Guide to Self-Assessment for the UK Self-Employed and Freelancers

If you are planning to work for yourself then self assessment is going to play a part in your life. Whether you like it or not!

If self-employment is new to you, then I know you may be feeling overwhelmed just by the sheer volume of information out there and knowing which regulations actually apply to you.

I’ve created this guide to give you an overview of all the things that really matter when it comes to self assessment for the self employed, including registration, returns and tax payments.

I’ll also share some other useful resources to help you get your head around the whole UK tax system.

What is Self Assessment?

Self assessment is the process created by HMRC that allows anyone who receives untaxed income to declare it to the government and pay any tax due.

Many people in the UK are employed. For them, their employer will take responsibility for working out their tax and national insurance, deducting it and paying it to HMRC.

They don’t really ever have to deal with HMRC.

But other people get paid money that is known as untaxed income, that includes self-employed sole traders.

When you’re self employed, everything you get paid has no tax deducted from it. So it is your responsibility to tell HMRC about it, work out how much tax they owe and pay it over.

They must report this income to HMRC using a self-assessment tax return form.

Self-Assessment Tax Returns

Once a year you’ll need to fill out a self-assessment tax return.

A tax return summarises information about you and your business such as;

  • Personal details;
  • Details of untaxed earnings, for example, self-employment income, benefits, pensions and the self-employment income grant;
  • The amount of tax you owe.

A tax return is many different sections, but you’ll only need to fill out the ones relevant to you.

In most cases, you’ll need to fill in your tax return online.

Filing your tax return online is generally a legal requirement for most people now.

There is a paper version, but that is only available for people in very specific circumstances and needs to be filed slightly earlier by 31 October instead of 31 January.

Filing online is better anyway because not only do you get more time, it also means that HMRC will calculate your tax automatically for you.

Example Self Assessment Tax Return

When is the Tax Return Deadline?

The tax return deadline is the 31 January each year. That means your tax return for the tax year 2019/2020 is due 31 January 2021.

When Do You Need to Start Filling Out a Tax Return?

The time to file tax returns depends on when you became self-employed and registered with HMRC.

It is your responsibility to register for self assessment so you can tell HMRC that you are self employed.

When to Register as Self Employed

You are legally required to register for self assessment once your business turnover (not profit) goes over £1,000

This is a tax allowance known as the HMRC Trading Allowance.

It is really designed for people who earn a little bit of extra cash like babysitters.

And although it has been adopted by some newly self-employed business owners and freelancers, many people choose to register for self assessment, regardless of their turnover for other reasons.

For instance, they expect their business to grow beyond this quickly or they want to record a tax loss to reduce their tax in the future.

The deadline for telling HMRC that you are in business is the 5th October in your businesses second tax year.

A tax year runs from 6 April to 5 April.

Say you started your business on 1st January 2020, you’ll need to register as self-employed by 5th October 2020.

You’ll then need to fill out a tax return by 31st January 2021, giving details of your earnings for the tax year 6th April 2019 to 5th April 2020.

Self-Employment Taxes

When you are self-employed, you need to pay the following taxes:

  • Income tax
  • Class 2 National Insurance
  • Class 4 National Insurance

The amount of each depends on how much you earn and there are thresholds up to which you won’t pay any tax or national insurance like the personal allowance.

But it is important to remember that even if you don’t need to pay any tax, you will need to file a self assessment tax return so that HMRC know exactly what you have earned and have proof that you don’t have to pay taxes.

Business Expenses

Keeping track of all your expenses is important if you are self-employed. This is because they reduce the amount of tax you owe.

Generall everything you buy as part of your business is tax deductible but there are certain expenses that you cannot claim.

Check this guide to learn how to work out what you can and can’t categorise as an expense.

It is your duty to track your expenses and keep receipts, that’s why having a solid bookkeeping system in place will help keep you organized.

Bookkeeping and Record-Keeping

Tracking income and expenses can get messy, but there are systems you can use to help you stay organized.

Bookkeeping is the recording of day-to-day financial transactions in a business, including every invoice you raise, every payment you make, and the money you owe.

Filing Your Tax Return Online

You can seek the help of an accountant to file tax return or fill our do yourself.

There is no legal obligation to use an accountant, but whatever you choose, keep in mind that it is your responsibility to get it done on time to avoid the automatic penalties if you miss the self assessment deadline.

When it comes to filing your return, make sure you allow yourself plenty of time and get everything you need ready before you get started.

Step-by-step Guide Completing Your Tax Return Online

Paying Self Assessment

You must pay your tax and national insurance twice a year on 31st January (along with your tax return) and on 31st July, a contribution towards your following years tax bill, known as a payment on account.

You can pay your tax in the following ways;

  • Bank transfer
  • Direct Debit
  • Debit Card
  • Through your tax code if you’re employed

There are more details about paying your tax bill on the HMRC website.

What Happens if You Can’t Pay Your Tax Bill

It can be terrifying if you cannot pay your tax bill. HMRC takes non-payment really seriously and has the power to make you bankrupt if needs be and add penalties which escalate.

In the event that you cannot pay your tax bill on time, make sure you have an acceptable reason. Then contact HMRC either online or by phone and request a suitable plan.

The Digital Tax System

Over the recent years the government has been taking steps towards digitize the entire Self Assessment system, called ‘Making Tax Digital’.

In simple terms, that means anyone who is registered for self assessment must use a digital bookkeeping system to send their information to HMRC on a quarterly basis.

Making Tax Digital (MTD) was launched in April 2018 with VAT registered business being the first required to switch over to a digital bookkeeping system to calculate their VAT and submit their returns.

Everyone else was meant to be next.

But since then we have had BREXIT and the COVID-19 pandemic to fight. So, the start date has been pushed further and further back.

Currently, there is no set date for MTD, but check back here for updates.

Wrapping Up

I know when you are starting a business there are so many new things to learn about from taxes to insurance and marketing.

I hope this overview of self-assessment has helped you get to grips with what is expected of you when you register as self-employed and your responsibilities moving forward.

New Here? Learn how to set up the financial side of your business with these easy to understand guides and resources:

  • Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
  • Tax Records and Bookkeeping – Understand what tax records you’ll need to keep and how to set up your own bookkeeping system;
  • Self Employment Taxes Explained – Learn what taxes you’ll pay, how much and when;
  • VAT Guides – From registration to de-registration, VAT schemes and thresholds, these guides will take you through the basics every UK small business owner needs to know;
  • Invoice Template – Free template and step-by-step guide so you can get paid by your clients.
Anita Forrest
About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.