Tax FAQ — Common UK Tax Questions

When is the Self Assessment deadline?

The deadline for filing your online Self Assessment tax return is 31 January following the end of the tax year. For the 2024/25 tax year (which ended 5 April 2025), the deadline is 31 January 2026. Paper returns must be submitted by 31 October.

Do I need to file a Self Assessment?

You must file a Self Assessment if you:

Are self-employed with income over £1,000
Receive untaxed income (rent, dividends, foreign income)
Earn over £100,000
Have capital gains over the annual exempt amount
Need to claim tax relief on expenses over £2,500

What if I paid tax twice by mistake?

If you've accidentally paid twice (e.g., through Self Assessment and PAYE), HMRC will usually refund the overpayment automatically. This can take 4-6 weeks. You can also request a refund through your HMRC online account or by calling HMRC directly. Keep records of both payments as proof.

What expenses can I claim as a sole trader?

Allowable business expenses include:

Office costs (rent, utilities, phone)
Travel and accommodation for business
Staff costs and subcontractor fees
Professional subscriptions and insurance
Marketing and website costs
Equipment and tools
Accountancy fees

Expenses must be "wholly and exclusively" for business purposes.

How do dividends work for tax?

Dividends have their own tax rates and allowance:

Dividend Allowance: £500 tax-free (2024/25)
Basic rate (8.75%): On dividends within your basic rate band
Higher rate (33.75%): On dividends in the higher rate band
Additional rate (39.35%): On dividends above £125,140

What are the income tax bands for 2024/25?

Tax year 2024/25 rates (England, Wales, Northern Ireland):

Personal Allowance: £12,570 (tax-free)
Basic rate (20%): £12,571 to £50,270
Higher rate (40%): £50,271 to £125,140
Additional rate (45%): Over £125,140

The Personal Allowance reduces by £1 for every £2 you earn over £100,000.

Do I need to register for VAT?

You must register for VAT if your taxable turnover exceeds £85,000 in any 12-month period. You can also register voluntarily if your turnover is below this threshold, which may be beneficial if you have significant VAT-able expenses.

What happens if I miss the deadline?

Late filing penalties:

1 day late: £100 fixed penalty
3 months late: £10 per day (max £900)
6 months late: £300 or 5% of tax due (whichever is higher)
12 months late: Another £300 or 5%

Interest also accrues on unpaid tax from the due date.

Can I amend my tax return after filing?

Yes, you can amend your online tax return within 12 months of the filing deadline. After this, you'll need to write to HMRC explaining the error. If you discover you've underpaid tax, you should correct it to avoid penalties for deliberate inaccuracy.

Should I use an accountant?

Consider an accountant if you:

Have complex income (multiple sources, foreign income, trusts)
Run a limited company
Need to optimize tax efficiency
Aren't confident with tax rules
Value your time more than the accountancy fee

Accountant fees are typically tax-deductible business expenses.

What's the difference between sole trader and limited company?

Aspect	Sole Trader	Limited Company
Liability	Unlimited personal liability	Limited to company assets
Tax	Income tax on profits (20-45%)	Corporation tax (25% flat), then personal tax on dividends
Administration	Simple Self Assessment	Annual accounts, confirmation statement, corporation tax return
Privacy	Private	Details on public record at Companies House

How do payments on account work?

Payments on account are advance payments toward your next tax bill. You make two payments each year:

31 January: Balancing payment for the previous year + first payment on account
31 July: Second payment on account

Each payment is typically 50% of your previous year's tax bill. If your income drops, you can reduce payments on account but may face interest if you underpay.

What National Insurance do self-employed people pay?

Self-employed people pay two classes of National Insurance:

Class 2: £3.45 per week if profits exceed £6,725 (2024/25). Voluntary if profits are lower to maintain benefits.
Class 4: 9% on profits between £12,570 and £50,270, then 2% on profits above £50,270.

Class 2 is paid through Self Assessment. Class 4 is calculated automatically when you file.

What working from home expenses can I claim?

You have two options for home office expenses:

Simplified expenses: £6 per week (£312/year) flat rate—no records needed
Actual costs: Proportion of heating, electricity, council tax, mortgage interest/rent, and internet based on business use

To claim actual costs, calculate the percentage of your home used for business and time spent working there. Keep utility bills and mortgage/rent statements as evidence.

What are capital allowances?

Capital allowances let you deduct the cost of business equipment and vehicles from your taxable profit:

Annual Investment Allowance (AIA): 100% relief on up to £1 million of plant and machinery
Writing Down Allowance: 18% (main pool) or 6% (special rate pool) on remaining balance
First Year Allowance: 100% on electric vehicles and charging points

Unlike expenses, you claim these on larger items that last more than a year (computers, machinery, vehicles).

What is the Marriage Allowance?

The Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your spouse or civil partner if:

You're married or in a civil partnership
You earn less than the Personal Allowance (£12,570)
Your partner pays tax at the basic rate (not higher rate)

This can save up to £252 in tax per year. You can backdate claims up to 4 tax years. Apply through HMRC online or by phone.

How do pension contributions affect my tax?

Pension contributions receive tax relief:

Basic rate: Pension provider claims 20% relief automatically (relief at source)
Higher/additional rate: Claim extra 20% or 25% through your tax return or by contacting HMRC

Annual allowance is £60,000 (2024/25). Unused allowance can be carried forward up to 3 years. Contributions above the allowance may trigger tax charges.

What do the numbers on my tax code mean?

Your tax code tells your employer how much tax-free income to give you:

1257L: Standard code—£12,570 Personal Allowance
BR: Basic Rate—20% on all income (common for second jobs)
D0: Higher Rate—40% on all income
NT: No Tax—no tax deducted
K codes: Negative allowance—extra tax collected

Check your tax code on your payslip or HMRC app. Wrong codes mean you'll pay too much or too little tax.

What is Making Tax Digital (MTD)?

MTD is HMRC's plan to digitise tax reporting:

MTD for VAT: Already mandatory for VAT-registered businesses
MTD for Income Tax: Mandatory for self-employed and landlords earning over £50,000 from April 2026; £30,000 from April 2027

You'll need MTD-compatible software to keep digital records and submit quarterly updates instead of annual tax returns.

What is CIS and how does it work?

The Construction Industry Scheme (CIS) applies to construction work:

Contractors deduct 20% (registered) or 30% (unregistered) from subcontractors' payments and pay it to HMRC
Subcontractors receive payments net of tax and claim credit through Self Assessment

If you're a subcontractor, the deductions count toward your tax bill. You may get a refund if too much was deducted. You must register with HMRC before starting work.

What is the High Income Child Benefit Charge?

If you or your partner earn over £60,000 and receive Child Benefit, you may need to pay the charge:

Income between £60,000 and £80,000: Gradual charge—1% of Child Benefit for every £200 over £60,000
Income over £80,000: 100% charge—you repay all Child Benefit

The charge is paid through Self Assessment. You can opt out of Child Benefit to avoid the charge while still protecting National Insurance credits.

How do student loan repayments work?

Student loan repayments are collected through Self Assessment for self-employed people:

Plan 1: 9% on income over £24,990 (2024/25)
Plan 2: 9% on income over £27,295
Plan 4 (Scotland): 9% on income over £31,395
Postgraduate: 6% on income over £21,000

Include your loan type and plan in your tax return. Repayments are calculated automatically based on your total income.

How long must I keep tax records?

Keep records for at least:

Self-employed: 5 years after the 31 January filing deadline
Limited companies: 6 years from the end of the financial year
Capital gains: Records of purchase/sale for as long as you own the asset plus the standard period

Store invoices, receipts, bank statements, and mileage logs. Digital copies are acceptable if legible. HMRC can check records up to 20 years back in cases of fraud.

What is Inheritance Tax?

Inheritance Tax (IHT) applies to estates worth over £325,000 (nil-rate band):

Standard rate: 40% on amounts above the threshold
Residence nil-rate band: Additional £175,000 when passing home to direct descendants
Married couples: Can combine allowances—potentially £1 million tax-free

Gifts made more than 7 years before death are usually exempt. Some gifts are immediately exempt (annual allowance of £3,000, wedding gifts, small gifts up to £250).

Can I claim tax relief for charity donations?

Yes, charitable donations can reduce your tax bill through Gift Aid:

Charities claim 25p for every £1 you donate (at basic rate)
Higher rate taxpayers can claim additional 20-25% relief through Self Assessment
Shares and property donations give Income Tax relief and Capital Gains Tax exemption

You must have paid enough tax to cover the Gift Aid claimed by the charity. Keep donation receipts for your records.

What is the trading allowance?

The trading allowance is a £1,000 tax-free allowance for casual or small trading income:

No tax on first £1,000 of self-employment or miscellaneous income
Cannot use if already claiming expenses—you must choose one or the other
Useful for side hustles, hobby income, or occasional freelance work

If you earn over £1,000, you can either deduct the £1,000 allowance OR your actual expenses—whichever gives the lower tax bill.

How do I close my self-employment with HMRC?

To stop being self-employed:

File a final Self Assessment tax return by the deadline, marking it as "final"
Inform HMRC you're ceasing self-employment (online or by phone)
Pay any outstanding Class 2 NICs to maintain benefit entitlements
Keep records for the required 5 years

If you start trading again, you'll need to re-register as self-employed. Closing a limited company involves different procedures at Companies House.