Filing your self-assessment tax return for the first time can feel intimidating.
Most people are confronted with a lengthy form loaded with unfamiliar jargon and technical terminology they’ve never encountered before. Even as a returning user, things can change significantly from year to year.
Getting it wrong can be costly, leading to penalties, unexpected tax bills and a whole lot of unwelcome stress. Here’s a simple guide to get you clued up on who must file a tax return and what the process involves.
What is self-assessment?
In the UK, HMRC collects tax on most forms of income. In employment, your employer will usually take care of this for you through PAYE. But any income that arrives in your bank account outside the PAYE system could be eligible for tax.
If you’re self‑employed, self‑assessment is the main way you report your business income and expenses to HMRC. Because there’s no employer handling tax on your behalf, you’re responsible for declaring what you’ve earned, what you’ve spent running your business and how much tax and National Insurance you owe.
Each year, you’ll submit a return covering the previous financial year, giving HMRC a full picture of your earnings. They’ll then calculate what you owe, or confirm what you’ve already paid through payments on account.
Who must file a self-assessment tax return?
You’ll need to complete a self‑assessment return if you receive any untaxed income. So, whether you’re employed or not, if any part of your income isn’t already taxed at source, HMRC expects you to report it through the self‑assessment system:
- Self-employed individuals – Any sole trader earning more than £1,000 from self-employment during the tax year must complete a self-assessment tax return. This includes freelancers, gig workers, contractors and anyone running a side business.
- Landlords – If you’re a landlord receiving rental income from property, you’ll be eligible to pay tax on the profits received. This includes renting out a single room and taking income from holiday lets, including through online platforms like Airbnb.
- Company directors – While HMRC doesn’t consider company directors to be self-employed, most will still need to fill out a tax return to cover any untaxed income. Anything paid through the PAYE system would already be taxed. However, income from dividends, for example, would need to be declared on a self-assessment tax return.
- People with untaxed or additional income – There are myriad other reasons why you may have untaxed additional income that should be declared, including interest payments on savings above the personal allowance, or income on investments. Give us a call if you’re unsure.
What does the self-assessment process involve?
If you’re new to self-assessment, your first step is to register with HMRC to get a Unique Taxpayer Reference (UTR).
Keep records of all your income and expenses, including receipts, throughout the year.
At the end of the tax year, you’ll need to log in to the Government Gateway to complete your self-assessment for the previous tax year.
You’ll be asked to submit your total income across various categories for the entire year. You may also be able to deduct some allowable expenses from this total. The nature of these expenses will vary depending on the source of income.
The tax payable will be based on the sum of money left once you have deducted these business expenses. While you won’t be asked for any evidence of income or expenses at the point of completing your tax return, HMRC could request them at a later date.
So, you must keep hold of the records for at least six years from the end of the financial year.
You’ll also need to provide information about any benefits, pensions or outstanding student loans you may hold. Once the form is complete, HMRC will automatically calculate the amount of tax due, which is then payable in various ways, including online.
Common mistakes people make
Even if you’re organised, self‑assessment can trip you up. The process isn’t complicated, but it does rely on you keeping accurate records, understanding what counts as taxable income and meeting HMRC’s deadlines. A few minor oversights can lead to delays, penalties or paying more tax than you need to. Here are some of the most frequent mistakes people make:
- Missing or incorrect information – it’s common to overlook income streams such as savings interest or dividends, which are all taxable.
- Claiming the wrong expenses – overclaiming can trigger penalties; underclaiming means you pay too much tax, so it’s essential to have a clear understanding of what constitutes an allowable expense for your income stream.
- Leaving it too late – the 31 January deadline (see below) catches many people out every year. Leaving things to the last minute increases the chance of making mistakes.
- Doing it on your own – No matter how thorough you are, it always pays to have a professional accountant check your self-assessment tax return before you file it, to make sure you’ve got everything covered and haven’t missed any exemptions that could help reduce the amount of tax you must pay.
Key deadlines you need to know
You must stick to the deadlines set by HMRC for reporting your income. Failure to comply may result in fines that are easily avoidable. The key deadlines for self-assessment include:
- Register for self-assessment by 5 October, after the end of the tax year you’re filing for.
- Complete your online self-assessment by 31 January after the end of the tax year you’re filing for.
- Submit any outstanding payments by 31 January.
If your last self-assessment bill was over £1,000, HMRC usually asks you to make advance payments for the next tax year. This is payable as two advance payments, due 31 January and 31 July, based on your previous year’s bill.
They’re designed to help spread the cost of your tax bill, but often catch people out if they’re not expecting it.
Get support with your self-assessment
It’s essential to report accurate numbers when filing your self-assessment tax return. Even accidental omissions can result in sizable fines for inaccurate reporting and unpaid taxes.
At Buckler Spencer, our qualified and experienced accountants can take this task off your plate and offer peace of mind in knowing that the job will be completed thoroughly. Sometimes, we might even find some savings to reduce your tax bill.
Whether you’re self-employed, a landlord or a company director, filing a return doesn’t need to be stressful. Book an appointment and let us handle your tax return this year.