If you are self employed then understanding what is HMRC Self Assessment is critical. Failing to misunderstand it, meet its requirements and deadlines will result in automatic penalties and interest.
What is HMRC Self Assessment
If you are employed in a job then it is your employers responsibility to calculate and deduct tax and national insurance on behalf their employees.
If you are self employed or collect untaxed income, like rent or dividends, then you need to report these earnings to HMRC using a self assessment tax return form.
What is a HMRC Self Assessment Tax Return Form
A self assessment tax return form that summarises all income earned during one tax year (a tax year runs from 6 April to 5 April).
The self assessment tax return form is made up of different sections which cover different types of income. For example the:
- Self Employment section needs to include all business earnings and costs;
- Land and Property section should include everything related to rental and property income.
As part of the tax return you are also responsible for working out how much tax and national insurance you owe.
When to File Your HMRC Self Assessment
Self Assessment Tax Returns need to be filed by 31 January each year, along with paying any tax and national insurance owed.
One tax return form covers a tax year. A tax year runs from 6 April to 5 April. So a tax return for 2017/2018 covers earnings during 6 April 2017 to 5 April 2018 and needs to be filed by 31 January 2019.
You’ll need to pay tax due by this date too, as well making a contribution of 50% towards your next years tax bill. This is called a Payment on Account.
You’ll need to make a payment on account if:
- Your tax bill is over £1,000
- You pay less than 80% of the tax they owe through the payroll system
There are proposed changes to the reporting system called Making Tax Digital. This will abolish the current system of reporting once a year and replace it with quarterly reporting and tax payments. This change currently on hold but will be enforced at some point.
Who Needs to File HMRC Self Assessment
If you have received untaxed money then you may need to fill out an HMRC Self Assessment. Here’s how you can check whether you need to file a tax return:
1. Check whether the income you have received is Taxable or Non Taxable Income
Taxable income is the term given to earnings which UK individuals need to tell HMRC about. HMRC sets out strict rules as to what they consider is taxable and non taxable.
Here are some examples of Taxable Income
- Salary, bonus’ and commissions;
- State pension;
Here are some examples of Non Taxable Income
- Self employment earnings of less than £1,000 (part of UK Trading Allowance)
- Child tax credits
- Maternity Allowance
2. Use HMRCs Tool to Check if You Need to File a Tax Return
HMRC have a nice online tool that helps you decide whether you need to file a tax return. Check it out here.
How Do I Fill Out HMRC Self Assessment Tax Return
There are two options when it comes to filling out your self assessment tax return:
- do it yourself or
- hire an accountant to do it on your behalf.
If you are trying to decide whether you should hire an accountant then read my post Do You Really Need an Accountant If You’re Self Employed?
If you are planning to fill out your own Self Assessment Tax Return then the GoSelfEmployed.co Tax Hub contains all the helpful tips and advice you need to take the stress out of tax time.
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