Self Assessment tax returns for the self employed

If you're self-employed-either as a business owner or freelancer-you will need to complete a Self Assessment tax return.

It's one of the most important tax documents you will need to handle, and there are numerous details you'll have to keep in mind, including deadlines and late penalties.

Our guide offers a quick overview of the essentials-so it's just the article you need if you're getting started.

A Self Assessment (or Self Assessment tax return) is a form that business owners are required to submit to HMRC every year. It details how much you've earned and your sources of income, which enables HMRC to work out the Income Tax and National Insurance you need to pay.

This applies to self-employed workers, who-unlike employees-don't have their income tax automatically deducted from their salaries.

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Individuals need to file a Self Assessment if they've received income that isn't taxed at source.

This is generally the case if you are:

• A sole trader. You'll need to complete a Self Assessment, as National Insurance contributions or Income Tax deductions haven't been made on the income you receive from running your business. 
• A limited company director: Limited company directors are required to file a Self Assessment, as they receive additional income not taxed at source—such as dividends. 
• An LLP member: LLP members are required to submit a Self Assessment, as each member pays taxes on his or her share of the profits. 

Tip: Use the Gov.uk online tool to find out if you're required to submit a Self Assessment.  

You can register for Self Assessment on the Gov.uk registration page.

HMRC will then send out a letter with your 10-digit Unique Taxpayer Reference (UTR), as well as set up your account for the Self Assessment online service.

If you've submitted a paper return or registered by phone previously, you would have already had a UTR number. In this case, you'll only need to create an account for the online service. 

The registration process differs slightly if you're setting up as a limited company or limited liability partnership. You'll need to access a different registration page.

You will need to register by 5th October after the end of the relevant tax year.

Here's an example: for the tax year starting 6th April 2021 to 5th April 2022, the registration deadline will fall on 5th October 2022. 

Online returns must be filed by 31st January, while paper returns are due earlier and must be filed by 31st October.

Whichever way you choose to file your return, payments for your tax bill are due on 31st January after the end of the relevant tax year. For example, your tax bill for the 2020/21 financial year must be paid up by 31st January 2022. 

Whenever possible, we recommend filing your Self Assessment early.

There are many benefits to doing so: this leaves you with ample time to budget for any tax you owe, and helps you avoid HMRC's late penalties. Plus, the HMRC call centres get particularly busy during January, so you may have to put up with extended wait times if you require help with your filing. 

If you're a sole trader, you can file your Self Assessment as soon as the tax year ends. If you're running a limited company, you'll need to issue yourself the P60, or have your accountant prepare this for you before you file your Self Assessment.

Making Tax Digital for Income Tax

Making Tax Digital (MTD) for Income Tax will be officially rolled out in April 2023 for self-employed individuals and landlords with an annual income exceeding £10,000.

For the time being, you have the option of signing up for a live pilot. Instead of filing a Self Assessment tax return, you'll keep digital records and provide updates to HMRC to test and develop the MTD for Income Tax service.

HMRC's penalties for late filing:

• You will be charged a penalty of £100 if you fail to file on time 
• A daily penalty of £10 will be charged, up to a maximum of £900 if you haven't filed by 30th April
• A penalty of £300 (or 5% of the tax you owe, if this is greater) will be charged if you haven't filed within a year
• An additional penalty of up to 100% of owed tax may be charged under certain circumstances, such as if HMRC determines that you've been deliberately avoiding paying tax

Penalties are also charged for late payments:

• If you are 30 days late, a penalty of 5% of the tax due will be charged
• If you are six months late, a penalty of 5% of the outstanding tax at that date will be charged
• If you are 12 months late, a penalty of 5% of the outstanding tax at that date will be charged