Whether a sole trader, part of a limited company, or in a business partnership, the self-employed are expected to file a self-assessment tax return per annum. A daunting process, the HMRC Self-Assessment process is often subject to change. If you’re filing this type of tax for the first time, it’s best to work with tax consultants in UK who can help inform your decisions and streamline the procedure. Here’s everything you need to know.
Filing and Paying Taxes Through Self-Assessment
As previously mentioned, self-employed individuals who run a business must file an HMRC tax return every year, paying out from their personal income. Limited company directors, on the other hand, are expected to pay tax on salary and dividends received by the company, although may not need to file a Self-Assessment. This applies to directors whose income is taxed through PAYE.
When You Need to Send Tax Returns and Pay Tax Bills Via Self-Assessment
You are expected to use Self-Assessment if you are:
- Self-employed and earning more than GBP1,000
- Part of a business partnership
- If you have untaxed income from renting out property, tips and commissions, savings, investments, and dividends, or from foreign income
Self-Employed Taxes to Pay
What type of tax you’ll need to pay will depend on the particulars of your business. These types of tax include:
- Income Tax paid through your annual Self-Assessment return and in tandem with National Insurance.
- Dividend Tax for limited company directors who may need to pay tax on dividends via Self-Assessment.
- Corporation Tax paid through company tax returns if you run a limited company.
- VAT paid quarterly under HMRC’s Making Tax Digital scheme if you’re VAT registered.
The Self-Assessment Process
After determining whether or not you must register for Self-Assessment, the process is identical for freelancers, contractors, sole traders, and business owners alike.
You must register with HMRC by October of your business’s second tax year by submitting your documents online. You can then use your Government Gateway user ID to set up your personal tax account and manage your taxes online. After applying for Self-Assessment, you can begin to file your tax returns electronically or on paper.
Online Tax Return Deadlines
Tax returns are expected to be submitted by January 31 of each year, whereas paper returns must be filed by October 31. After submitting your return, you must pay your actual taxes, which adhere to the same deadline as online Self-Assessment tax returns.
How to File Self-Assessment Tax Returns
What you’ll need to file a tax return is the complete information regarding your earnings for the entire tax year as well as other expenses you may want to deduct from your tax return. Thus, it’s important that you track your income and expenses with an accounting tool or with the help of accountants for startups.
You will also need your UTR (unique taxpayer reference) number, which is assigned to you when you register for Self-Assessment.
Allowable Expenses for Small Businesses
Allowable expenses for a deduction on tax returns include:
- Office and travel costs
- Uniform expenses
- Staff costs
- Stock and raw materials
- Insurance or bank charges
- Business premises costs
- Advertising and marketing expenses
If you work from home, you can claim business premises costs on heating, electricity, mortgage, and more if you can suggest the number of rooms used for business purposes. If running a limited company, you can deduct business costs from profits before tax.
As of today, the Making Tax Digital initiative is working to require quarterly tax returns which will no longer be filed by paper. They aim to become one of the most digitally advanced tax administrations in the world and make filing taxes much more convenient for business owners everywhere.
To get instant tax quotes online, sign up for a call back on Accotax! We can also link you up with fixed fee accountants in UK if you’re a freelancer or independent contractor.