Tax Returns for Self Employed

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Tax returns for self-employed individuals are used to report income, expenditures, and other financial information to HMRC. The information collected calculates the amount of tax and National Insurance contributions an individual needs to pay. They must be filed annually by 31st January.

Tax returns for self-employed

When filing your tax return, there are several things to consider. You must accurately report your income and any expenses incurred during the year. This includes wages, pensions and income from investments and other sources. You must also declare any deductions taken against your taxable profits and calculate how much capital gains tax is due on any investments you have sold.

This article will outline the different aspects of completing a tax return for self-employed individuals, whether you are a sole trader or in a partnership. We’ll explain what information you need to provide, how you can calculate your taxable profits and the different ways of paying tax.

Who Needs to Complete Self-assessment Tax returns?

You must complete a return if you are self-employed as a sole trader and have earned more than £1000 before taking off any deductions.

This also applies to landlords renting out a property, people with untaxed income such as tips or foreign income, or those with investment and savings income that is not already taxed at source.

If you are in a partnership, you must complete an SA800 tax return and a self-assessment tax return SA100.

Self Assessment and MTD

The government is introducing a tax system called making tax digital (MTD). This means that self-employed individuals and landlords must keep digital records of their business transactions. These records can then be used quarterly to submit taxes through an approved software solution.

The introduction dates are from 6th April 2026 with an income over £50,000 and April 2027 with an income over £30,000. The income includes both business and property.

Can I Complete my Own Tax Return?

Yes, you can complete your own tax return as long as you are confident in correctly understanding the information and how to report it. However, if you have any doubts or concerns, it is advisable to seek professional advice from accountancy membership organisations UK.

An accountant can provide expert advice on tax planning strategies that may save you money and ensure that all deductions and allowances are claimed, which may reduce the amount of tax due. They will also be able to keep track of all changes in legislation so that your returns are updated accordingly.

Tax Return Software

There are several providers of tax return software which make completing a tax return simpler and more efficient. The software will guide you through entering your financial information, calculating the amount of your tax bill, and then generating a completed return for you to submit to HMRC.

The software is generally very user-friendly and allows you to enter information at your own pace. It will also provide information on deductions and allowances to which you may be entitled, which can reduce the amount of tax due on your return.

In the future, most accounting software packages will include the feature to submit tax returns under Marking Tax Digital.

How to Register for a Self-Assessment Tax Return

To register for self-assessment, you will need to sign up with HMRC and get a government user ID. You will then be sent a 10-digit Unique Taxpayer Reference (UTR) number, which must be kept safe and used when filing a tax return. If you can’t sign up online, you can phone them.

Once registered, you will receive an annual tax return form to complete online. This will detail your income and deductions for the past year alongside any other information HMRC need to calculate the amount of tax you owe.

It is essential to ensure all information on your tax return is accurate, as any mistakes can lead to an investigation and potential fines.

What is the self-employment tax Year?

The self-employed tax year runs from 6th April to 5th April the following year. Any income earned between these dates must be reported on your tax return.

The deadline for filing a paper self-assessment tax return is 31st October, or if you file online, it is by midnight on 31st January following the tax year end.

How to Complete a Self-Employed Tax Return

Gather all the Information for the tax year

The process for completing a self-employed tax return is straightforward. Firstly, you will need to gather all the information required by HMRC, including the following:

  • Self-employed income and expenses
  • Rent received
  • Employment income
  • Income from overseas
  • Pensions payments and income, including any state pension
  • Certain benefits income if it is taxable
  • Investments
  • Gift Aid donations
  • Capital gains or losses from selling assets
  • Student Loans

Check your Personal Details

The next stage is to check your personal details, including name, address, National Insurance Number and date of birth. If any details are incorrect, you can change them now.

Complete the Sections that Apply to You

When completing the Self-Assessment Tax return online, it will guide you through the complete process. You start by deciding which sections are relevant to you.

The process will then guide you to complete each section that is needed.

Tax Calculation

Once you have completed all the required sections, HMRC’s online system will calculate your self-assessment tax return. It will also provide a breakdown of your tax credits, deductions and allowances.

Submit Your Return

Once you have carefully checked the correct details and all information has been included, you can submit your self-assessment tax return. This is usually done by submitting the completed form online via HMRC’s secure website.

Keep Records

It is vital to keep a copy of your tax return, as you may need it in the future for reference. HMRC may also request copies of any relevant information when conducting an audit.

You will also need to keep all the records that relate to your tax return for at least five years after the 31st January submission date. The records include bank statements, invoices, bills, bank interest statements, pension records, and other related paperwork.

How to Calculate Self-Employed Income and Expenses

Calculating your income and expenses can initially seem daunting if you’re self-employed. However, with the help of your bank statements, invoices, and any other relevant documents you may have, it doesn’t have to be as difficult as you might think.

Bank statements will show any money entering and leaving your accounts – this is the easiest way to determine how much money you have made during a period. Make sure to keep a record of invoices sent out for work done so that they can be counted towards your income.

Track all your business-related allowable expenses, such as payments for goods, services, utilities and supplies.

On the tax return, there are two ways to record the business’s expenses; if the turnover is below £90,000 from 2024, you can enter the total expenses. For turnover above £90,000, you are required to enter the individual expense amount.

These records will help produce an income and expenses report and a balance sheet. These figures are used in your self-assessment tax return. There are several different ways to record the transactions for the tax year, including:

Accounting Software

Using accounting software such as Xero, FreshBooks, Sage, or QuickBooks will help you keep up with your self-assessment tax return. These packages usually come with inbuilt features and services that allow you to track income, expenses and payments easily.

QuickBooks Banner with discount

They include features that make it easier to record transactions and run your business, including:

  • Importing bank transactions
  • Reconciling accounts
  • Producing accurate reports
  • Receive payments online
  • Professional Invoices
  • Tracking stock
  • Calculating wages

Excel Bookkeeping Templates

For those not comfortable using accounting software, it is possible to use an excel bookkeeping template. This will allow you to record income and expenses using a spreadsheet. It may be helpful for small businesses or freelancers with low turnover.

At Business Accounting Basics, we have produced over 25 free bookkeeping templates to assist with different accounting aspects like cash book, profit and loss, accounts receivable, sales invoices and lots more.

Cash Book Template

Ledger Book

For those who prefer a more traditional approach, you can record your transactions using a ledger book. This involves entering all transactions into the appropriate columns and sub-divisions. It is essential to keep the ledger book up to date so that it remains accurate.

Once all entries have been recorded at the end of the tax year, your ledger book should be able to produce an income and expenses report. This will provide the information needed for the completion of the self-assessment tax return.

If you’re unsure how to calculate your self-employed income or expenses for a tax return, it is recommended that you seek professional advice from an accountant.

How much Tax do I have to Pay?

Once your self-assessment tax return has been received and processed, you will receive a statement of how much tax and National Insurance is due or if there is a refund due to overpayment.

To check your payments due, sign into and view your account. It will show a breakdown of payment amounts and dates.

Income Tax Rates for Self Employed

The tax you will pay depends on the total income for that particular year. Income tax rates are set by HMRC and are applied to different levels of taxable income.

For the 2023/2024 financial tax year, the self-employed tax rates for single :

Personal allowance up to £12,570 is tax-free.

£12,571 to £50,270 is 20%, the basic rate of tax.

£50,271 to £150,000 is 40%, the higher rate of tax.

Over £150,00 is 45%, called the additional rate. it will be lowered to £125,140 from 6th April 2023.

If you earn over £125,140, you will not receive a personal allowance. For earnings over £100,000, for every £2 earnt, £1 will be withdrawn from the personal allowance.

Class 2 National Insurance Contributions

Class 2 NI is paid if profits are more than £12,570 for the tax year 2022/2023 and are calculated at £3.45 per week.

Class 4 National Insurance Contributions

Class 4 NI is paid if profits are £12,570 or more a year. There are two different rates:

9% on profits between £12570 and £50,270

2% on profits over £50,270

Self Assessment Tax Calculator

You can use the online self-assessment tax calculator to check how much tax and NI you may be liable to pay for the tax year. This will give you an estimate of your tax liability based on the information you enter. The tax calculator is only suitable for calculating self-employed income; it does not include income from other sources.

This tax calculator works on Self-employed only up to £100,000.

What are Payments on Account?

Payments on the account are payments of estimated tax due based on the previous tax year before submitting your self-assessment tax return. You will have to make a payment on account if your previous tax bill was over £1,000.

Payments on Account are 50% of the previous year’s tax bill; the first payment is due by 31st January, and the second payment is due by 31st July.

Self Employment Tax Deadlines

As self-employed, there are several tax deadlines that you must be aware of.

If you are newly self-employed, you must register for self-assessment by 5th October on your second trading tax year. For example, if you started self-employment In June 2022, you must register by 5th October 2023.

31st January is the deadline for submitting your self-assessment tax return and making any payments on account and final payments.

31st July payment on account for the tax year.

If you have missed these deadlines, it is important to contact HMRC as soon as possible to inform

How do I pay my Self-Assessment Tax Bill?

There are several ways to pay your tax bill; whichever method you use, you will need to leave enough time for the payment to clear by the deadline. The options to pay tax are

  • Online or telephone banking
  • CHAPS
  • Debit or credit card – there is an additional charge for using business credit cards
  • At a bank or building society
  • BACS
  • Cheque by post
  • Direct Debit

Once payment has been made for your tax bill, it is always worth checking it has been received by using your online account.

Budget Payment Plan

It is also possible to set up a weekly or monthly payment plan. To set up a payment plan, you must access your online account and follow the instructions to set up a direct debit.

Late Payments for your Tax Bill

If you fail to pay on time, HMRC will impose a late payment penalty. The penalty amount depends on how late the payment is; you will also be charged interest. If you cannot pay your full tax bill, contacting HMRC as soon as possible is important.

Self-Assessment Return Conclusion

Self-assessment tax can seem daunting and complicated, but you can easily manage your taxes with the right knowledge. Knowing when to register for self-assessment, how much income tax you’ll owe based on your total profits, understanding payments on account, and deadlines are all crucial steps in filing a successful self-assessment tax return.

With so many different ways of paying tax, such as online banking or direct debit, it’s easy to ensure everything is handled before the deadline.

Finally, if there are any problems related to filing or paying your taxes, don’t hesitate to contact HMRC for help – they have experienced advisors who can assist you quickly and efficiently.

Disclaimer

The content provided on this page is for informational purposes only and should not be considered tax advice. You should always speak to a qualified professional before making decisions concerning your Self-Assessment return.

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