher and basic rate taxpayers. Even if the taxpayer remains in the higher rate band, rising interest rates may mean that the interest on their savings now exceeds the personal savings allowance. Similarly, the reduction in the dividend allowance to £1,000 for 2023/24 and to £500 for 2024/25 may mean there is tax to pay on dividends for the first time.

Wealthy taxpayers within PAYE should check whether they need to file a return. If they have received a notice to file and do not think they need to submit a return, they are advised to contact HMRC.

The VAT flat rate scheme is a simple VAT scheme for smaller VAT-registered businesses. Rather than pay the difference between the VAT charged to customers and that incurred on business purchases over to HMRC, traders using the flat rate scheme instead pay a fixed percentage of their VAT-inclusive turnover to HMRC. The percentage depends on the sector in which the business operates and contains an allowance for VAT incurred on purchases, as under the scheme traders cannot deduct this from what they pay. The record-keeping requirements are less onerous too.

Eligibility

The scheme is open to traders who are eligible to be registered for VAT or who are already registered and whose annual turnover excluding VAT is not more than £150,000. The business must not be associated with another business.

Once within the scheme, a trader can remain in it as long as their annual turnover does not exceed £230,000. However, if turnover exceeds this limit temporarily, HMRC may allow the trader to remain in the scheme if they are satisfied that the trader’s turnover in the next 12 months will not exceed £191,500.

Traders using another VAT scheme cannot join the flat rate scheme. If a trader leaves the scheme, they cannot rejoin until 12 months have elapsed.

Traders can either join the scheme online when they register for VAT or, if they are already VAT-registered, by completing form VAT600FRS.

The flat rate percentage

The flat rate percentage that is used to determine the VAT payable to HMRC for a quarter depends on the business sector in which the business operates. The percentages can be found on the Gov.uk website at www.gov.uk/vat-flat-rate-scheme/how-much-you-pay.

A flat rate percentage of 16.5% applies to businesses that meet the definition of a ‘limited-cost business’, regardless of the sector in which they operate. This is the case where goods cost less than 2% of turnover or less than £1,000 (where costs are more than 2% of turnover). Money spent on services is not taken into account in working out whether a business is a limited-cost business.

A business receives a 1% discount on their flat rate percentage for the first year in which they are in the scheme.

Calculating the VAT due

The VAT due to HMRC for the quarter is found by applying the flat rate percentage to the VAT-inclusive turnover for the period.

Example 1

Diana runs a ladies’ clothes shop. In the quarter to 31 July 2024 her turnover including VAT is £36,000. Her flat rate percentage is 7.5% (retailing not listed elsewhere). She must therefore pay over VAT of £2,700 to HMRC (£36,000 @ 7.5%).

Example 2

Eve is a bookkeeper. In the quarter to 31 July 2024, her VAT-inclusive turnover is £12,000 and her relevant costs are £175. As her costs are less than 2% of her turnover, she is a limited-cost business. The VAT for the quarter is calculated using the flat rate percentage of 16.5% applying to limited-cost businesses rather than that for her sector of 14.5%. She must therefore pay VAT of £1,980 over to HMRC.

Is it worthwhile?

The scheme will save work. Traders using the scheme do not need to keep detailed records of sales and purchases. However, while the flat rate percentages are all lower than 20% (the standard rate of VAT), the scheme will not necessarily save money. Before signing up, it is useful to compare the amount payable under the scheme with that payable under the traditional method to see whether the scheme works for you. Limited-cost traders can end up worse off. The flat rate percentage for limited-cost traders at 16.5% of VAT-inclusive turnover is equivalent to 19.8% of VAT-exclusive turnover, leaving a very narrow margin to recover VAT on purchases. As services are not taken into account in determining whether a business is a limited-cost business, if the trader incurs a lot of VAT on services, the flat rate scheme may leave them out of pocket.

There is no substitute for doing the sums.

To qualify for a full state pension, you need 35 qualifying years. You can earn these through paying National Insurance contributions or being awarded National Insurance credits. If you will not have sufficient qualifying years for a full state pension when you reach state pension age, you can ‘buy’ additional qualifying years through the payment of voluntary contributions.

Employed earners earn a qualifying year for each year that their earnings exceed the lower earnings limit for the year, which for 2024/25 is £6,396.

For 2023/24 and earlier tax years, self-employed earners earned a qualifying year through the payment of (or award of) Class 2 contributions where profits exceed the small profits threshold, set at £6,725 for 2023/24. For 2024/25 onwards the liability to pay Class 2 contributions is abolished and the self-employed build up a qualifying year through the payment of Class 4 contributions where profits exceed the lower profits limit (set at £12,570 for 2024/25). Self-employed earners whose profits fall below the lower profits limit but which are at least equal to the small profits threshold (of £6,725 for 2024/25) receive a National Insurance credit.

National Insurance credits are paid in various circumstances, for example, to those claiming child benefit for a child under the age of 12, regardless of whether they elect to actually receive the benefit. Credits are also awarded to those on certain benefits and to carers in receipt of carer’s allowance.

Check your state pension record

Before paying voluntary National Insurance contributions, it is important to check your state pension record. You can do this by visiting the Gov.uk website at www.gov.uk/check-state-pension. You can also check your state pension record using the HMRC app.

If you do not already have the 35 qualifying years needed for a full state pension or will not do so by the time that you reach state pension age, you can check your National Insurance record by visiting the Gov.uk website at www.gov.uk/check-national-insurance-record. This will show you what years count as qualifying years and where there are gaps in your record.

Paying voluntary contributions

To qualify for a full state pension, you need 35 qualifying years when you reach state pension age, whereas if you have at least ten qualifying years, you will receive a reduced state pension.

If you have less than 35 qualifying years, paying voluntary contributions will increase the state pension that you receive as long as you have at least ten qualifying years when you reach state pension age. If making voluntary contributions will not give you the magic ten qualifying years at state pension age, paying the contributions is not worthwhile. Once you reach 35 qualifying years, there is no benefit in making further additional voluntary contributions. Remember to factor in any National Insurance credits that you will receive.

You can make voluntary contributions by paying Class 3 contributions or, where you have low profits from self-employment, by making voluntary Class 2 contributions.

Class 3 contributions

Class 3 contributions can be paid voluntarily to plug gaps in your National Insurance record. These are weekly contributions, which for 2024/25 are payable at the rate of £17.45 per week. Contributions must normally be paid within six years from the end of the tax year to which they relate. Where the contribution is paid in the current or following tax year, it is payable at the rate for the year to which it applies; however, where it is paid later than this, it is payable at the highest rate prevailing in the period from the year for which they are being paid and the year in which the contributions are actually paid.

An extended time limit applies to fill gaps in the period running from 6 April 2006 to 55 April 2016. Contributions for this period can be made until 5 April 2025. Contributions paid in 2024/25 are payable at the 2022/23 rate of £15.85 per week. The deadline for paying contributions for 2016/17 and 2017/18 has also been extended to 5 April 2015.

Voluntary Class 2

Self-employed earners with profits below the small profits threshold can pay Class 2 contributions voluntarily. This remains the case from 2024/25 following the abolition of the liability to pay Class 2 contributions. Where this option is available, it is much cheaper than paying voluntary Class 3 contributions – for 2024/25, voluntary Class 2 contributions are payable at the rate of £3.45 per week. These are paid through the Self Assessment system. As with Class 3, voluntary Class 2 contributions can normally only be paid for the previous six years; however, an extended deadline of 5 April 2025 applies to contributions for the period from 2006/07 to 2015/16, for which contributions can be made in 2024/25 at the 2022/23 rate of £3.15 per week. The deadline for paying voluntary Class 2 contributions for 2016/17 and 2017/18 has similarly been extended.

If you make donations to charity, you can benefit from tax relief on those donations. This can be achieved in various ways.

Gift Aid

If you are a UK taxpayer, you can claim Gift Aid on donations that you make to charity. Where this is the case, the amount donated is treated as made net of basic rate tax and the charity reclaims basic rate tax on the donation. This means that every £1 that you donate is worth £1.25 to the charity.

To donate through Gift Aid, you must make a Gift Aid declaration. The option to make a Gift Aid declaration will usually be included on charitable giving pages. Alternatively, the charity may give you a form to sign.

The tax reclaimed by the charity is funded from the tax that you have paid. It is important therefore that you only make a declaration where you have paid sufficient tax to cover the tax that the charity will claim back. If this is not the case, or you make a Gift Aid declaration but are not a taxpayer, HMRC may recover the tax claimed by the charity from you. If your income falls, it is prudent to review any ongoing Gift Aid declarations so you do not get caught out.

If you are a higher or additional rate taxpayer, you can claim further relief equal to the difference between tax at your marginal rate and tax at the basic rate on your donation. This can be done in your tax return.

Payroll giving

If you are an employee and your employer operates a payroll giving scheme, you can make charitable donations through the payroll. Your employer will deduct your donations from your gross pay before tax. This automatically provides relief at your marginal rate, which means you do not need to claim higher or additional rate relief through your tax return. Your employer will pass the donations to the payroll agency that they use and the agency will pass them on to your chosen charity.

Making a gift in your Will

Donations to charity are exempt from inheritance tax. Also, if you leave at least 10% of your estate to charity, the rate at which your estate pays inheritance tax is reduced from 40% to 36%.

The way in which you operate your business determines the taxes that you pay and also your reporting obligations.

If you work for yourself and run your business on your own as an individual other than through a limited company, you are a sole trader. By contrast, if you operate your business through a personal company, even if you are the sole employee and director, the company has its own legal identity.

As a sole trader, you will pay income tax and Class 4 National Insurance contributions on your profits. For 2023/24 and earlier years, Class 2 National Insurance contributions were also payable.

Registering as a sole trader

Your registration obligations depend on whether you are already registered for Self Assessment, which may be the case, for example, if you have rental income to report to HMRC, and where you are not already registered, the level of your gross trading income.

If you are not already registered for Self Assessment and have trading income for a tax year of more than £1,000, you will need to register for Self Assessment by 5 October following the end of the tax year (so by 5 October 2025if you start self-employment in 2024/25 and have gross trading income of more than £1,000). You can register online on the Gov.uk website.

If you are already registered for Self Assessment for another reason, you will need to register as a sole trader for Self Assessment as this will register you for Class 4 National Insurance contributions. You can also register if you have low profits but want to pay voluntary Class 2 National Insurance contributions.

Gross trading income of £1,000 or less

If your gross trading income (i.e. before the deduction of expenses) is £1,000 or less, you can take advantage of the trading allowance. This allows you to enjoy your profits tax-free and without any need to tell HMRC about them.

You can still benefit from the trading allowance if your gross trading income is more than £1,000 by deducting the £1,000 allowance rather than your actual expenses. This will be worthwhile where your expenses are less than the allowance. However, in this instance, you will need to be registered as a sole trader for Self Assessment.

If your income is £1,000 or less, but you have made a loss, it is worth registering and filing a tax return so that you can claim relief for the loss.

Records

You will need to keep records of your business income and expenses. You can find guidance on the records that you will need to keep by visiting the Gov.uk website at www.gov.uk/self-employed-records.

Income tax and National Insurance

If you are self-employed, you will pay income tax on your profits. From 2024/25 onwards, the profits that are taxed for the tax year are those for the tax year (i.e. 6 April to the following 5 April) regardless of the date to which you prepare accounts. An accounting date of 31 March to 5 April inclusive is treated as corresponding to the tax year.

Your income tax liability is calculated by reference to your total income for the tax year, including your profits from self-employment. You will need to file a tax return by 31 January after the end of the tax year (so by 31 January 2026 for 2024/25). You will also need to pay Class 4 National Insurance on your profits if they exceed £12,570. For 2024/25, this is payable at 6% on profits between £12,570 and £50,270 and at 2% on profits in excess of £50,270.

Your tax and Class 4 liability must be paid in full by 31 January after the end of the tax year. Where your total tax and Class 4 liability for a tax year is £1,000 or more, you will need to make payments on account for the following tax year on 31 January in the tax year and 31 July after the tax year, unless 80% of your tax is collected at source, for example through PAYE. Each payment is 50% of the previous year’s liability.

VAT

You will also need to register for VAT if your VAT taxable turnover reaches the VAT registration threshold of £90,000.