If you’ve just become self-employed, you may know that you need to complete a self-assessment tax return. But if you’re just starting out, your tax return can be pretty daunting and stressful if you’re not entirely sure what you’re doing.
Every tax year, businesses, sole traders and owners of rental properties have to file a tax return on any untaxed income. Whether you complete your tax return online or fill out a paper tax return, the self-assessment deadlines are different. Missing your tax return deadline means you could be subject to hefty penalties from HMRC.
We’ve put together this guide to give you a hand with your self-assessment tax return. It details the self-assessment deadline, what happens if you miss it and other important dates in the UK tax year. We’ve also put together top tips for keeping on top of your taxes and making your tax return simple.
What is a Self-Assessment Tax Return?
If you’re newly self-employed, then it’s pretty likely that you’ve never had to think about income tax all that much. Most people’s experience with tax doesn’t go beyond seeing Pay as You Earn (PAYE) deductions on a payslip. But when you go self-employed, you become responsible for paying tax on your taxable income. This tax liability is a serious responsibility, and getting to know your responsibility is crucial to avoid fines from HMRC.
You must send a tax return to HM Revenue and Customs if you’ve earned more than £1000 as a sole trader in the last tax year or if you are part of a business partnership. The tax year runs from the 6th of April to the 5th of April every year. Your tax return covers your income from the previous tax year. So, if you are completing a tax return after the 5th of April 2021, you will be submitting a tax return on the income you earned in the 2020-2021 tax year.
Beyond the business world, you must also complete a tax return if you earn taxable incomes from the following sources:
- Rental properties
- Commission and tips
- Savings
- Investments
- Dividends.
The purpose of your self-assessment tax return is to calculate the amount of tax you need to pay on your income. Completing a tax return doesn’t necessarily mean that you’ll have to pay any tax on your income, but you still need to submit one if you earn over £1000.
When the time comes to complete your tax return, it can look pretty complex. It’s important not to get overwhelmed. While you need to provide a lot of information, many options won’t apply to you, so you can skip past them (after reading them carefully). Generally, you’ll need to include the following personal information and details:
- Unique Taxpayer Reference (UTR)
- National Insurance (NI) number
- Details on untaxed income
- Expenses
- Charity and pension contributions
- P60 to show any income you’ve already paid tax for.
It’s essential to take your time filling out your tax return as you will want to avoid any mistakes. Starting early is a good idea as although you have until the self-assessment deadline to correct any errors, they can be costly if you miss them.
When Is the Self-Assessment Deadline?
There are three self-assessment deadlines to be aware of. The deadline to pay tax is always the 31st of January every year. But the date for submitting your tax return depends on whether you complete an online tax return or a paper tax return.
If you’re submitting on paper, the deadline for submitting your tax return is midnight on the 31st of October. If you’re completing your tax return online, the deadline is on the 31st of January — the same date as payment is due. While the deadline for online returns is the 31st of January, make sure that you register for self-assessment well before that date, as the registration can take some time to process, and you want to avoid missing the tax return deadline.
There are certain circumstances where your tax return deadline may change. If this happens, HMRC will let you know that you must submit an online tax return after 31st of October. If that happens, you’ll have until the 31st of January to pay. On rare occasions, HMRC will extend the payment deadline too. In January 2021, HMRC waived fines for late filing due to Coronavirus and extended the deadline.
What Happens if You Miss the Self-Assessment Deadline?
If you can, you should avoid missing the self-assessment at all costs. If you fail to submit your return on time, HMRC will issue you with penalties that increase with the length of time you fail to submit and pay tax. The penalties are as follows:
- If you miss the deadline by a single day, you can be fined £100.
- After three months, you can be charged up to £1000 for missing the deadline.
- If you pay your tax six to 12 months after the deadline, you can be fined £300 on top of the previous fines. HMRC will sometimes choose to fine you 5% of your entire tax bill, which can be more expensive.
- After 12 months of missing your tax payments, HMRC can issue another £300 fine or 5% of your tax bill. Occasionally, HMRC will fine you 100% off your original tax bill, meaning you will pay double tax.
As you can see, it’s well worth ensuring that you submit your tax return and pay any tax you owe on time. But sometimes, events out of your control mean that you miss the deadline. If this happens, there is an appeals process for a late filing penalty where HMRC will accept a reasonable excuse. Reasonable excuses that HMRC accepts include:
- Family grievance
- Hospitalisation
- You have a serious illness
- Service issues from HMRC
- Unexpected postal delays
- Tech and software failures
- Theft, fire or flooding.
While HMRC accepts reasonable excuses, you must still file and pay your tax when the issue is resolved. If you have a reasonable excuse, you need to contact HMRC as soon as possible.
Key Dates in the UK Tax Year
As you can see, there is quite a bit to keep on top of to pay your tax on time and avoid penalties. Through the tax year, there are several dates that you should keep in mind:
- April 6th — The first day of the new tax year.
- July 31st — If you’re self-employed, you will make your second payment for the previous year’s tax bill. This is known as payment on account.
- October 31st — Submission deadline for paper tax returns
- January 31st —- Submission deadline for online tax returns
- April 5th — End of the tax year.
Generally, these dates remain the same each year, but it is always worth checking that they haven’t changed.
Top Tips for Paying Tax Correctly
Completing your self-assessment and paying tax aren’t exactly highlights of self-employment, but they’re unavoidable. While it might be tempting to put it off until the last moment, there are several things you can do throughout the year to make paying tax far easier.
File Your Tax Return Online
Filing your tax return online is much easier than filing a paper return. It’s easy to register to file online and allows you to quickly upload all of the information HMRC needs. There is also an option to save your progress and return to it later. While paper returns are still an option, most modern businesses submit their return online.
Keep Track of Income and Expenses
As part of your tax return, you will need to supply HMRC with details of your self-employed income. You can submit this as a single figure or as detailed transactions. Whichever you choose, you’ll need to have accurate records of both your income and expenses. One of the best ways to do this is to create a spreadsheet. Most businesses will keep records of:
- Invoices
- Quotes and estimates
- Purchase recipes and expense invoices
- VAT.
You’ll undoubtedly need to keep other records for your business, and it’s essential to get them organised to avoid making mistakes on your tax return.
Hire an Accountant
Dealing with tax is an unavoidable part of self-employment, and you are solely responsible for ensuring that you pay it correctly. But that doesn’t mean you can’t get help from an accountant. Hiring an accountant means you can rest easy knowing a professional is taking care of your tax. Alongside peace of mind, an accountant can also provide you with opportunities to save money through tax credits and tax relief.
Need to register as self-employed? Mint Formations can help you with your sole trader registration and ensure a successful registration with HMRC. Our accountancy service can also help you submit an error-free self-assessment tax return.
