Business Finance 101: How to complete a Self Assessment tax return
Those self-employed usually need to complete a Self Assessment tax return and pay their tax bill each year. This guide will help those registered as self-employed complete their tax return.
Self Assessment tax returns need to be submitted by 31 January, regardless of whether you’re a sole trader, in a business partnership, or run a limited company. However, if you’re filing a paper return, the Self Assessment deadline is earlier, on 31 October.
Tax returns are filed for the previous tax year, so for the tax year 2020-21, the deadline for filing online and paying your bill is 31 January 2022.
The Self Assessment process can seem complicated at first, so this blog will cover the three steps of Self Assessment:
registering for Self Assessment
filing a tax return
paying your bill
What is Self Assessment?
Self Assessment is the tax process for those who are self-employed. Where HMRC collects income tax from employees directly through PAYE, those self-employed need to report their income and expenses and pay their bill each January.
You may even need to complete a Self Assessment return if you’re not self-employed. For example, landlords earn money from renting out property. You’ll also need to complete a tax return if you have income from savings, investments and dividends.
Sole trader tax return vs limited companies
Sole traders and those in a general business partnership declare their business earnings and allowable expenses through Self Assessment, as the business isn’t a separate legal entity.
Limited companies and limited liability partnerships are separate legal entities and are taxed through a Company Tax Return. But usually, you’ll still have to send a personal tax return, including your salary and dividends received through the company.
Do I need to complete a Self Assessment tax return?
HMRC states that you need to send a tax return and pay your tax through Self Assessment if in the last tax year you were:
self-employed as a ‘sole trader’ and earned more than £1,000 (before taking off anything you can claim tax relief on)
a partner in a business partnership
You’re classed as self-employed if you run your business and are responsible for its success or failure. HMRC also says you may need to send a return if you've untaxed income from:
money from renting out a property
income from savings, investments and dividends
tips and commission
foreign income
HMRC has a tool you can use ↗ to check whether you need to file a Self Assessment tax return.
Registering for Self Assessment
You need to register with HMRC for Self Assessment by 5 October in your second tax year of business. HMRC could fine you if you haven't registered by this deadline. To register for Self Assessment you need to visit the gov.uk registration page ↗ and submit your details.
Once you’re registered for Self Assessment you’ll be able to file your tax return online or by downloading form SA100. However, HMRC will eventually phase out paper tax returns under Making Tax Digital.
Here’s HMRC’s guidance on Self Assessment registration:
Collating your tax return information
For those self-employed, the key information is likely to come from your income and expenditure details. Therefore, you will need the data from all your invoices and receipts to hand.
You can deduct costs from your turnover to calculate your total taxable profit. You can claim for things like office expenses, travel, marketing and business insurance costs, so long as they’re used wholey and exclusively for your business.
It’s essential to keep good financial records throughout the year. Not only does this make completing your return easier, but HMRC may also check your return after you’ve filed and ask to view your records. You are required to keep records for five years after the 31 January deadline.
To complete your tax return, you are likely to need details of the following:
employment income (if you’re also employed)
dividends
partnership income
interest
rental income
pensions contributions
foreign income
pension income
Gift Aid
payment on account
redundancy lump payment or unemployment benefit
capital gains
P11D
If you need to request information from third parties (like banks and building societies), make sure you leave sufficient time for them to supply it to you.
You’ll also need your unique taxpayer reference number (UTR). You will recieve this when you register for Self Assessment.
If you need help with your financial records and filing, you might want to consider hiring an accountant or bookkeeper. Also, keep in mind that using accounting software enables you to reduce your overall business costs by simplifying your financial reporting and providing you with greater oversight of your business.
Completing your self-employed tax return
If filing a paper return, you’ll need to complete form SA100 ↗ and the self-employed supplement form SA103 ↗. But filing online gives you three additional months to submit.
If you’re filing online and you’ve collated all the information you need, here’s what to do when you’ve logged in:
Check your personal details
Your personal details registered with HMRC should be kept up to date. You can check and update them during the Self Assessment process.
Complete all sections that are applicable to you
HMRC’s system reacts to the details as you enter them. This means that as you complete the form, it may remove sections that aren’t relevant.Report your earnings
In this section, enter your turnover before expenses. Remember, you might also need to enter other income elsewhere, like property income or gains on investments.Add your tax-deductible expenses
Use your expense receipts when completing this section.Double-check your return
If you need to, you can save everything you’ve entered so far and return to your submission. This is useful if you want to check your figures. If you notice a mistake once you have filed, it’s possible to change your tax return retrospectively.
Here are some helpful video’s from HMRC.
My first Self Assessment tax return
Expenses you can include in your Self Assessment tax return
Paying your self-employed tax
When you have completed your return, you will get a confirmation message and reference number. HMRC will calculate the tax you owe, as well as the National Insurance contributions you need to pay.
The deadline for paying your tax return is the same as the filing deadline – 31 January. You’ll need to pay a late filing penalty of £100 if your tax return is up to 3 months late. You’ll need to pay more if it’s later.
The easiest ways to pay your tax bill are:
online or telephone banking
CHAPS
debit or corporate credit card online
at your bank or building society
You can also pay by Bacs, cheque or Direct Debit, but these take a little longer.
It is worth remembering that most self-employed people usually need to make a payment on account too. Make sure you have enough funds set aside.
Help if you’re struggling to pay your Self Assessment tax
HMRC’s Time to Pay service is available if your unable to pay your tax bill by the 31 January deadline. This service is for those struggling financially and allows you to spead the cost over an agreed period of time. You will need to pay interest on what you owe which will make your tax bill more costly.
HMRC tax return guidance
There’s lots of Self Assessment guidance on the gov.uk website↗. Also, you can also call the Self Assessment helpline on 0300 200 3310.
Hints and tips
Keep records up to date so that it is possible to predict and plan for tax liabilities in advance.
for filing returns and paying tax to avoid penalties.
Make self-assessment easier by getting accounts prepared as soon as possible after the year end.
Always check payments on account to see if they need to be reduced if profits or other income have fallen.
Some self-employed people can choose to join the Making Tax Digital pilot for income tax. This involves using HMRC-approved software to keep business records digitally and send quarterly income tax updates to HMRC, instead of completing an annual self-assessment tax return. For more information, go to the gov.uk ↗ website.
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