Self-employed and tax - please help explain!

[rhino12345]

Last year I left my job and started out on my own as a consultant. Therefore this is the first year I have done self assessment and it's completely baffled me! I do have an accountant that I've emailed but would be grateful for any other advice with it being a bank holiday.

So I have three bills it would appear. I have a bill for this tax year, with half due on 31st Jan 2025, and then another half of the payment due next July 2025, but then there is another payment due by 31st Jan 2025 which I hadn't at all budgeted for. This "third payment" is a forward payment for 2024-2025 it says, but I have never heard of this?

Can anyone provide any advice on this?

If your tax liability is >£1,000, you will be caught in ‘Payments on Account’ and the first year is always brutal.

Simply, you are paying tax in advance of the year end in January which is estimated on the previous year’s tax.

So your first year (2023-24) let’s say your tax liability is £1,500. This has to be paid by 31 Jan 2025.

PoA also kick in so you will be expected to pay £750 in Jan 25 towards your 2024-25 tax liability and a further £750 in July 2025.

You will then have a balancing payment/refund in Jan 25 for the 2024-25 tax year PLUS 50% of the actual 2024-25 tax liability (which is now the PoA for 2025-26).

In your first year of trading you'll pay your tax in arrears, and in future years you'll pay it in advance, with a balancing payment at the end of the year if you've earned more than you thought. This is a bit of a kicker the first time you have to pay in advance as well as in arrears but it will only happen once.

Ahh I see, ok thank you. It's likely that next year I will need to be registered for VAT and become a limited company.

I'm a bit confused by this though as it seems like I'd be taxed three times (VAT, then 20% corporation tax, and then again income tax I'd presume on my 'dividend')

Sorry for so many questions but neither myself or my partner grew up in the UK so the tax system causes a lot of confusion!

Limited companies are completely different, so it will get complicated if you are switching from sole trader to company employee/director.
But the 50% payment on account charge is completely correct. I'm surprised your accountant hadn't warned you. That's why it's always a good idea to put 30% of your takings in a separate bank account as they come in, so you will always have funds available for tax bills.

You charge vat and then pay vat so that is cost neutral (or on flat rate vat you might make a little bit).

corporation tax is paid on profit - turnover minus costs. Your salary (c£10k), pension conts and any physical costs will be deducted before tax.

you’ll pay income tax on anything you take from the company, whether it’s salary or dividends, at relevant rates, less your personal allowance. You save NI contributions on dividends.

VAT is completely separate from all other taxation.
Corporation tax is paid by the company, not by you.
You only pay tax on a dividend if you (ie the company) choose to pay a dividend - you might prefer to keep funds in the company.
The company could also choose to pay you a regular salary, in which case a PAYE scheme should be set up. You would then pay personal tax under PAYE, as in any standard job.
You have to remember that a company is a separate entity, and treated as such. The company is not you.
If you move to company status, you absolutely need to pay for a competent accountant.

I've always thought it was unfair to have to pay for the next year as you don't know how business May be or May not earn the same

Why you can't just pay for it that Jan is beyond me

By the time you have to make the January payment on account, you're 3/4 of the way through the tax year to which it relates.

If its too big for the amount of money you've made, you can ask for it to be reduced.