Are you self-employed or doing additional work alongside your main job? You may need to complete a Self Assessment tax return.
This guide will cover:
- What is Self Assessment?
- When do I need to file a Self Assessment?
- How does Self Assessment work? A step-by-step guide
- Streamline your tax management with Countingup
What is Self Assessment?
HM Revenue and Customs (HMRC) uses the Self Assessment system to collect Income Tax that’s not automatically deducted from people’s wages, pensions and savings.
People who earn money from other sources (explained below) must fill in a Self Assessment tax return to show how much they made, and from what sources, during a tax year. Most business owners need to complete one, send it to HMRC and pay their tax bill by 31 January after that tax year ends.
When do I need to file a Self Assessment?
You must file a Self Assessment if you were one of the following in the past tax year (6 April to 5 April):
- A sole trader earning more than £1,000 before taking off anything you can claim tax relief on
- A partner in a business partnership
You may also need to send in a tax return if you earn money from:
- Renting out a property
- Tips and commission
- Savings, investments and dividends
- Another country
Check if you need to file a tax return here.
How does Self Assessment work?
You must take a number of steps to successfully file your Self Assessment tax return and pay what you owe:
Step 1: Register for Self Assessment
If you know you need to file a Self Assessment tax return, the first step is to register with HMRC before 5 October of the calendar year that tax year ended.
For example, if you need to file your first Self Assessment tax return for the 2020/21 tax year, which ended on 5 April 2021, you must register by 5 October 2021.
Side note: If your business has been affected by the COVID-19 pandemic, you may be able to claim financial support through the Self-Employment Income Support Scheme.
Learn more about how to register with HMRC as a sole trader and limited company.
Step 2: Learn what records you must keep
Sole traders must keep records of business income and expenses for their tax return. As a sole trader, you must also keep a separate record of your personal income, since any money you make from sources like investments or property may affect the tax you pay.
If you’re the owner of a limited company, you must keep additional records about the company itself, including:
- Directors, shareholders and company managers.
- Results of any shareholder votes and decisions.
- Promises to repay loans at a specific future date, and who they must be paid back to.
- Promises your company makes for payments if something goes wrong and it’s the company’s fault (indemnities).
- Transactions when someone buys shares in the company.
- Loans or mortgages you take out against the company’s assets (valuable items you own).
Additionally, you must keep financial and accounting records, including:
- All money your company receives and spends.
- Details of assets your company owns.
- Debts the business owes or is owed.
- All goods bought and sold.
- Who you bought and sold your goods or services to and from (unless you run a retail business).
Finally, you must keep any other records of financial information, including:
- All money your company spent, including receipts, petty cash logs, orders and delivery notes.
- All money the company received, such as invoices, contracts, sales logs and till rolls.
- Any other relevant documents like bank statements and correspondence (communication with customers, shareholders, suppliers etc. via letters or emails).
HMRC may check your records to make sure you’re paying the right amount of tax. If you’re confused about how much tax you owe or what records to keep, you can hire an accountant to help.
Step 3: Complete and file the Self Assessment tax return
You can complete and file your Self Assessment tax return online via the HMRC website.
Whether you’re a sole trader or small business owner, you need your Unique Taxpayer Reference (UTR) number to complete your tax return. HMRC usually lists the UTR under “our reference” on any letters and emails they send to you.
Sole traders will need to keep records of:
- Their expenses
- Invoices sent out
- Other business income, e.g., selling off assets like equipment or property
Limited company directors will need additional pieces of information, including:
- Their P60 (shows tax you paid in the past tax year)
- Their P11D (only applicable if you have employees who get ‘benefits in kind’ from you, such as a company car)
You can find out more about different Income Tax forms on the government website.
What are the deadlines for Self Assessment filing?
For filing a Self Assessment tax return online, the deadline is midnight on 31 January following the end of that tax year. For example, the deadline for online filing for the 2020/21 tax year (which ended on 5 April 2021) is 31 January 2022.
The deadline for filing a paper tax return is 31 October after that tax year ends. For example, the deadline for the 2020/21 tax year is 31 October 2021.
Streamline your tax management with Countingup
By setting up a Countingup business current account, you can manage all your financial data in one place. The app comes with free built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes. You’ll receive real-time insights into your business finances with profit and loss reports, tax estimates, and unpaid invoice notifications.
You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward!
Download the Countingup app to apply for your business current account in minutes. All you need is proof of ID and a selfie. Find out more here.