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The self-employed guide to Self Assessment tax returns

5-minute read

Anna Delves

21 November 2019

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The self-employed usually need to file a Self Assessment tax return each year. This is true whether you’re a sole trader, are in a business partnership or run a limited company.

The HMRC Self Assessment process can seem complicated at first, especially as the government often likes making changes to self-employed tax. So we’ve broken down what you need to know for a stress-free Self Assessment.

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Do I need to file and pay tax through Self Assessment?

Most self-employed people who run a business need to file an HMRC tax return each year and pay tax on their personal income. This includes both sole traders and those in a business partnership.

In the case of limited company directors, you may need to pay tax on salary and dividends received through your company – but you might not need to file a Self Assessment if your only income is already taxed through PAYE.

You’re classed as self-employed if you run your business yourself and are responsible for its success or failure.

HMRC says that you need to send a tax return and pay your tax bill through Self Assessment if in the last tax year you were:

  • a self-employed sole trader earning more than £1,000
  • a partner in a business partnership

They also say you might need to send a return if you have untaxed income from:

HMRC has a tool you can use to check whether you need to file a Self Assessment tax return.

What self-employed tax do I need to pay?

Depending on the particulars of your business there are a few different types of tax you may need to pay:

  • Income Tax – this is the tax you pay through your annual Self Assessment return, along with National Insurance
  • Dividend tax – limited company directors may need to pay tax on dividends through their Self Assessment
  • Corporation Tax – if you run a limited company you pay this through your company tax return
  • VAT – if you’re VAT registered you need to complete a quarterly VAT return through HMRC’s Making Tax Digital scheme

For more information about the deadlines for other types of tax, check out our guide to business tax deadlines.

How does the Self Assessment process work?

Once you’ve determined whether or not you need to register for Self Assessment and file a tax return, the process is largely the same whether you’re a freelancer, contractor, sole trader or business owner.

Registering for Self Assessment if you’re newly self-employed

You have to register with HMRC for Self Assessment by 5 October in your business’s second tax year. HMRC might fine you if you don’t register by this deadline, so don’t delay.

To register for Self Assessment, you need to visit the registration page and submit your details.

If you’re a business partner the process is slightly different and you’ll need to register here.

Registering for Self Assessment should also give you a Government Gateway user ID, which you can then use to set up your personal tax account and manage different elements of your tax affairs online.

Once you’re registered for Self Assessment you’re then able to file your tax return. You do this by filling out the Self Assessment tax return form either online or on paper.

However, HMRC wants to phase out paper tax returns under its Making Tax Digital initiative. We’ll keep you updated as those plans develop.

Tax return online deadline

The deadline for submitting your tax return online is 31 January. The deadline for paper returns is earlier – 31 October.

So for the 2018-19 tax year, which ended in April 2019, the deadline for paper tax returns is 31 October 2019 and the deadline for online tax returns is 31 January 2020.

After submitting your tax return, you need to pay the tax you owe. This deadline is usually the same as the final deadline for online Self Assessment tax returns. So this means you need to pay your 2018-19 tax on 31 January 2020.

If you’re worried about being able to pay the tax you owe, have a look at our article on what to do if you can’t pay your Self Assessment tax bill. There are fines for late payment, so you should prepare for your tax bill as best you can.

Read more: when is the Self Assessment deadline?

How to do my Self Assessment

When it comes to filling in your tax return you’ll need all the information you have about your earnings for the tax year, as well as the details of any expenses you want to deduct from your tax return.

It’s important that you keep a record of all your income and expenses. That way, you’ll have it to hand when the time comes to fill in your tax return. There are a number of accounting apps and other bookkeeping software for small businesses, if you prefer to keep digital records, many of which integrate with the HMRC website to make filling in your tax return a bit easier.

In order to file your tax return, you’ll also need your UTR (unique taxpayer reference) number. This is a reference number that’s assigned to you when you register for Self Assessment. It’s usually printed on letters from HMRC regarding your tax return, but keep a note of it somewhere safe so you can easily find it when the time comes.

Read more: how to fill in your tax return

What are allowable expenses for small businesses?

When you’re self-employed, there are a number of costs you can claim back against your Self Assessment tax bill, so long as they’re allowable expenses. These are the main ones small businesses can claim:

  • office costs such as stationery or phone bills
  • travel costs such as fuel, parking, and some train or bus fares
  • clothing expenses such as uniforms
  • staff costs such as salaries or subcontractor costs
  • things you buy to sell on such as stock or raw materials
  • financial costs such as insurance or bank charges
  • costs of your business premises such as heating, lighting, and business rates
  • advertising and marketing such as website costs

It’s important to note that if you work from home you can still claim business premises costs, but only a percentage. You can claim back for things like:

  • heating
  • electricity
  • Council Tax
  • mortgage interest or rent
  • internet and telephone use

HMRC asks that you find a ‘reasonable method’ of dividing the costs between personal and business use. They suggest using the number of rooms used for business purposes, or the time spent working from home.

If you run a limited company, you can instead deduct business costs from your profits before tax. If any of those are items you make personal use of, that has to be counted as a company benefit.

For more information on allowable expenses, check out our full guide to self-employed tax deductible expenses.

Changes to Self Assessment

In 2017, the government announced a number of changes to the Self Assessment process as part of its Making Tax Digital initiative, including quarterly tax returns and removing the option to file tax returns by paper. Some of these changes have been put on hold, although you can voluntarily sign up for the Making Tax Digital pilot for income tax instead of filing your Self Assessment. It's worth keeping an eye out to see if the government makes any changes in the future.

As it stands, only businesses who pay VAT have to submit their VAT returns electronically. However, the government has frequently said that they want to become ‘one of the most digitally advanced tax administrations in the world’, so it’s likely these changes will impact the Self Assessment process in the future.

Are you ready for your Self Assessment tax return? Let us know in the comments.

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We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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