Are you looking to learn more about HMRC self-assessment? Then this is the guide for you. Whether you’re newly registered as self-employed, an accountant or an accounting student, self-assessment will play a major part in your life. The problem is, it’s easy to feel overwhelmed by the sheer volume of information out there. This makes it difficult to know which regulations actually apply to you. In this simple guide, you’ll find an overview of the HMRC self-assessment system and the topics that really matter such as registration, returns and tax payments.
Updated 5 October 2021
Table of contents
- 1. What is Self Assessment?
- 2. What is a Self Assessment Tax Return?
- 3. How is Self Assessment Tax Worked Out?
- 4. Paying Self Assessment
- 5. What Happens if You Can’t Pay Your Self Assessment Tax Bill?
- 6. Making Tax Digital
- 7. Can I Do My Self Assessment Online?
- 8. How Do I Know I Need to Do a Self Assessment?
- 9. How Much Can I Earn Before Registering for Self Assessment?
- 10. Do I Need to Do a Tax Return If I Earn Over £100k?
- 11. Key Takeaways
Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
1. 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.
For people in the UK that are employed by someone, their employer will take responsibility for working out their tax and National Insurance. Their role is to deduct it and pay it to HMRC on their behalf (along with issuing them a payslip each time they are paid). However, they don’t really ever have to deal with HMRC unless there are changes to their tax code. In contrast, other people get paid money that is known as untaxed income which includes those individuals who are self-employed.
When you’re self-employed, everything you get paid has no tax deducted from it (unless you are a CIS contractor). It’s your responsibility to tell HMRC about it, work out how much tax you owe and pay it over. The way you do this is by registering for self-assessment.
Self-assessment is an annual declaration of all your income. It includes deductions you wish to claim such as expenses, tax allowances and reliefs using a tax return form. This is in addition to paying any tax you owe to HMRC.
2. What is a Self Assessment Tax Return?
A tax return is a form (also known by HMRC as an SA100) issued by HMRC. It’s made up of different sections: the main section and supplementary sections. Each supplementary section covers a separate form of income or piece of information. However, you’ll only need to fill in the sections that are relevant to you and ignore anything that isn’t relevant.
One tax return relates to one tax year, telling HMRC everything they need to know about how you earned your income.
2.1 Main Section
This section contains details of your personal information such as your:
- Full name
- National Insurance number
- Date of birth
Within the main section of the self-assessment tax return, you’ll also need to declare your income from:
2.2 Supplementary Sections
The supplementary sections available are specifically designed for different forms of income and they are:
- Employees or company directors SA102
- Self-employment SA103S or SA103F
- Business partnerships SA104S or SA104F
- UK property income SA105
- Foreign income or gains SA106
- Capital gains SA108
- Non-UK residents or dual residents SA109
You only need to fill out and include the supplementary sections relevant to you. So, when the time comes to fill in your tax return, you’ll only be shown the supplementary pages you need to complete.
2.3 Where to Find Your Tax Return
You’ll find your tax return by going online and logging into your .GOV account with your User ID. You’ll have set this account up when you were setting up your business and registered as self-employed.
There is a paper version of the tax return but it’s only available for people in very specific circumstances. It 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 to submit your return, it also means that HMRC will calculate your tax automatically for you.
2.4 When Is Your Tax Return Due?
The tax return deadline is 31 January each year. This means your return for the tax year 2020/2021 (6th April 2020 to 5th April 2021) is due 31 January 2022, along with a payment for tax.
3. How is Self Assessment Tax Worked Out?
Your tax is calculated from the numbers you enter when you fill in your tax return. The types of tax you pay depend on the type of income you have received for example:
- If you are self-employed you’ll pay income tax as well as Class 2 and Class 4 National Insurance on your business profits;
- If you received dividends you’ll pay dividend tax;
- When you are a landlord you’ll pay income tax on your rental income after deducting property expenses.
4. Paying Self Assessment
You must pay your tax and National Insurance twice a year on 31st January (along with your tax return). In addition, 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
5. What Happens if You Can’t Pay Your Self Assessment Tax Bill?
It can be terrifying if you cannot pay your tax bill. HMRC takes non-payment seriously and has the power to make you bankrupt if needs be and add penalties that can escalate.
In the event that you cannot pay your tax bill on time, make sure you have an acceptable reason. You need to contact HMRC either online or by phone and request a suitable plan.
6. Making Tax Digital
Over the recent years, the government has been taking steps towards digitising the entire self-assessment system. They’ve called this 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 was launched in April 2018. VAT registered businesses were the first required to switch over to a digital bookkeeping system to calculate their VAT and submit their returns. It will be introduced for sole traders and the self-employed from April 2024. MTD promises to make it easier for sole traders to help them to stay on top of paying taxes with quarterly payments to HMRC. It also signals the end of the annual self-assessment tax return form due by 31 January each year.
7. Can I Do My Self Assessment Online?
You can do your self assessment online and this is the preferred option by HMRC. Paper tax returns are only accepted in exceptional circumstances.
8. How Do I Know I Need to Do a Self Assessment?
It’s up to you to work out whether you need to do a self-assessment tax return. HMRC won’t tell you. To figure out whether you need to register for self assessment, start by checking whether you’ve received untaxed income that you need to let the tax-man know about.
One exception to this might be if you are employed by someone and earn £100,000 or more. When you work for someone you’ll receive a payslip with income tax and National Insurance deducted on your behalf under the rules of PAYE. Your employer will know how much to deduct because they have your tax code. Every time they pay you, they report your earnings to HMRC. That means HMRC will know if you are earning £100k+ through your employment. They will most likely get in touch with you (by letter) to notify you that you need to fill in a tax return.
9. How Much Can I Earn Before Registering for Self Assessment?
If you are self-employed you can earn up to £1,000 before registering for self-assessment. This is known as the trading income allowance and applies to your first £1,000 in income, not profit. Other types of income may have to be declared, regardless of their amount. Although there may be tax-free amounts you can earn such as capital gains and dividends. So, if you are in receipt of these, you’ll need to register with HMRC to declare them to the tax-man.
10. Do I Need to Do a Tax Return If I Earn Over £100k?
Yes, if you earn over £100,000 you’ll need to fill in a tax return to declare your earnings. This means you’ll need to register for self-assessment. You’ll also start to lose your entitlement to your personal allowance, known as the personal allowance restriction.
11. Key Takeaways
- Self assessment is the system put in place for HMRC letting people in the UK report untaxed income to them. This includes self-employment income and capital gains;
- HMRC require a tax return to be filled out each year by the 31 January. This is a form made up of different sections with each one designed to cover a different type of income;
- Based on the information you enter, your tax will automatically be calculated by HMRC so you’ll know how much you need to pay;
- Making tax digital is scheduled to begin in April 2024. This means the form will change from annual submission to quarterly, along with tax payments.
- How to Fill In Your Tax Return Online
- What Can Trigger a Tax Inspection from HMRC?
- Does a Director Have to Register for Self-Assessment?
- Do I Need to Do a Tax Return If I Earn Under £10,000?
- Self-Employed Tax Explained
Taxes are changing! From April 2024 sole traders will need to report their earnings and pay tax on a quarterly basis. This is known as Making Tax Digital, which you can read more about in this guide to help you get prepared.