Comprehensive Guide to Self-Assessment
Individuals who are employed usually have their income tax automatically deducted by their employer through a system called PAYE (Pay as you Earn). However, people who are self-employed do not enjoy the same advantage. Self-employed people need to pay their tax themselves by completing a tax return. In a nutshell, self-assessment is a way of reporting your income and paying tax to Her Majesty’s Revenue and Customs (HMRC).
Do I need to do a self-assessment?
A self-assessment is essential for people who fulfil any one of the following criteria:
- Company director
- Earn £100,000 or more than this amount per year
- People who have investment income or savings more than £10,000 before tax
- People who earn income from abroad
- People who are earning the most in a family which claims child benefits or if you earn £50,000
- People who earn £2,500 or more than this amount in untaxed income
The most common question that many people ask is whether they need to do a self-assessment. Her Majesty’s Revenue & Customs (HMRC) requires you to complete your self-assessment tax returns if you are self-employed. This means that you are not working for any employer on a PAYE system and that you can be considered to your own boss. In other words, you are considered self-employed if you are responsible for generating your profits and covering your losses.
Generally, all these apply to most tradesmen. So, if you are self-employed as a “sole trader” and you have earned more than a total of £2,500 as untaxed income in the last tax year, that is 6 April to 5 April), then you need to complete your self-assessment. Even if you are a business partner, you are still required to register.
In other words, those who earn income only from their wages, pension or interest on savings do not need to register for self-assessment. But, if you have additional income besides these, then HRMC will most likely want you to notify them of the profits you have made and how much money you have earned in total, which means that you need to inform them yourself by declaring your income and expenses through self-assessment.
For example, if you work as a manager at a limited company, then HMRC will know the amount of money the company pays you as the company would be required to make PAYE submissions. However, HRMC will want you to declare the amount you are due to receive as dividends from the company, or any other source of income for that matter, such as some freelance work you have done, or money you make from renting out your property. By completing your self-assessment, you are letting the government know about all your income and expenses.
What is HMRC’s Self-Assessment?
HM Returns & Customs’ self-assessment is the system by which the department collects income tax from working citizens who have not paid their taxes through PAYE or any other means. In other words, if you have any income that does not have tax deducted at source, then you need to register for self-assessment tax returns.
Every year, those who are considered self-employed must register for self-assessment before the deadline, which applies to the tax year that has just ended in the previous year. This means that your tax returns cover your taxes from the financial year 6 April to 5 April. Each year, paper tax returns must be filed by 31st October, or by 31st January if you are filing your self-assessment tax returns online.
Your self-assessment tax returns will include your total income as an individual so that HMRC can see the entire amount of income you have earned during a tax year. Although the department probably already knows just how much you receive from your salary, or how much interest you have earned from your bank, they do not know how much you have made from other sources of income. As mentioned before, this may include profits you have made as a sole trader or from renting your property out, or maybe even income form a trust. Thus, by completing your self-assessment, you will be able to confirm all your earnings to HMRC.
If you are sure that you are eligible to send in your tax returns, then the next step is to register yourself for self-assessment. Registering for self-assessment is easy, thanks to the internet. All you have to do is go to this page on the gov.uk website, and your registration will be completed in no less than a few minutes. After registration is complete, you will receive a letter that contains your Unique Taxpayer Reference (UTR), a ten-digit number that you need to use to successfully log in to your account so you can complete your tax returns.
If you’re the partner in a business partnership, then you need to ensure that you are registered as such. For this, make sure you provide the complete address and postcode of your business, the UTR of the partnership, as well as the registration number of the company.
In 2017, the UK government announced that it had plans to digitize the filling out of self-assessment tax returns process. However, because of Brexit, these plans have been on hold. This means that you can still compete for your tax returns even using the old paper forms, in addition to being able to complete it online. That being said, it suggested that you register for self-assessment and complete your tax returns online as it is much easier and quicker, and leaves less space for mistakes. In fact, a whopping majority of all self-assessment tax returns are filed online rather than on paper.
Key dates and deadlines for Self-Assessment year ending 5th April 2019
If you need to register for self-assessment and complete your tax returns for the tax year, then there are several important dates and deadlines that you must keep in mind to complete your filing in an orderly and timely manner. Below, you can find these dates:
- 5th April – the end of the tax year, which means that your self-assessment for the tax year that just ended needs to be submitted by the next January, which is in the next ten months
- 6th April – the start of a new tax year. From this date, you must organize all the information you will need for the upcoming self-assessment deadline
- 5th October – the deadline for registering yourself for self-assessment for the tax year that just ended on 5th Your tax returns must be submitted after this either on paper or by a personal tax accountant
- 31st October – deadline for filing tax returns on paper
- 31st January – deadline for filing tax returns online
- 31st January – deadline for paying taxes owed (same date as online filing deadline).
You may be fined if you are late in submitting your self-assessment or paying your taxes.
Tax Accountant for Self-Assessment: Why you need them and how they can help
If you want to register for self-assessment and file your tax returns smoothly and efficiently in a hassle-free manner, then hiring a personal tax accountant is highly suggested. If you are wondering if you should seek the help of a tax accountant, here are a few reasons to convince you to do so:
- They can help you meet all your deadlines
Filing for tax returns comes with a few deadlines to meet. If you are a businessperson, chances are you are drowned in work and barely have time to plan your self-assessment meticulously. By having a personal tax accountant working for you, you won’t have to worry about missing any deadlines at all.
- They will ensure that no mistakes are made
Tax accountants are paid to ensure that your self-assessment tax returns are done efficiently and effectively. They help to ensure that no mistakes are made anywhere in the entire process, saving you from any potential problems.
- They can help you save money
Personal tax accountants are great at finding ways for you to save as much money as possible. They know what items you can claim for, and how you can reduce your tax so that you can save money wherever possible.
- They are up-to-date with all the latest tax laws
Tax laws are always changing and the best way to keep up with them is by hiring a personal tax accountant who knows what they are doing and keep themselves updated with every important detail.
Key terms you should be aware of for your Self-Assessment
To help you better understand the process of completing your self-assessment tax returns, there are some essential keywords you need to understand. These are words you will come across multiple times, so understanding what they mean will definitely make you feel like you are on the right track.
- Tax returns – the form which you fill out to inform HMRC about your total income, expenses and other personal circumstances, so that they know how much tax you need to pay
- Employment income – the total amount of salary that you receive from your employment, usually has tax deducted at the source
- Self-employment income – this is the total of all your business expenses and invoices if you are self-employed
- Partnership income – the total income that you receive through a business partnership. Each partner of the business should submit their own self-assessments separately, while the nominated partner should submit the partnerships tax returns
- Dividends – the amount that a limited company pays you, the director, in dividends and not in salary. For this, you need to reference dividend voucher numbers
- Interest – the amount of money you paid as interest on loans and credit cards. It also includes the amount you receive as interest on savings
- Rental income – the amount of income you receive from renting out your property. You will have to produce the required details.
- Foreign income – This includes any money you receive from overseas. Make sure to keep any detail and documents related to it.
- Pension contributions – This includes stakeholder, workplace and overseas pension, for which you may be able to get tax relief.
- Employee benefits – This includes employee benefits you receive from your workplace, including dental and healthcare. Keep all related documents safe.
- State benefits – This includes pension and other state benefits, for which you will need the total payments received for the tax year as well as the deducted tax.
- Capital gains – These include any profits or earnings you may have made from selling your property or shares. You are required to declare these in your tax returns as well.
Top tips before submitting your Personal Tax Return
Below, we discuss the most useful and practical tips you can follow before you submit your personal tax returns so that you can have a smooth and seamless experience without any issues.
- Register for self-assessment online
Even though you can register on paper as well, it is much easier and simpler to register for self-assessment online by visiting the gov.uk website. Besides, when you choose to register online, you have more time to file your personal tax returns. As mentioned before, the deadline for filing on paper is 31st October, while the deadline for the same, when done online, is 31st January.
- Always gather your paperwork beforehand
You need to ensure that you have all your important files, documents and details ready beforehand. If you leave this for the last minute, just before filling out your form, then you will surely have a busy time. Gathering paperwork can be overwhelming, especially if you haven’t been keeping all necessary files and documents all in one place throughout the year. Make sure you get a P60 form from your employer, a P11D or a P9D which details the benefits and expenses as well as a P45 if you have quit a job within the last tax year. These are just a few of the crucial forms that most people need to get to file their personal tax returns.
- Get help from a personal tax accountant
Lastly, the importance of receiving support from personal tax accountants cannot be stressed enough. They have been helping others successfully register for self-assessment and file their tax returns for years, so they know what they are doing. This is the most efficient and stress-free way to get the task done without any mistakes.
Clear House Accountants are specialist Tax Accountants in London who have been helping businesses and individuals prepare and submit their tax returns. We have helped our clients develop smart solutions for their tax and tax planning needs. Contact us if you need our help with your tax matters for the latest tax year.
Anam has a degree in accounting from the Prestigious St John’s University, and works as a senior director in Clear House.
Before working in Clear House, Anam worked in various commercial roles, the last one being the VP Operations for a prestigious business organisation,working on improving the organisation’s operational efficiency, growth and high level client management.
Anam manages clients ranging from software companies to large property developers and managers. Notably, she recently worked with a large property development company building large scale developments in London and the surrounding area.