Self-Assessment Tax Returns
When weighing up the pros and cons of becoming self-employed, it is likely that you will have a lot on your mind. As such, it becomes normal to focus on the ‘fun’ things and push everything else to the end of the list. Therefore, it is understandable if Self-Assessment tax forms are not the first thing to spring to mind!
Unfortunately, this does not matter, as completing a ‘Self-Assessment’ is one of the most important tasks someone considering becoming self-employed must do. It is no exaggeration to say that Self-Assessment is a crucial tax document to get correct and one that you will have to deal with on a regular basis as a self-employed business owner. Therefore, to help you get a better understanding of what can be a quite tricky area and ultimately enable you to make a much more informed decision, we have put together the following guidelines.
What is a Self-Assessment form?
To begin with, if you have not come across a Self-Assessment form before, it is likely that you will not actually know what a Self-Assessment form is or does. Self-Assessment forms simply enable HMRC to calculate how much Income Tax and National Insurance you will be required to pay for a certain tax year. Whilst employees have Income Tax deducted automatically from their normal income, the situation is slightly different for people classed as being self-employed or business owners – it is these differences that Self-Assessment forms are particularly useful for. The Self-Assessment form is available at HMRC’s website and can be completed and submitted entirely online. HMRC will use the information you provide on the form to then calculate how much tax, if any, you will be required to pay and informing you of their decision.
Do I need to complete a Self-Assessment?
In general, if you receive income that has not been taxed at its source, you will likely be required to fill out a Self-Assessment form. For example, if you are classed as a Sole Trader, you will need to inform HMRC of whatever income you receive from all trade – this is because National Insurance and Income Tax deductions have not yet been made, and this will, therefore, affect how much tax you will be required to pay.
Directors of Limited Companies are also required to file for Self-Assessment. Furthermore, any income made from other areas, such as real estate rental, overseas payments or income gained from investment dividends must also be declared and will therefore require a Self-Assessment form to be submitted. It is very important that you provide as much information as you can and that you are as transparent as possible in everything you declare. This is because HMRC routinely check Self-Assessment forms for discrepancies and can impose heavy fines for any such problems they discover. If you are unsure as to whether you qualify for self-assessment or not, HMRC have a detailed breakdown of who does and doesn’t qualify on their website.
It is also important to remember that you are not automatically registered for Self-Assessment. This means that you are required to inform HMRC as soon as you first establish a Limited Company or register as being self-employed. The quicker you do this, the better as there can be penalties for late submissions. Registering for Self-Assessment has been made very easy and can be done either online at the HMRC website or calling them directly on the phone.
When to register
It is very important that you register before the deadlines set by HMRC. You will need to file your Self-Assessment form by the 31st January – following the end of the tax year the assessment applies to (the standard tax year runs from 6TH April to 5th April). For employees, this is slightly different, with employees able to submit their Self-Assessment anytime of the year – just as long as they have received their P60 Form from their employer.
Business owners need to issue the P60 Form from their PAYE system – this, of course, can be done with the help of an accountant. For Sole Traders, it is recommended that the Self-Assessment form be filed immediately after the end of the tax year to avoid any problems further down the road. As with everything related to the Self-Assessment process, HMRC are available to answer any questions you may have, as well as help guide you through the entire process.
If you fail to register with HMRC or miss the deadline for the Self-Assessment, there are a number of penalties that you may find yourself subject to. These range in severity but include monetary fines and the need for previous Self-Assessment forms to be re-submitted – often for a number of years. HMRC are placing increasing importance on this area and have therefore begun introducing larger fines and heavier penalties to reflect this. As a result of this, the importance of registering and submitting all necessary documents on time cannot be stressed enough. Understanding that many businesses and individuals are often unsure as to whether they are registered or not, you can now contact HMRC directly, who will confirm whether you are already Self-Assessment registered.
Read up and don’t forget to register!
As you can see, there are various factors that must be considered, as well as a number of choices that you will have to make. It is therefore essential that you read up on the area as much as you can, as well as seek professional advice if and when required. As with many such things, as long as you are transparent in the details you provide and prepare in time so that you make the required deadlines, the entire process should be quick and fairly smooth – enabling you to focus on your business.