If you’re new to self-employment or earning income that isn’t automatically taxed through PAYE (Pay As You Earn), you’ll likely need to complete a Self-Assessment tax return. The UK tax system requires all individuals who are self-employed, company directors, or have income from sources other than a salary to declare their earnings and pay the right amount of tax. Understanding how the HMRC Self-Assessment system works can seem daunting at first, but with the right guidance, it becomes much easier. This article provides a comprehensive guide to help you navigate the Self-Assessment process as a beginner.
1. What is Self-Assessment?
Self-Assessment is the system used by HMRC (Her Majesty’s Revenue and Customs) to collect income tax from individuals who don’t have tax automatically deducted from their earnings. It is the responsibility of the taxpayer to complete and submit their tax return, and HMRC uses the information provided to determine how much tax is owed.
You may need to complete a Self-Assessment tax return if you are:
- Self-employed
- A company director
- Earning income from rental properties
- Receiving income from investments or savings (such as dividends or interest)
- Earning income from abroad
- Receiving income above a certain threshold
2. When Do You Need to Submit a Self-Assessment Tax Return?
The Self-Assessment tax return covers the tax year from 6 April to 5 April the following year. You’ll need to submit your tax return by the following deadlines:
- Paper returns: By 31 October following the end of the tax year.
- Online returns: By 31 January following the end of the tax year.
If you miss the deadline, you may incur penalties, so it’s important to stay on top of the dates and ensure you submit your return on time. For example, if you are filing for the tax year 2023/24, you’ll need to submit your tax return by 31 January 2025.
3. Registering for Self-Assessment
Before completing your first tax return, you must register for Self-Assessment with HMRC. This can be done online through the official HMRC website. You’ll need your National Insurance number and, in some cases, your Unique Taxpayer Reference (UTR) number. If you haven’t previously been self-employed or needed to file a tax return, HMRC will send you a UTR number once you’ve registered.
How to register:
- Self-employed: You must register as self-employed if you’re starting a business or working as a freelancer.
- Non-self-employed income: If you’re earning income through other means (such as renting a property or receiving dividends), you still need to register for Self-Assessment.
Once registered, HMRC will send you a Government Gateway ID and password to access your online account, where you can submit your tax return and track your payments.
4. Gathering the Necessary Information
Before you start filling out your Self-Assessment form, it’s essential to gather all the necessary documents and information. This includes:
- Income details: This can include income from self-employment, salary (if applicable), dividends, rental income, and any other earnings.
- Business expenses: If you’re self-employed, you can claim tax relief on certain business expenses such as office supplies, travel expenses, and utility bills related to your business.
- Bank statements and invoices: You will need to show proof of the income you’ve earned throughout the tax year.
- Tax reliefs or allowances: If you are claiming tax relief for pension contributions, charity donations, or other allowances, gather the relevant documents.
- Student loan payments: If you’re making payments toward a student loan, these may also impact your tax return.
Keeping accurate records of your income and expenses throughout the year can make the process much simpler come tax time.
5. Filling Out the Tax Return
Once you’ve registered for Self-Assessment and gathered all necessary documents, you can start filling out your tax return online. The process is straightforward but may require some time depending on your income and expenses.
Key sections to complete:
- Personal information: Basic details such as your name, address, National Insurance number, and UTR.
- Income: Enter the income you’ve received from various sources, including self-employment income, savings interest, rental income, etc.
- Allowable expenses: If you’re self-employed, you can list your allowable business expenses to reduce your taxable income.
- Tax reliefs and allowances: Enter any applicable allowances or tax reliefs you’re claiming, such as pension contributions or charity donations.
- Capital gains: If you’ve sold any assets (like property or shares), you may need to report the profit (or loss) here.
HMRC provides an online tool that will automatically calculate the amount of tax you owe based on the information you input. Make sure to double-check all entries for accuracy to avoid errors that could lead to penalties.
6. Paying Your Tax
Once you’ve submitted your tax return, HMRC will calculate the amount of tax you owe and send you a payment notice. The tax you owe is usually payable in two instalments:
- First payment on account: Due on 31 January (the same day the tax return is due). This is typically 50% of the estimated tax you’ll owe for the following tax year.
- Second payment on account: Due on 31 July.
In addition, if your total tax liability is over £1,000, you may need to pay a balancing payment by 31 January, which is the remaining balance after the first payment.
If you are unable to pay your tax bill in full, HMRC offers options to set up a payment plan, but it’s important to contact them as soon as possible to avoid penalties.
7. What to Do If You Miss the Deadline
If you miss the deadline for submitting your Self-Assessment tax return, HMRC will charge a £100 penalty even if you owe no tax. The penalties increase over time, and additional charges will apply the longer you delay.
- After 3 months: A daily fine of £10 may apply.
- After 6 months: A penalty of 5% of the tax owed.
- After 12 months: An additional 5% penalty of the tax owed.
To avoid these penalties, it’s crucial to submit your tax return on time and pay your tax bill promptly. If you miss the deadline, it’s important to contact HMRC and try to resolve the issue as soon as possible.
8. Seeking Help from a Professional
If you’re unsure about any part of the Self-Assessment process, or if your tax situation is more complex, consider seeking professional advice. An accountant or tax advisor can guide you through the process, ensure your tax return is accurate, and help you claim any eligible tax reliefs.
Conclusion
Filing a Self-Assessment tax return may seem intimidating at first, but by following these simple steps and staying organized, you can complete the process with confidence. Remember to register early, gather all your financial documents, and be mindful of the submission deadlines to avoid penalties. By taking control of your taxes now, you’ll ensure that you’re fully compliant with HMRC and can focus on growing your business or enjoying your income without tax-related stress.