Self Assessment Tax Returns for the Self Employed

Self Assessment Tax Returns is a system to report your income and calculate how much tax you owe to HMRC. 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. Unlike regular employees whose taxes are usually handled through the Pay As You Earn (PAYE) system, Self Assessment requires you to take charge of reporting your earnings and paying your tax directly.

The main purpose of Self Assessment is to make sure everyone pays the correct amount of tax. This system is essential for individuals and businesses with income that isn't taxed at source. It covers various income types, including self-employment, rental income, and savings interest.

Importance of Self Assessment for Individuals and Businesses

Self Assessment is important for anyone earning money that doesn't automatically have tax deducted at sources. This could be self-employed individuals, freelancers, or those with significant investment income. It's important because it ensures you meet your legal obligations and avoid penalties for underpaying tax.

For businesses, especially sole traders and partnerships, Self Assessment is the primary method for reporting income and expenses. It helps you keep track of your financial health and ensure you're not overpaying or underpaying taxes.  

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

1. Individuals

1.1 Self-Employed Individuals and Freelancers

If you work for yourself or run your own business, you need to complete a Self Assessment Tax Return. This includes anyone who earns income through freelance work, side gigs, or any form of self-employment. By reporting your income and expenses, you ensure you pay the right amount of tax on your earnings.

1.2 Company Directors

Company directors must also complete a Self Assessment Tax Return. This applies even if you don't earn a high salary or receive dividends. As a director, you have additional responsibilities and income sources that need to be reported to HMRC.

1.3 High-Income Earners (Over £150,000)

If your total income exceeds £150,000 in a tax year, you must complete a Self Assessment Tax Return. This rule applies regardless of whether you're employed, self-employed, or have multiple income sources.

1.4 Individuals with Other Untaxed Income (e.g., Rental Income, Savings)

If you earn income that isn't taxed at source, you need to complete a Self Assessment Tax Return. This includes anyone with untaxed income stated below:

• money from renting out a property
• tips and commission
• income from savings, investments and dividends
• foreign income

1.5 Individuals Who Paid Capital Gains Tax

If you had to pay Capital Gains Tax when you sold or ‘disposed of’ something that increased in value, you need to complete a Self Assessment Tax Return. This applies to assets like property, stocks, or valuable items.

1.6 Individuals Who Paid the High Income Child Benefit Charge

If you had to pay the High Income Child Benefit Charge, you are required to complete a Self Assessment Tax Return. This charge applies if you or your partner earned more than £60,000 and received Child Benefit.

2. Businesses

2.1 Sole Traders

Sole traders with taxable income over £1,000 before any tax deductions must complete a Self Assessment Tax Return to report their business income and expenses. This is essential for calculating how much tax you owe.

2.2 Partnerships

If you're in a partnership, each partner needs to complete a Self Assessment Tax Return. This includes reporting your share of the partnership's income and expenses. Partnerships also need to submit a separate partnership tax return, detailing the business's overall financial activity.

You can use the Gov.uk online tool to find out if you're required to send a Self Assessment. 

1. Online Registration Process

1.1 Create a Government Gateway Account

To register for Self Assessment, you first need a Government Gateway account. This account lets you access various online government services, including Self Assessment. Here's how to create one:

1. Visit the HMRC website: Go to the HMRC website and select the option to register for Self Assessment.
2. Sign up for an account: Choose the option to create a Government Gateway account. You'll need to provide some personal details, like your name, email address, and a password.
3. Verify your email: HMRC will send you an email with a link to verify your email address. Click on the link to complete the verification process.

1.2 Complete the Registration Form

Once you have a Government Gateway account, you can register for Self Assessment:

1. Log in to your account: Use your new Government Gateway credentials to log in.
2. Fill out the registration form: Provide information about yourself and your income. You'll need your National Insurance number, your address, and details about your income sources.
3. Submit the form: After completing the form, submit it online. HMRC will process your registration and send you a UTR (Unique Taxpayer Reference

2. Receive the Unique Taxpayer Reference (UTR)

2.1 Importance of UTR

Your Unique Taxpayer Reference (UTR) is a 10-digit number that HMRC uses to identify you for tax purposes. You need your UTR for all your Self Assessment activities, including filing your tax return and making payments. Once you receive your UTR, keep it safe. You'll use it whenever you contact HMRC or submit your tax return. It's important to include your UTR on all your tax documents to ensure HMRC can match them to your account.

Information Required to File Self Assessment Tax Return

1. Personal Information

• National insurance number
• Unique taxpayer reference Number
• activation code (for your first Self Assessment)

2. Financial Records

2.1 Income Details

Gather detailed information about all your income sources. This includes:

• Self-employment income: Records of your business income and expenses.
• Employment income: Your salary and any bonuses or benefits.
• Other income: Any additional income, like rental income, savings interest, or dividends.

2. Expense Receipts and Records

Keep records of any expenses you can claim against your income. This might include:

• Office expenses: Equipment, utilities, and rent.
• Travel expenses: Mileage, public transport, and accommodation.
• Professional fees: Costs for professional services like accountants or lawyers.

3. P60, P45, and P11D Forms (If Applicable)

These forms provide important details about your employment income and benefits:

• P60: Shows the total tax you've paid on your salary in a tax year.
• P45: Given to you when you leave a job, showing your income and the tax you've paid so far in the tax year.
• P11D: Details any benefits and expenses your employer has provided.

Having all this information ready helps you complete your Self Assessment Tax Return accurately and on time.

When to Register for Your Self Assessment

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 2024 to 5th April 2025, the registration deadline will fall on 5th October 2025. 

Filing a self assessment tax return with HMRC is a crucial responsibility for individuals and businesses in the UK. Let's explore step-wise process:

1. Use HMRC’s Online Service

1. Access HMRC Online Services: Log in to your Government Gateway account on the HMRC website.
2. Find Self Assessment: Look for the section related to Self Assessment tax returns. It's usually under "Self Assessment" or "Personal Tax Account."
3. Start Your Tax Return: Begin your tax return by selecting the appropriate tax year. Follow the prompts to proceed to the tax return form.

2. Step-by-Step Completion Guide

HMRC provides a step-by-step guide to help you complete your tax return:

1. Personal Information: Confirm your details and ensure they're up to date.
2. Income: Enter details of your income from all sources, including employment, self-employment, rental income, and investments.
3. Deductions and Allowances: Claim any deductions and tax reliefs you're entitled to, such as self employed expenses, charitable donations, or pension contributions.
4. Tax Calculation: HMRC calculates your tax liability based on the information you provide.
5. Review and Submit: Double-check all information for accuracy before submitting your tax return.

2. Common Sections and Forms

1. SA100 (Main Tax Return Form)

The SA100 form is the main tax return form where you report your overall income and tax liability. Key sections include:

• Personal Information: Your details and your UTR.
• Income: Breakdown of income sources (employment, self-employment, etc.).
• Tax Calculation: How your tax liability is calculated based on your income and deductions.

2. Supplementary Pages (e.g., SA103, SA105)

Depending on your sources of income, you may need to complete supplementary pages:

• SA103 (Self-Employment): Report income and expenses if you're self-employed.
• SA105 (UK Property): Declare rental income and expenses from properties you own.
• Other Supplementary Pages: There are additional pages for other types of income or deductions, such as foreign income (SA106) or capital gains (SA108).

How Income Tax is Calculated?

Understanding how your taxes are calculated can help you manage your finances better and ensure you pay the correct amount. Here's a simple breakdown of the process:

1. Total Income Calculation: First, add up all your income for the tax year. This includes income from employment, self-employment, rental properties, savings, and investments.
2. Deduct Allowances and Expenses: Subtract any tax-free allowances and allowable expenses from your total income. The most common allowance is the Personal Allowance, which is the amount of income you can earn each year without paying tax.
3. Apply Tax Bands: Once you have your taxable income (total income minus allowances and expenses), apply the relevant tax bands to calculate how much income tax you owe.

Paying Your Tax Bill

Once you know how much tax you owe, you need to pay your tax bill by the deadline.

Filing your self-assessment tax return on time is crucial to avoid penalties and interest charges. Here are the key dates and deadlines you need to remember:

Tax Year Period (6 April to 5 April)

The UK tax year runs from 6 April to 5 April of the following year. For example, the 2024/25 tax year started on 6 April 2024 and will end on 5 April 2025. This period is important because it determines the income and expenses you need to report on your self-assessment tax return.

Online and Paper Filing Deadlines

• Paper Filing Deadline: If you choose to file a paper tax return, you must submit it by 31 October following the end of the tax year. For the 2024/25 tax year, the deadline for paper returns is 31 October 2025.
• Online Filing Deadline: Filing online gives you more time. The deadline for submitting an online tax return is 31 January following the end of the tax year. For the 2024/25 tax year, the online filing deadline is 31 January 2026.

Payment Deadlines

In addition to filing your return, you must also pay any tax you owe by certain deadlines:

• 31 January: This is the deadline for paying the balance of any tax you owe for the previous tax year. For example, the payment deadline for the 2024/25 tax year is 31 January 2026. You also need to make your first payments on account for the current tax year by this date.
• 31 July: If you make payments on account, the second installment for the current tax year is due by 31 July. For the 2024/25 tax year, this means the second payment is due by 31 July 2026.

Whenever possible, we recommend filing your Self Assessment early.

There are many benefits to doing so: this leaves you with enough 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.

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 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

Watch below video from HMRC to understand Self Assessment penalties:

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Completing your Self Assessment Tax Return is a crucial part of managing your finances responsibly. By following the guidelines and staying organized, you can handle the process smoothly and ensure compliance with HMRC regulations. Staying organized with your financial records and meeting deadlines is key to avoiding penalties and maintaining good standing with HMRC.

Several third-party tools and software such as Freeagent, Quickbooks, can help you with your self-assessment tax return. Freeagent is one of the popular accounting software which is included for FREE in all of our accounting packages. With Freeagent, one can easily track income, expenses, and tax obligations. With its user-friendly interface, you can quickly generate financial reports and submit tax returns directly to HMRC. The software also helps you stay on top of deadlines by sending reminders and offering guidance through the tax process.

HMRC offers various helplines and online resources to assist you with any questions or issues related to your tax return. Contact HMRC for personalized assistance.

Consider seeking advice from qualified accountants for self employed if you need help understanding complex tax rules or preparing your tax return. They can provide expert guidance tailored to your specific circumstances.

How GoForma can Help?

Filing your self-assessment tax return can seem daunting, but with the right resources and help, you can manage it effectively. Start early, use the available tools, and don’t hesitate to seek professional help if needed. Ensuring your tax return is accurate and submitted on time will save you from unnecessary stress and penalties.

At Goforma, we take the hassle out of self-assessment tax returns for sole traders and individuals like you. With a commitment to simplicity and efficiency, we manage the complexity of tax regulations, ensuring that our clients not only meet their obligations but also maximize their financial efficiency. Our dedicated team of self employed accountants at Goforma is well-versed in the nuances of self-assessment, providing personalized assistance tailored to the unique needs of each client. Choose Goforma for a seamless self-assessment tax return service, where expertise meets personalized service for your financial success.

1. Who needs to file a self-assessment tax return?

Self-employed individuals, business partners, company directors, and those with additional income need to file.

2. What is the deadline for filing self assessment online?

The deadline for filing online is 31 January following the end of the tax year.

3. Can I file my self assessment tax return by paper?

Yes, but the deadline for paper returns is 31 October following the end of the tax year.

4. What happens if I miss the self assessment deadline?

If you miss the deadline for filing your tax return or paying your tax bill, you may face penalties and interest charges. It's important to file and pay on time to avoid these additional costs.

5. How do I calculate my tax bill?

Your tax bill is calculated based on your total income, allowable deductions, and applicable tax rates. HMRC's online tax calculator can help you estimate your tax liability.

6. Who qualifies for self-Assessment?

Individuals who were self-employed as 'sole traders' and earned over £1,000 before tax relief deductions, or those who were partners in a business partnership. Additionally, if your total taxable income exceeded £150,000 in a tax year, you are also required to file a Self Assessment Tax Return.

7. Does everyone do a HMRC self assessment tax return?

No, not everyone is required to do a HMRC Self Assessment Tax Return. Generally, you only need to complete a Self Assessment Tax Return if your income is not taxed at source through PAYE (Pay As You Earn).