Self Assessment tax returns – Everything you need to know
Self Assessment tax returns – Everything you need to know
If you’re self-employed or have income streams in addition to your wages from employment, you may have to tell HM Revenue and Customs. Once reported, HMRC will decide if you need to pay income tax on these earnings. This is done through Self Assessment.
Filing your own tax returns for the first time is a big deal, as all of the responsibility to get it right falls on you and you alone. Fortunately, the process of completing a Self Assessment tax return is relatively straightforward.
In this guide, we’ll take you through everything you need to know about Self Assessment, covering the what, why, when and how to make filing a tax return stress-free.
Note: Because the COVID-19 pandemic disrupted so many jobs and impacted cash flow, the UK Government gave people the option to defer their Self Assessment payment on account up until 31 July 2020. If you missed that deadline, you can still pay your deferred July 2020 payment on account any time up to 31 January 2021 and there will be no interest or penalty applied, even if the paperwork says otherwise. To learn more about what to do if you’ve deferred your payment and exactly how and when to eventually pay what you owe, read GOV.UK’s detailed coronavirus guidance. If you find you still cannot pay your Self Assessment tax even with a deadline extension, contact HMRC as soon as possible.
Table of contents
- What is a Self Assessment tax return?
- Do I need to complete a Self Assessment tax return?
- How do I register for a Self Assessment tax return?
- When are the Self Assessment tax return deadlines?
- How to complete your Self Assessment tax return
- Understanding your Self Assessment tax bill
- Paying a Self Assessment tax bill
- Expert insights
- Wrapping up
What is a Self Assessment tax return?
Self Assessment is intended for certain people whose income isn’t taxed automatically when it’s paid. We’ll discuss the criteria for being required to file a Self Assessment in the next section.
Where employed workers generally have their tax automatically deducted by their employer through the Pay As You Earn (PAYE) scheme, paying tax and National Insurance on income outside of that scheme is down to the individual.
Self Assessment can be completed via a paper form or online and requires you to give details on all of your income and expenses for the previous tax year. From there, HMRC will work out if you have to pay tax on your profits and how much is owed.
Top Tip: Getting your finances in order as a startup can be an overwhelming task. It’s important to become acquainted with the fundamental accounting steps and to familiarize yourself with how an accountant can help. To learn more, read our complete guide to accounting for startups.
Do I need to complete a Self Assessment tax return?
According to HMRC, you’ll need to complete a Self Assessment tax return if, in *the last tax year, you:
Note: *The tax year runs from 6 April until 5 April. But, in your first year of business, depending on your incorporation date and other various factors, your tax year and financial year may slightly differ. To learn more about the nuances of the tax year and how it affects your tax return, read our simple guide to small business tax.
- Earned more than £1,000 as a self-employed sole trader
- Were a partner in a business partnership
- Were a company director (unless you acted as a director for a non-profit organisation and received no benefits, such as a company car or travel expenses)
- Earned more than £2,500 from untaxed income (for example, if you earned commission through work)
- Earned more than £2,500 from renting out property
- Earned more than £100,000 in taxable income
- Earned £10,000 or more before tax from savings and investments
- Have income from overseas that you need to pay tax on*
- Lived abroad but have income from the UK that you need to pay tax on
**If you’re a UK resident with foreign income or capital gains, you must include that information on your self-assessment tax return. That said, there is some foreign income that’s taxed differently. If all of the following scenarios apply, you do not need to include foreign income on your self-assessment return:
- Your only foreign income is dividends
- Your total dividends – including UK dividends – are less than the £2,000 dividend allowance
- You have no other income to report
Note: Different rules may apply if you permanently live abroad. If that is the case, you will be considered a ‘Non-domiciled’ resident and you may not need to pay any UK tax on foreign income.
Your pension status may also require you to complete a tax return if you:
- Are a trustee of a registered pension scheme or trust
- Received an income from your State Pension that was more than your personal allowance and was your sole income
- Earned over the threshold (£46,351 for 2018/19; £50,001 for 2019/20) and made pension contributions. In this case, Self Assessment can be used as a way to claim tax relief.
What’s classed as trading?
If you occasionally sell items on websites like Gumtree or eBay or in classified ads, HMRC doesn’t class this as trading and any money you’ve received from selling these goods won’t be subject to tax or require you to complete a Self Assessment tax return.
If, however, you sell items more frequently and earn a regular income from doing so, HMRC may view this as trading.
To help you (and HMRC) work out whether or not you are trading, HMRC has put together a list of ‘badges of trade’. These are:
- Profit-seeking motive. Acquiring an asset to sell it at a profit. For example, buying goods in bulk at a wholesale price and selling them individually at a higher price.
- Transactions. Repeated transactions may indicate trading.
- Nature of asset. HMRC looks for what is being sold. For example, if you’re selling a used pair of shoes that you were fond of, this points to the sale not being a trade. If, though, you’re selling mobile phone cases that never gave you enjoyment and you simply want the money for, this does look like trading.
- Connection with existing trade. If what you’re selling is linked to a current trade, HMRC will see it as part of that trade. For example, if you have an eBay store selling mobile phone cases and then you start to sell screen protectors, the two would be treated as one by HMRC.
- Modification of asset. If you’ve taken an item and repaired, changed or improved it to make a profit, HMRC may see this as trading.
- Organisation of the activity. Whether you sold the item in a way that’s consistent with a trading business or to raise funds to cover something like a family emergency.
- Method of finance. If you purchased goods with a loan or borrowed money that could only be paid back from the sale of the goods, HMRC may see this as trading.
- Interval of time between purchase and sale. If you’re purchasing goods and selling them on quickly, this points to the sale being made for trading.
- Supervening trade. If the item you sold was inherited or given to you as a gift, it’s unlikely that you’re trading.
How do I register for a Self Assessment tax return?
If you’ve never submitted a tax return before, you’ll need to register for Self Assessment. HMRC has different methods for registering depending on your employment status. Here are the links for each:
- Not self-employed (but have income that you need to declare)
- In a business partnership
You must register by 5th October after the end of the tax year that you are required to submit a tax return. For example, if you need to submit a tax return for the 2019/20 tax year, you’ll need to register by 5th October 2020. If you miss this deadline, you may have to pay a penalty. We’ll discuss the possible penalties in detail in a further section.
Once you’re registered, HMRC will send you a Unique Taxpayer Reference (UTR) along with instructions on how to create a Government Gateway account. With your Government Gateway ID, you can access the Self Assessment area to submit your tax return.
If you’ve registered in the past, you won’t need to register again. But you will need your old UTR to set up the account.
Top Tip: You don’t have to manage Self Assessment alone. Hiring a professional accountant can be a good idea, as they are experts in Self Assessment tax returns and can help you register properly and ensure you never miss a deadline. To learn more about how to find the right accountant for you, read our guide on how to choose an accountant for your small business.
When are the Self Assessment tax return deadlines?
To avoid getting hit with a penalty fee, HMRC must receive your tax return and any money you owe by the deadline.
Along with the 5th October deadline for registering for Self Assessment, HMRC has the following deadlines:
- Paper tax returns must reach HMRC by midnight 31st October after the end of the tax year
- Online tax returns must be submitted by midnight 31st January after the end of the tax year
- Any tax owed must be paid by midnight 31st January after the end of the tax year
If you’re a PAYE employee and your tax bill is less than £3,000, HMRC can automatically collect what you owe from your wages and pension if you:
- Submit your paper tax return by 31st October or your online tax return by 30th December after the end of the tax year.
If you’re a trustee of a registered pension scheme or a non-resident company, tax returns must be completed using paper forms and submitted by 31st January after the end of the tax year.
If you’re in a business partnership where your partner is a company and they have an accounting date between 1st February and 5th April, paper returns must be submitted 9 months after the accounting date and online returns 12 months after the accounting date.
The cost of missing a deadline
If you file your tax return up to 3 months late you’ll be hit with a penalty of £100. You’ll have to pay more if it’s even later, or if you’re late paying the tax you owe. Interest will also be charged on late payments.
You can estimate the cost of a penalty on the HMRC website.
If you’ve got a genuine reason for submitting a return late, contact HMRC as soon as possible. If you have missed your Self Assessment payment date you can phone the Self Assessment Payment Helpline on 0300 200 3822.
You can appeal a penalty if you have a reasonable excuse. HMRC list these excuses as:
- The death of a partner or close relative shortly before the deadline
- An unexpected stay in hospital that prevented you submitting your tax return
- You had a serious or life-threatening illness
- Your computer or software failed while you were preparing a return
- Issues with HMRC’s online services
- A fire, flood or theft prevented you from submitting your tax return
- Unforeseen postal delays
- Delays related to disability
The following excuses, however, won’t be accepted:
- A person you were relying on to complete your tax return didn’t do it
- Your cheque bounced or payment failed
- You found the online system too difficult
- You didn’t receive a reminder from HMRC
- You made a mistake on your tax return
How to complete your Self Assessment tax return
Before you sit down to complete your tax return, make sure you have everything you need on hand. This way the process will be straightforward.
Here’s what you’ll need:
- Your 10-digit UTR
- Your National Insurance Number
- Details of your income from self-employment including bank statements, dividends and interests on shares
- Details of any self-employment business expenses
- Details of any pension or charitable contributions that may to eligible for tax relief
If you earn an income through employment, you’ll also need:
- A P60 from your employer showing your income and the tax you have already paid
- A P9D or P11D showing any benefits or expenses you received
- A P45 if you have left a job during the tax year
Top Tip: It’s important to organise your finances as soon as possible after you launch your small business. The sooner you methodologically track your income, expenses, invoices, and so on, the easier things will be when it comes time to filing taxes. To learn more, read about how Tide’s expense management feature can make your tax life easier.
Filling in the Self Assessment tax return
As long as you have accurate records of your income and expenses, filling in the tax return should be no more daunting than completing any regular expense form. All you need to do is enter the information and the system will take care of the rest.
The tax return has a main section (SA100) and supplementary sections for income from other sources that you haven’t paid tax on.
The SA100 Income section
The SA100 section covers income from sources other than employment or self-employment, along with any pension or charitable contributions you’ve made. This includes:
- Pension, annuities and state benefits. Details on the total and gross amounts of any State Pension, the gross amount of any other pension lump sums or annuities and details on any benefits, including Jobseeker’s Allowance, Incapacity benefit, Carer’s Allowance, Industrial Death Benefit and Bereavement Allowance.
- Blind Person’s Allowance. You must note whether or not you’re claiming this.
- Student loan repayments. You must note whether or not you’re repaying a student loan and details of deductions made by your employer.
- High-income Child Benefit charge. If you earn over £50,000 and receive Child Benefit, you’ll need to complete this section.
- Marriage Allowance. If your income for the tax year was less than the Personal Allowance, you can transfer the remaining allowance to your spouse.
- Pension contributions. Details on all payments made into a registered pension scheme or annuity contract where contributions were made after-tax.
- Charitable donations. Details of all Gift Aid donations.
Supplementary tax return pages
If you’re self-employed, have income from property or have capital gains to declare, you’ll need to complete the necessary supplementary pages.
These additional self assessment forms are:
- Self-employed (SA103 form)
- UK property (SA105 form)
- Capital Gains (SA108 form)
Each of these forms is split into two sections: income and expenses.
Your income is everything you’ve earned through self-employment during the tax year, before expenses. If you have other incomes from self-employment, you’ll need to enter the one you earn the most from as your main income.
For example, if you work as a freelance web designer and earned £20,000 through selling your services, but also earned £8,000 through an eBay store selling crafts, you should list your web designer income as your primary income.
Your expenses are anything you’ve spent money on for your business in the last tax year. If you earned below £85,000 during the tax year your expenses can be entered as a total sum. If you earned over £85,000 you’ll need to list them individually.
If you’re a sole trader and claim the trading allowance of £1,000, you won’t be able to claim expenses.
The trading allowance is an automatic allowance that can be used against trading, casual or miscellaneous income to exempt it from tax. For example, if you had a total income of £1,500 through selling artwork at a local monthly craft fair and you claimed the trading allowance, your taxable profit would be reduced to £500.
You can find out more about the trading allowance on the HMRC website.
What expenses can I claim if I’m self-employed?
- Travel costs such as fuel, train and bus fares, and parking costs
- Office costs such as a phone bill, internet and stationery
- Clothing such as a company uniform
- Equipment costs such as tools and computers
- Stock costs including materials
- Business premises costs such as heating, lighting and business rates
- Staff costs such as salaries, wages and other staff expenses
- Advertising and marketing costs such as a website or flyers
- Financial costs such as bank, loan or credit card charges
- Professional service costs such as legal advice or accountancy services
- Training costs such as courses that helped you improve the skills and knowledge you use in your business
You can view the full list of allowable expenses on GOV.UK.
For UK property
Your income is the total amount you’ve earned from any furnished holiday lettings and from any other properties you rent out.
Expenses can be claimed on the costs of owning and maintaining property, unless you claim the trading allowance.
What expenses can I claim if I’m a landlord?
- Building repairs or maintenance costs (for example, if you hired a plumber to fix a shower)
- Rate costs such as council tax, gas and electricity
- Financial costs such as interest on loans, insurance and ground rent
- Professional service costs such as legal advice or accountancy services
You can view the full list of allowable expenses on GOV.UK.
For capital gains
Your income is your total disposal proceeds for residential and non-residential property, shares and securities.
Expenses can be claimed for allowable costs on buying and improving assets.
What expenses can I claim on capital gains?
- Stamp duty paid when buying the property
- Buying and selling costs such as estate agent fees, solicitor fees and surveyor fees
- Improvement costs such as a new kitchen or bathroom or decorating work
You can view the full list of allowable expenses in HMRC’s Capital Gains Manual.
According to GOV.UK, to report any Capital Gains Tax over your annual allowance, you’ll need:
- Calculations for each capital gain or loss you report
- Details of how much you bought and sold the asset for
- The dates when you took ownership and disposed of the asset
- Any other relevant details, such as the costs of disposing of the asset and any tax reliefs you’re entitled to
You must report any Capital Gains Tax on a UK property account within 30 days of selling it. Failure to do so may result in paying interest or a penalty.
If you’re not resident in the UK, you must report sales of UK property as a non-resident within 30 days, even if you have no tax to pay.
Once you’ve entered all of the information, hit Submit and you’re all done. HMRC will then calculate if you owe tax and how much, as well as the National Insurance Contributions you’ll need to pay.
Top tips for filing your Self Assessment Tax Return
- Get registered for Self Assessment as soon as possible. Don’t leave it too close to the 5th October deadline. HMRC says it can take up to 10 working days to receive your UTR and up to 10 additional days to receive an activation code. So look to register at least one month before the deadline.
- Download HMRC’s free help sheets to assist you with each section of the tax return. If you’re completing your return online, look out for the ‘?’ icon next to each of the fields. This will give you additional information.
- Don’t rush it. You don’t need to complete your Self Assessment return in one go. You can save your progress and come back to it. With that in mind, start your tax return as soon as possible. This will give you the time you need to gather actual figures where you’ve entered estimates and check that all information is complete.
- Keep accurate records: Around one in 20 tax returns is subject to further investigation. If your return is chosen for investigation, you’ll need to produce records to show that the figures are correct. Don’t throw anything away either. As a taxpayer, you need to keep records for at least a year after filing. If you’re self-employed, you must keep records for six years.
- Check and check again. Before you hit submit on your tax return go back through each section to ensure you’ve completed everything you need to. Even something as simple as not ticking a box on a page could result in your return being rejected.
- In case you’ve made a mistake. You can make changes up to the Self Assessment deadline the following year. So, if you submitted your tax return by 31st January 2020, you can make changes to your 2018/19 return up to the 31st January 2021.
Understanding your Self Assessment tax bill
Once you’ve filed your tax return, you’ll get a bill from HMRC if you owe any tax. It can take up to 72 hours after you’ve submitted your return for the final tax calculation to show up in your account.
If you’re self-employed, you may need evidence of your earnings for various purposes, such as applying for a mortgage or renting an apartment. If so, you can request your SA302 tax calculation which shows earnings over the past four years, as well as an overview for a specific tax year.
Paying a Self Assessment tax bill
If you owe tax, HMRC will tell you the amount you need to pay. You’ll need to pay this by 31st January (another reason why it’s worth submitting your tax return as soon as possible).
Your tax bill can be paid by:
- Bank transfer (such as CHAPS or Faster Payments)
- Debit card
- Direct Debit
- Paying-in slip from HMRC
You can’t pay your tax bill by credit card.
Paying your tax bill in advance with a budget payment plan
If you’re up to date with Self Assessment payments, you can set up a Direct Debit ‘budget payment plan’ from your online account to make regular payments towards your tax bill. You can choose how much to pay each week or month, but if the total you’ve paid doesn’t fully cover your bill you’ll need to pay the difference by the deadline.
Payments on account
Payments on account are advance payments towards your tax bill. You’ll need to make two every year (by 31st January and 31st July), each one covering half of your tax bill, unless:
- Your last tax bill was less than £1,000
- You’ve already paid more than 80% of the tax you owe
HMRC gives the following example for how this works:
Your bill for the 2018 to 2019 tax year is £3,000. You made 2 payments on account last year of £900 each (£1,800 in total).
The total tax to pay by midnight on 31 January 2020 is £2,700. This includes:
- Your ‘balancing payment’ of £1,200 for the 2018 to 2019 tax year (£3,000 minus £1,800)
- The first payment on account of £1,500 (half your 2018 to 2019 tax bill) towards your 2019 to 2020 tax bill
- You have to pay your second payment on account of £1,500 by midnight on 31 July 2020.
If your tax bill for the 2019 to 2020 tax year is more than £3,000 (the total of your 2 payments on account), you’ll need to make a ‘balancing payment’ by 31 January 2021.
What happens if I can’t afford my tax bill?
If you don’t have the money to pay your tax bill, you may be given more time to pay or the option to pay in instalments. But you’ll need to contact HMRC as soon as possible to make them aware of your situation.
HMRC will look at your income and expenditure, assets and what you’re doing to get your tax payments in order. They’ll also ask how much you can pay immediately and how long it will take for you to pay the rest.
If you can’t pay before the deadline, get in touch with the Payment Support Service (PPS) on 0300 200 3835.
💡 Expert insights
For over ten years, Crunch has combined easy-to-use, online accounting software with actual human beings, so that you’re always able to access your accounts and seek the support you need.
Crunch helps thousands of clients with their accounting needs every single year, using their years of expertise and insight to help small business owners manage their responsibilities.
Q1: What are some processes business owners can adopt throughout the entire year to make self-assessment easier for them?
Filing a Self Assessment is a long process, and a fiddly one if you’re disorganised or new to the experience, so getting your return organised and submitted early is the best way to simplify the process.
Self Assessment submissions require you to have all kinds of paperwork to hand, such as any P45s, P60s, bank statements, and an organised record of all your invoices and expenses. The key is to keep on top of your bookkeeping and digital records: carve out some time each day or week, depending on which works best for you, to update your records. The more studiously you maintain them, the easier your Self Assessment becomes. Online accounting or bookkeeping software (like we have at Crunch) will let you simplify the process, with cloud software and handy apps to help keep things organised and secure.
Of course, the easiest way to file your Self Assessment is to hire an accountant and get them to do it for you! Even then, the ultimate responsibility for maintaining your records and recording all of your allowable expenses will fall on your shoulders, so start early, and stay organised!
Q2: What are the biggest mistakes business owners make when getting their self-assessment in order?
Missing the opportunity to claim all of your allowable business expenses is one of the biggest mistakes we see here at Crunch. The reason so many go unclaimed, of course, is simply because it’s not always clear what qualifies: lunches, train tickets, uniforms, office equipment, even your glasses under certain circumstances – they can all be claimed as a business expense, and reduce the tax you pay through your Self Assessment.
Leaving your Self Assessment submission to the midnight hour is another common mistake we see every year. In fact, in 2020, 700,000 people left it to the 31st January deadline – with a nail-biting 26,562 leaving it to the last hour!
Sitting on hold, listening to HMRC’s ear-grating hold music, desperately trying to get in touch with someone before the deadline passes is no way to start a new calendar year. Leaving it late makes it even more difficult to manage any late hiccups or locate any missing expenses, too, which all could’ve been avoided if you’d started the process a few months earlier.
Of course, a lack of organisation is another big problem for a lot of Self Assessment submitters: misplacing vital records or losing your receipts only leads to more headaches down the road, so find some time to update your records each week and back everything up digitally. Free bookkeeping software like Crunch Free is the perfect way to store your receipts and keep your records in one secure place.
Completing your Self Assessment ensures that you’re paying the right amount of tax, based on what you’ve earned, minus the various expenses you’ve accrued from running your business. In some cases, you may even be owed money from HMRC.
Remember to file as soon as possible and to take your time. If you get stuck, refer back to this guide. You can also get help from HMRC’s Self Assessment team online and over the phone, if you need it. To stay on top of your finances from the outset, sign up for a free business bank account today. Our handy features such as accounting software integration and automated expense management will make keeping track of all things tax a breeze.
Photo by Jopwell, published on Pexels
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