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Whether you're operating through a limited company or have enlisted the expertise of an umbrella company, it's imperative that you keep a careful eye on accountancy matters. The freedom that comes with being a contractor means that you'll probably be inclined to spend more time sourcing contracts, however it is equally important to stay on top of what tax is due.

Admittedly, there's a good chance you might not always be able to devote as much energy towards dealing with your tax commitments as you would like, especially if you're busy working on multiple projects simultaneously. It can't be stressed enough, however, how much you have to ensure you stay up to date with and meet the various obligations on self-assessment tax returns that are set by HM Revenue and Customs (HMRC).

Even if you think you have a good idea of what completing tax returns involves, I believe it's important to be crystal-clear about all that it entails. To sum up, this document highlights your annual income, expenditure and capital gains (which are the profits made on the sale of certain assets), and will also be used to claim tax relief and/or allowances that you may be eligible to get.

The sheer nature of contractors' work means that, as a general rule, they will have to complete such a form each year. Indeed, those who become a company director during the course of a financial year or have multiple sources of income - both of which will often apply to contractors - will find they have to complete a self-assessment tax return. However, there may be some cases where this doesn't apply, so it's worth getting advice from a payroll and accountancy services company first, if you're just starting out as a contractor.

Let's assume you do need to complete this kind of tax return form. The first step that will have to be taken is registering for self-assessment with HMRC. That way, you can be sure the most appropriate records will be set up for you and you'll be sent a ten-digit reference code known as a Unique Taxpayer Reference. This must be kept safe, as you'll need it when filling out all subsequent tax returns.

While you can complete your self-assessment on paper and send it through the post, I think it's far better to do so online. Not only is this more secure (you don't have to worry about your records getting lost in the post), but you will also get longer time to file your returns. The deadline for online returns is January 31st, which is three months later than the October 31st cut-off point for their paper counterpart.

If you fail to meet the deadline, you will be issued an immediate penalty of £100 and, depending on how late you are submitting your return, additional charges may be added that could see you have to pay significantly more.

Regardless of how you fill out your return, I can't emphasis enough how much you need to enter accurate details of all your earnings, as well as any expenses you've incurred (it may be the case that you can claim tax on some of these back).

As I alluded to before, it can be difficult to keep on track of the various deadlines and commitments attached to tax returns when you're busy tendering for contracts and working on current projects. This is why I think it's good to get a little outside help in the form of payroll and accountancy services. That way, you can ask experts questions on tax matters (and get answers in plain English!) and receive reminders about when various deadlines are approaching so you can get your affairs in order in good time.

If you're a contractor, why not share your experiences of managing tax returns by leaving a comment below?

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