Setting up a business can be one of the most exciting times in your life. You’ve followed your dreams, and you’re doing what you do best.
But, the accounting side of running a business can be confusing and frustratingly time-consuming. Small business owners spend, on average, more than 40 hours each year preparing their tax returns.
The UK’s tax system is far from straightforward. So, if you’re finding it tricky to navigate, don’t worry; you’re not alone. With some forward planning, sound advice and organisation, doing your Self Assessment can be stress-free.
This article will guide you through the process step by step – helping take some of the pressure off, so you can get back to doing what you love. Keeping reading to discover:
- What is a Self Assessment tax return?
- Who should complete a Self Assessment?
- Why do you need to do a Self Assessment?
- How to do a Self Assessment
- When to do your Self Assessment by
What is a Self Assessment tax return?
Your Self Assessment tax return is how you report your untaxed income to HMRC. It takes into account all your income, outgoings and profits for the last year.
HMRC uses your tax return to calculate how much income tax you need to pay, based on the profits you’ve made. If you were employed in the past, you probably didn’t need to complete a Self Assessment as your tax was automatically deducted from your salary before it hit your bank account through the PAYE (Pay As You Earn) system.
If you’re self-employed, you’ll need to start reporting your income to HMRC. You’ll need to set up an online account on HMRC’s website to complete this form and submit your Self Assessment form.
Who should fill in a Self Assessment tax return?
Any individual with income that isn’t taxed at source will need to fill out a tax return. This includes self-employed people, such as freelancers, sole traders, or directors paid via dividend rather than through their company’s payroll.
If you’re self-employed and have earned over £1,000 (regardless of any business expenses), then you should complete a tax return. Most self-employed individuals will be able to take advantage of the tax-free allowance of £12,500 on income, so they may not need to pay tax on anything under this amount. However, you should still report your income to HMRC.
Directors of a limited company registered on Companies House will also need to fill out a separate company tax return form, as you’ll need to pay corporation tax.
Why do we need Self Assessment tax returns?
Self Assessment tax returns are vital in maintaining a just, equal tax system in which everybody contributes fairly. You need to complete a Self Assessment tax return under UK law.
It’s essential to file your tax return before the tax deadline (more on this later) as otherwise, you could be fined £100 or more by HMRC.
Completing your tax return correctly means you’ll be entitled to some income tax relief on expenses like business costs, equipment, and the cost of goods.
How do you fill in a Self Assessment tax return?
Step One: Register
If it’s your first time completing a Self Assessment, make sure to register ahead of time. It can take up to 20 days to complete your registration, so don’t leave this until the last minute.
Head to GOV.UK and follow the correct link depending on whether you’re a sole trader or in a business partnership. Fill in your details, and HMRC will send your Unique Taxpayer Reference (UTC) number in the post, along with instructions on how to open your Government Gateway account.
Set this up, and you’ll then get a letter with an activation code. Beware, this code does expire – so activate your account as soon as you receive the letter.
Step Two: Filling out the form
To complete your tax return, you’ll need to keep track of your expenses and income throughout the year. It’s essential to keep a record of your receipts for business expenses, bank statements, invoices, your last P60, and National Insurance number.
Accounting software like Countingup can make it a lot easier to keep track of your outgoings and income throughout the year. Without accounting software, you’ll need to go through all your paperwork and manually enter this information into a spreadsheet to calculate your end costs. As your business grows, this will become more difficult and time-consuming without the right software. Plus, with the UK government’s Making Tax Digital initiative, you’ll need to use accounting software to file your returns after April 2022.
When completing your Self Assessment, you need to report what money you’ve made and provide evidence for all expenses related to running your business. If you’re using the paper form, then make sure you only fill out the sections that apply to you. The main form and subsequent sections are SA100 and SA1035, so double check you’re filling out the correct pages.
When should you fill in a Self Assessment tax return?
The financial year runs from April 6th to April 5th (this is actually to do with ancient calendar systems, dating back to Roman times).
Tax is paid based on how and when you paid the year before. Deadlines differ depending on whether you’ve opted for a paper or online form. The Countingup app provides you with tax estimates so you can plan ahead by setting money aside for the sum.
For the 2020/2021 year:
- The deadline for registration is October 5th
- The deadline for the paper tax return is October 31st
- The deadline for the online tax return is January 31st 2022.
The end of January is also the deadline for actually paying the first instalment on your tax bill, while the second instalment will be due on July 31st.
HMRC can fine you for missing the tax return deadline, so make sure you file on time. It usually takes between five days and eight weeks for HMRC to process a Self Assessment, depending on whether you applied online or by paper, and whether HMRC does any security checks during the process.
Self Assessment tax returns can seem overwhelming, but staying on top of your income and expenses throughout the year makes this process much more manageable. Make sure to keep a record of your costs, record all of your receipts with a tool like Countingup.
For more detailed information on completing your Self Assessment download our Comprehensive Guide: How to complete your Self Assessment in 3 simple steps.
How Countingup can help
With Countingup, you can apply for a business current account online in minutes and for free. It automates the time-consuming aspects of financial admin, saving thousands of UK business owners time and money.
The Countingup app makes tax returns much easier by helping you keep track of your finances to ensure your records stay in good shape throughout the year. You’ll have a great deal less to do come Self Assessment!
Find out more here.