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WHAT EXACTLY IS SELF-ASSESSMENT?
Self Assessment is the way millions of people in the UK report and pay their taxes. Specifically, 11.7 million people filed their tax returns via Self Assessment for the 31 January deadline in 2023.
As the name suggests, Self Assessment requires the taxpayer to calculate their own tax liabilities and inform HMRC about their financial activities and income via form SA100. HMRC then uses the reported income to work out how much tax and National Insurance contributions (NICs) the individual needs to pay.
This is in stark contrast to employees, who have their Income Tax and NICs automatically deducted through the PAYE system — this is not the case for self-employed workers, or for some other sources of income, such as dividends, pensions or income from savings and investments, which is where Self Assessment comes in.
WHO HAS TO REGISTER?
In general, Self Assessment is appropriate for anyone who receives income that is not taxed at the source.
So, in the case of a sole trader, if your income does not have NIC’s or income tax deducted, you must tell HMRC about your income, even if you do not owe any tax.
Income from abroad, income from rental properties, investment income, dividends from your limited company — all must be reported via Self Assessment.
Employees who earn over £100,000 must register for Self Assessment. This is because once you earn above this amount, your personal allowances change. HMRC requires people in this income bracket to file a Self Assessment tax return so they can ensure the correct tax has been paid.
WHAT ABOUT SIDE HUSTLES?
Freelancing is an increasingly popular way of supplementing income. If you are freelancing and earn more than the trading income allowance, you must file a Self Assessment tax return.
The trading income allowance allows you to make up to £1,000 from one or more trades in a tax year without having to inform HMRC about it, subject to certain conditions.
Be aware that the allowance applies to gross income, which is your overall income before you deduct expenses.
WHEN TO REGISTER
Before you can file a tax return, you need to register with HMRC for Self Assessment. This needs to be done by 5 October following the tax year you are filing for. For example, if you need to file for the 2022/23 tax year for the first time, you will need to register by 5 October 2023.
If you miss the deadline, you may have to pay a fine. The good news is that you will never have to register again — unless you tell HMRC you no longer need to file a tax return.
Once registered, you have until 31 October after the tax year in question to file a paper return. The deadline for online filing is later — the 31 January that follows the tax year in question (in our example above, 2024). This is also the date by which you need to pay any tax you owe, to avoid a financial penalty.
The tax you owe is automatically calculated based on what you have entered onto the form, and you can check your account at any time for mistakes.
WHAT YOU’LL NEED WHEN REGISTERING
Registering is relatively straightforward. You will need to supply some personal information, full name and date of birth, a phone number, email address, and National Insurance number.
Having done this, you will receive a unique taxpayer reference (UTR) number by post that HMRC will use to identify you. Make sure you make a note of your UTR, it is very important.
FILING YOUR RETURN
Watch out for these common mistakes when filing a tax return:
1. Missing or incorrect UTR/National Insurance number
Accuracy is key when it comes to tax returns, and that begins with your identification numbers. It is surprising how many people fall at the first hurdle.
2. Incorrect figures and incomplete information
Get your figures right the first time to avoid under-reporting and incurring a penalty or overreporting and chasing HMRC for a refund.
3. Ticking the wrong boxes
To prevent mistakes and unnecessary delays, make sure you tick the correct boxes when completing your tax return.
4. Over- or under- claiming allowable expenses
As a sole trader, landlord or self-employed individual, you can claim a range of allowable expenses. Make sure you include them on your tax return — the value can be deducted from your pre-tax profit, leaving you with a smaller sum that HMRC applies a tax charge on, and thus a smaller tax bill. Make sure you are not over-claiming allowable expenses — they must be made “wholly and exclusively” for trade to be allowable.
5. Missing some sources of income
Deliberately missing out earnings from your tax return is called underreporting, which is tax evasion. Mistakenly missing out sources of income will not be punished quite as harshly, but it is better, and advised to report all your sources of income the first time around.
6. Leaving your tax return until last minute
Late filings come with an automatic £100 penalty and interest on any payments due.
Leaving your tax return until the week before the deadline is very unwise, particularly if you realise you do not have all the financial records you need to complete your tax return on time.
SPEAK WITH US
Self Assessment can be complicated, especially for individuals with numerous revenue streams and complex business operations.
If you need help or advice on ways to minimise your liabilities while meeting your obligations to HMRC, please contact your usual Wilson Wright adviser.
Contact our specialist team
- Byron Heard – Private Client Tax Director
- Tel +44 (0)20 7832 0444
