If you earn money outside of an employer’s PAYE system, then you have a legal responsibility to file a tax return with HM Revenue and Customs (HMRC). It can feel like an arduous task completing and submitting your tax return, especially if you’re not good with figures. However, if you’re organised, then it doesn’t have to be difficult.

Here, Mike James – working with staff management specialists Planday has put together some guidance and tips to help make filing your self-assessment tax return easy peasy.

Registering Online – Don’t Delay

It’s well worth opting for the online return. It’s easy to set up. But you’ll need to register in advance. Don’t leave registering until the last minute, as once you’ve set up a user ID and password, HMRC send an activation code to you through the post. It takes several days for the code to arrive, and you can’t log on and file your return without it.

HMRC are now encouraging all taxpayers to switch to online returns. With the days of submitting paper returns almost over, you may as well register sooner rather than later.

If you are a new self-employed business you’ll need to register with HMRC. You can do this online, by post or by phone. You’ll need your NI number, along with personal details and your business details. Once registered you’ll be issued with a unique tax reference number. Once set up you can register to file online in the usual way. Allow extra time to do all of this – at least 20 days.

Record Keeping

Proper record keeping makes filing your return so much easier. We suggest you keep up to date monthly with a spreadsheet or simple accounting software to detail all of your income and expenditure. It makes the process of filing your return so much easier when you have all the figures you need already calculated.

If you also work somewhere else under PAYE, you’ll need your P60 for the relevant tax year when filing your return. Similarly, if you left PAYE employment during the tax year in question, you’ll need your P45.

Payment on Account

Once you’ve started to pay tax through the annual self-assessment system you will also have to make payments on account for the next tax year. These are advance payments for the tax you are likely to owe from your next return. Each payment is equal to half the amount of tax you owe for the previous year (payable on 31st January and 31st July).

If it’s your first year paying self-assessment tax you’ll need to factor in the first advance payment on top of the tax due for your annual return. So if your tax bill is £10,000, you’ll need to pay £15,000 to include £5,000 advance payment for the next tax year. In this example a further £5,000 would be due on 31st July.

Allowable Expenses

If you are self-employed, your business will have various running costs. You can deduct allowable expenses to work out your taxable income. Limited companies have different rules. Allowable expenses don’t include any personal costs or private purchases such as accommodation, personal travel, clothing or holidays. You can claim for most of the other expenses related to your business. You don’t have to send proof of expenses with your tax return, but you do need to keep all of your receipts in case HMRC ask to see them.

Allowable expenses include:

  • Office costs
  • Travel
  • Uniforms
  • Staff
  • Raw materials
  • Financial costs
  • Premises costs
  • Advertising and marketing costs

You can use simplified expenses using flat rates if you want to. This offers an easy way to work out business costs for vehicles, working from home, or living at your business premises. For more information about how to work out flat rates and what to include see the HMRC expenses guide here. There’s also a HMRC guide to help with the calculation of motoring costs.

National Insurance Contributions (NICs)

In addition to income tax, you will also need to pay national insurance contributions. The amount and class of NICs you pay will depend on your earnings. There are different rules for sole traders and Limited company directors. Current rates and how to pay can be found here.

The deadlines:

  • 5 October – for new businesses set up in the tax year immediately prior to October, you must have registered by this date. You can be fined if you don’t.
  • 31 October – the deadline for paper returns (3 months earlier than online returns). It has to have been received by HMRC by this date, not posted on.
  • 30 December – you’ll need to file your return by 30th December and notify them if you want them to collect tax automatically from your wages or pension.
  • 31 January – online returns are due by the 31st January each year, following the tax year in question.
  • 31 January – any tax you owe for the tax year also needs to be paid in full by 31st January after the end of the tax year in question (the same deadline as the return itself). You also need to pay your first payment on account for the coming tax year.
  • 31 July – the second payment on account is due by this date.

What happens if I miss the assessment deadline or pay late?

If you miss the assessment deadline you will be subject to a fine. Fines increase the longer you leave it. If you miss the deadline by just one day you could be hit with a £100 fine. After 3 months there’s a further £300 fine or 5 percent of the tax due. Further fines are added after 6 and 12 months.

If you’ve filed your return on time, but know you won’t be able to pay, contact HMRC as soon as possible. You may be able to either get more time to pay or agree to pay with monthly instalments by direct debit. If you don’t pay and don’t notify them there are a number of enforcement actions HMRC can take to recoup the tax you owe. It’s far better to contact them than ignore the problem.

We hope you’ve found this information useful. If you really can’t make head or tail of self-assessment, get yourself an accountant and let them do the work for you. If you have any queries about self-assessment contact HMRC for advice.