Those who work for themselves, whether as a sole trader, freelancer, a contractor or running their own business, will need to complete a self-assessment tax return. For many people, this is a daunting task, not to mention one that they put off for months for fear that they will make a mistake or simply not know what to include.
Completing your self-assessment tax return can be a time-consuming process. Whilst HM Revenue and Customs do provide guidelines on what you need to include and how to calculate your income and expenditure, their basic guidelines run to 35 pages, which can be a lot to plough through when you have a business to run. Add in the pressure of the deadline looming at the end of January, and you can see why so many people dread tax return time.
However, there is no need to put yourself through the stress of uncertainty in order to fulfil your obligations to HMRC. An experienced accountant can complete and submit your tax return for you and ensure that every element of it is completed correctly as well as helping you to identify areas where you could save money on your bill.
Why do I need to complete a tax return?
Your self-assessment tax return is used by HMRC to calculate your tax liabilities, including any amounts you owe or sums that you might have overpaid.
When you submit the information about your turnover and expenditure, including the amount you have earned, any capital gains that might have been made on assets you own through your business and any deductible costs, all of which are used to calculate your total income. The amount that you owe in tax for each year is then calculated based on those figures.
Do I need to complete a tax return?
The majority of people are employed by a business or organisation and have their tax deducted at source, using the Pay As You Earn (PAYE) system. This means that the company they work for deducts their tax and pay it direct to HMRC automatically.
However, anyone that is self-employed, whether that is their main job or in addition to traditional employment, will need to complete a self-assessment tax return in order to be taxed appropriately on their earnings by HMRC.
For most people, the first thing they will do when they decide to work on a self-employed basis is to let HMRC know of their intentions. They will then send you details of the self-assessment system with log-in details so that you can access the online service to file your tax return and pay any money you owe. They will also send you reminders about the relevant deadlines to ensure that you have ample time to complete your tax return and avoid being subject to fines and penalties for late filing or payment.
You can let HMRC know that you are working for yourself by calling them or completing the registration process online through HMRC’s website and you should do this as soon as you can to ensure that you aren’t penalised for failing to keep your records up to date.
Where do I start with my tax return?
For many people, the process of completing their tax return can be a little confusing. Unless you are an accountant, the rules and regulations which apply to various different aspects of income and expenditure can seem impossible to understand.
When you start working for yourself, your workload includes everything that you might need to do to make your business a success, from marketing and advertising to admin and ordering stationery. You may find that managing your finances is more complex than you might have expected as you will need to keep records of all the money you spend in the course of your business as well as how much you earn.
If you are new to running a business, it may come as a surprise to learn how complex the taxation system is. Even for businesses which seem simple it is easy to make a mistake on your tax return which could cost you a lot of money in penalties when it is discovered. Using an accountant is an easy way to make sure that you include everything you need to on your tax return as well as filing it on time and you will usually be able to save money on your tax bill as well by making sure you don’t pay more than you need to.
Anyone who wants to complete their tax return without professional assistance will need to know that there are two options for completing their tax returns, which have separate deadlines:
A paper tax return– as the name suggests, this is a physical form which you need to fill in by hand and returned by 31st October every year. It is your responsibility to ensure that it arrives with HMRC by the deadline in order to avoid a fine.
Online tax return– the HMRC website has a self-assessment tax return feature which allows you to complete the whole process through their website. Because everything is calculated automatically, there is a later deadline for this process so you can complete it at any point up until the 31st of January. The system allows you to begin filing your form in and save it as you go so you don’t need to complete the whole thing in one session and can check your records, seek advice and alter any mistakes before you submit it.
What details do I need to include in my tax return?
If you have an accountant, they will tell you exactly what you need for your tax return and help you to identify which information is relevant. In general you will need to have the details of:
- Your annual turnover or income coming in from your business over the course of the year. This is usually the amount you have invoiced clients for, or the number of sales you have made in the relevant period.
- Interest that you may have earned on money in your bank account.
- Additional income you may have earned through other employment during the relevant period, either from working part- or full-time for an employer, or for a period during the tax year before you became self-employed. You should have a P45 or P60 detailing these earnings if this applies to you.
- Any income you have made from renting property and other allowable expenses relating to this income.
- Any expenses you have incurred in the course of doing business where these come under the heading of ‘allowable’ expenses as determined by HMRC. As a general rule, costs related to your business such as purchasing stock or travelling to meet clients can all be deducted, but the guidelines on what you can claim are over 100 pages long, so seeking professional advice is a really good idea if you want to be absolutely certain.
- Details of any tax which you have already paid as deductions from your income over the relevant period.
- Details of National Insurance Contributions paid over the course of the year.
You will need to have all this information to hand to be able to complete your tax return, and it is also a really good idea to keep records, receipts and any other related paperwork for anything that relates to your business. You will not need to include these with your tax return, but HMRC can ask to see details of your books in order to check that everything you have told them is accurate. Keeping records makes it easier to complete your tax return as you have all the correct information to hand.
Many people like to keep a spreadsheet with details of all their invoices, expenses and other financial information together. You can track your expenditure on items such as stationery, marketing, phone costs, travel expenses and anything else you buy for your business. This will then allow you to calculate your profits by deducting your expenditure from your income, which is a good way of keeping track of your finances as well as helpful for completing your tax return.
Those who are self-employed are legally obliged to keep these records for five years after the tax return deadline, so for details of your 2013/14 tax return submitted by January 31st 2015, you will need to keep the relevant records until January 31st 2020. Companies have to keep these records for six years, and failure to do so on either part can result in fines of up to £3000.
What expenses are allowed on my tax return?
Self-employed individuals usually have some costs associated with running their business, and whilst some are clearly business related, such as stock or a website, some are less clear cut. For example, if you work from home, you might be entitled to claim some of your heating bills as expenses on your tax return but working out what proportion can be difficult as some of your bill will cover heating your home for times when you aren’t working. If you use your car for both business and personal use, then you need to work out what proportion you use it for work and that will be an allowable expense.
You may find it easier to identify which costs are related to your business by having a separate work account as this will enable you to use your dedicated account just for your business expenditure. Expenses can be one of the more complicated areas of tax, so it is worth taking advice from professionals if you are not sure about any aspect of it.
How do I complete my tax return?
You can complete your own Self-Assessment Tax Return, but it can seem complicated and incredibly difficult, especially if you aren’t sure about the finer points of the regulations. You could miss something crucial which will leave you potentially facing a fine, or you could leave out information which could save you money on your tax bill and end up paying too much that way.
If you have any concerns about filling in your self-assessment tax return, you may benefit from using an accountant who will ask you for the relevant information and complete all the paperwork on your behalf, saving you time, stress and probably money too.
What are the deadlines for submitting my tax return?
- If you wish to complete a paper tax return, then you will need to ensure that HMRC receive it by 31st
- If you wish to complete the online form, then you will have to submit it by 31st
You will be sent a reminder of these deadlines by HMRC, but if you use an accountant they will usually make sure you have everything organized well in advance anyway.
What if I am late completing my tax return?
Unless your tax return is received by 31stJanuary, you will be fined £100 plus interest on any tax which is unpaid by this deadline. These penalties can be applied even if you don’t owe any tax as HMRC need to know your status either way.
If you still have an outstanding tax bill by 28thFebruary, you will be charged a further 5% on any tax that you still owe at that time.