Accounting & Finance
Tips For Your Self-Assessment Tax Returns
Self-employment has seen a rapid increase over the recent years. According to data from Statistica, the forecasted income from self-assessment tax returns in the UK has risen from 33.6 billion in 2020/21 to 34.8 billion in 2021/22.
Furthermore, the UK is forecasted to generate 38.3 billion by the 2023/24 tax year. From this data, the popularity of self-employment is evident.
However, self-employment comes with various responsibilities- such as completing a self-assessment tax return.
A self-assessment tax return is used to calculate how much tax you owe from the earnings you declare. It is a valuable way of showing HMRC how much your business earned during a specific period and how much tax you owe.
It is imperative to address your business’ tax status as soon as possible as HMRC requires all self-employed individuals to complete their tax returns by a strict deadline.
This article will clarify the importance of self-assessment tax returns and offer key tips for your self-assessment.
Self Assessment Tax Returns
Why am I required to fill in a self-assessment tax return?
According to Markel Direct, HMRC has no way of tracking your income when you run your own business; therefore, they rely on you to tell them via the self-assessment process. This process differs when you work as an employee because PAYE taxes are automatically deducted from your monthly salary.
As a sole trader, you are responsible for informing HMRC of the details of your income. Furthermore, some people in employment must also fill in a self-assessment, for example, from land or property.
If your business or additional income generates more than £1,000 a year, you must complete a self-assessment tax return.
What will happen if I don’t complete my self-assessment tax return?
If you don’t complete your self-assessment tax return on time, certain penalties can be incurred for example:
- Up to 3 months late: an automatic penalty of £100
- 3-6 months late: a daily fee of £10 for up to 90 days
- 6-12 months late: 5% of your tax due or a £300 penalty (the highest amount of the two)
- 12+ months: a further 5% or a £300 penalty (HMRC could potentially fine you 100% of the tax due)
5 Key Tips For Completing Self-Assessment Tax Returns
1. Register for Self-assessment
The first time you complete a self-assessment tax return, you will need to register with HMRC as self-employed, not self-employed, or as a partner or partnership. Try to leave up to 20 working days for HMRC to process your application.
2. Don’t miss your deadline
Here are some key dates to remember:
- 5th April- end of the tax year
- 6th April- start of the tax year
- 31st January- the date you are required to file your tax return online, and pay your tax bill
- 31st October- the paper tax return deadline
- 5th October- the deadline to register your self-assessment
As soon as the tax year ends, you must remember to file your online tax return and pay any tax you owe by January. However, due to the coronavirus pandemic, HMRC extended this deadline to the 28th of February in 2021.
3. Make sure you declare everything
Keep an up to date record of your income and what you’ve claimed as expenses throughout the tax year.
4. Keep a record of your tax return
If HMRC chooses to investigate your tax return, you’ll be required to provide things such as bank statements as proof. It’s always good to keep a record of your returns, especially if you’re self-employed.
5. Get help
To relieve stress, an accountant can help your situation. An accountant can deal with your paperwork and make sure nothing has been missed. Furthermore, there are lots of guides on the HMRC website regarding self-assessment tax returns. If you’re unsure, you should easily be able to find advice.
As a sole trader, or freelancer you are responsible for informing HMRC regarding your income. This is because HMRC has no way of tracking your income when running your own business. You must complete a self-assessment tax return if your business makes over £1,000 a year.
If you don’t complete your self-assessment tax return on time, specific penalties can be incurred- one of the most severe penalties being a fine of 100% of your tax due.
You need to register for your self-assessment tax returns by informing HMRC that you are self-employed by the 5th of October of the current tax year. You must file your online tax return and pay any tax you owe by January, when the tax year ends.
It is important to remember to declare everything to HMRC, keep a record of your tax returns, and get help from an accountant or the HMRC website whenever you are in doubt.