Navigating the world of taxes can be daunting, especially for those who are newly self-employed and are looking to tackle their self-assessment tax returns.
Understanding the intricacies of tax returns is crucial to ensure compliance, avoid penalties, and keep on top of your finances. In this comprehensive guide, we’ll be breaking down the often-overwhelming world of the self-assessment tax return process, offering step-by-step guidance and demystifying the key elements. Let’s get started.
1. Understanding self-assessment tax returns
What is self-assessment?
Self-assessment is the method used by HM Revenue & Customs (HMRC) to collect income tax. Unlike employed individuals who have taxes deducted at source through Pay As You Earn (PAYE), those who are self-employed, or who have additional income or unique circumstances, are required to report and pay their taxes through the self-assessment system.
Who needs to file a self-assessment tax return?
Not everyone needs to file a self-assessment tax return, and understanding whether you fall into this category is the first step you need to take. Individuals who should file a self-assessment tax return include:
Self-employed individuals
Sole traders
Company directors
Individuals with an annual income over £100,000
Those with untaxed income, such as rental income or dividends
High earners with income over £50,000 and receiving Child Benefit
Individuals who have lived or worked abroad
Save the date!
It's crucial to be aware of the key dates related to self-assessment tax returns, which boil down to the following:
6th April: Start of the tax year
31st October: Deadline for filing a paper tax return
31st January: Deadline for filing online tax returns and making tax payments
Missing these deadlines can result in penalties, so it's essential to plan ahead.
2. Getting started with self-assessment tax returns
Registering
If you fall into any of the categories requiring self-assessment, the first step is to register with HMRC. This can be done online, and it's advisable to complete the registration process as early as possible.
Unique taxpayer reference (UTR)
Once you have registered, you will be assigned a Unique Taxpayer Reference (UTR). This is a 10-digit number that identifies you in the tax system. Keep this reference safe, as you will need it for all future communication with HMRC.
Setting up your Government Gateway account
Along with your UTR, HMRC will send you a letter with instructions on how to set up your Government Gateway account. Once you’ve done so, you’ll receive an activation code that will complete the set-up process.
3. Completing tax returns
Gather what you need
In order to ensure you enter the correct information when completing your tax return, you’ll want to have any of the following information that applies to hand:
Your 10-digit Unique Taxpayer Reference (UTR)
Your National Insurance number
A P60 from your employer (if you have one) showing your income and any tax you have already paid
A P11D or P9D detailing any benefits and expenses
A P45 if you have left a job in the current tax year
A detailed summary of any rental income and expenses
Statements of savings and investments
Documents detailing self-employment income, including receipts, bank statements and accounts
Documents detailing charitable contributions or pensions that may be eligible for tax relief
Be mindful that keeping any necessary documents organised throughout the financial year will make the process smoother and far more straightforward when it’s time to file your tax return.
Paper or online?
You can complete your self-assessment tax return either on paper or online. The choice is yours to make. We would advise, however, that while the paper option is available, filing online is generally more convenient and allows for automatic calculations. Further information about paper and online submissions can be found here.
One section at a time
Tax returns is divided into several different sections, with each focusing on a specific aspect of your finances, such as:
Personal information
Employment details
Self-employment income
Other income sources
Capital gains
Tax reliefs and allowances
Keep your documents to hand and take your time to complete each section accurately. If you’re feeling overwhelmed at this point, it can be beneficial to seek professional advice.
Calculating tax liability
Once you've compiled all your income and deductions, the system will automatically calculate your tax liability.
Claiming allowances and reliefs
It’s important to explore all of the various tax allowances and reliefs that may be available to you, such as the Marriage Allowance, or Entrepreneurs' Relief. Claiming allowances and reliefs can significantly reduce your overall tax liability.
4. Filing your tax return
Submitting online
If you're filing online, you'll need to use HMRC's online services. Ensure your internet connection is stable, and be sure to back up your data before submitting, just in case anything goes awry.
Paper filing
If you choose to file a paper tax return, you must take the necessary steps to ensure it will reach HMRC by the 31st October deadline, as late paper submissions incur penalties.
Receiving confirmation and making your payment
Once your tax return is submitted, you'll receive a confirmation from HMRC. This will include details of your tax liability and the due date for your payment. It's crucial to make your payment by the deadline to avoid penalties and interest charges.
You can make your payment to HMRC by bank transfer. Alternatively, you may send a cheque through the post, or pay at your bank branch with the paying-in slip that will be provided to you by HMRC. It’s important to note that you are no longer permitted to pay your tax bill by credit card.
5. Penalties and appeals
Penalties for late filing
Failing to meet the tax return deadline incurs penalties. The longer you delay, the more the penalty charge increases, so it's certainly in your best interest to file on time. If you're struggling, consider seeking professional advice from a trusted accountant, or contacting HMRC for support.
Appealing penalties
If you believe you have a reasonable excuse for filing late, you can appeal the penalties. Valid reasons include occurrences such as serious illness, bereavement, or technical issues. It is recommended to provide supporting documentation when making your appeal, to increase the likelihood of success.
6. Seeking professional guidance
The benefits of working with an accountant
Whilst completing a self-assessment tax return on your own is very much possible, seeking professional advice can provide numerous benefits. Skilled accountants can help by:
Ensuring accuracy and 100% compliance
Identifying any potential tax-saving opportunities
Helping you to navigate complex tax scenarios
Providing peace of mind and easing any stress
How can One Two One Accountants help?
Our highly skilled and knowledgeable accountants here at One Two One are equipped with 15+ years of experience in supporting individuals with their self-assessment tax returns. We can ensure that you pay your correct dues and nothing more, whilst advising on any tax relief that you may be entitled to.
It’s our aim to support you throughout the whole process, whilst being on hand year-round to offer any necessary guidance and advice.
Looking for support in completing your tax returns? One Two One Accountants are here to help. Simply get in touch today.