HMRC Self Assessment: Tax Return Guide

Being self-employed carries with it a number of financial responsibilities, including the requirement to report your earnings to HM Revenue and Customs (HMRC) under the self assessment regime.

It’s important to meet your obligations as a self employed individual to ensure you are paying the correct amount of tax and to avoid paying a penalty if you are late filing your tax return or paying your tax liability.

In this guide, we explain how to complete your HMRC self assessment tax return, the process for reporting what you’ve earned and for paying what you owe within the time limits.

 

Who needs to complete a self assessment tax return?

 

Self assessment is the system that HMRC uses to collect Income Tax. While tax is often deducted automatically from wages, pensions and savings, individuals with other income must report what money they receive by way of a self assessment tax return. This includes people who are self-employed as a sole trader, a partner in a business partnership, or where income is received from other sources, such as renting out property.

If you’ve earned more than £1,000 gross during the last tax year (this runs from 6 April through to 5 April), you will need to declare this by way of a self assessment tax return.

 

How do you register for HMRC self assessment?

 

If you’re required to file a self assessment tax return for the first time, you must register for self assessment with HMRC. You’ll need to do this by 5 October in the second tax year that your business has been running. You’ll then be required to file a tax return each year setting out your trading business profits, minus allowable expenses, and paying Income Tax and National Insurance on any taxable income over and above the relevant annual thresholds.

As the government is rolling out a new scheme to make the tax system fully digital, you should register for HMRC self assessment online, although you can also register by post.

Once you’ve created an online account, HMRC will send you a 10-digit Unique Taxpayer Reference (UTR) number, typically within 10 working days. You’ll also be sent a code to activate your account.

If you’ve previously filed your returns by post, you can use your UTR number to access the online service. This number can be found on any tax returns or documents from HMRC. Once you’ve registered online, you’ll receive a code to activate your account.

 

How to file your self assessment

 

You can file your HMRC self assessment return online or by post using your UTR number. If filing by post, you’ll need to download and fill in form SA100.

In either case, accurate information will need to be disclosed about your trading income, income from UK and foreign property, and any other untaxed income.

Various expenses can be offset against your taxable profits, meaning you pay less tax, provided these were incurred solely to earn the income in question, and were not for private or personal use. These are called allowable expenses. You’ll also be given a £1,000 tax exemption on both trading and property income. These allowances mean that if your expenses are less than £1,000 in either case, you can apply this allowance instead of deducting your expenses.

Before you start, you may need various documents to help you fill in the tax return, including your profit or loss account or your business records if you work for yourself. However, you won’t be required to send any receipts, accounts or other paperwork or correspondence with your tax return, unless HMRC specifically asks for these.

 

HMRC self assessment filing deadlines

 

If you’re required to file a HMRC self assessment return, you’ll need to do so after the end of the tax year (5 April) to which it applies. Your completed return will need to be submitted by the relevant deadline date, although this date will depend on your method of filing.

You can file your HMRC self assessment online or by post, although the deadline for submitting your return will be extended when using the online system. If you’re filing by post, you must submit your paper return by midnight on 31 October of the same year. If you’re filing online, this time is extended to midnight on 31 January of the following year.

 

Where can I view my HMRC self assessment calculation?

 

If you have an online account, you’ll be able to view your HMRC self assessment calculation as soon as you’ve finished filling in your return, but before you submit this. You’ll also be able to view your final tax calculation in your online account around 72 hours after submitting your return. If you file a paper return, your tax bill will be sent to you by post.

The sum payable will reflect the Income Tax due, plus any National Insurance contributions. It may also include additional payments to cover your potential tax liabilities for the upcoming year. These are called payments on account.

These payments are payable in advance in two instalments, each assessed at 50% of your bill. Payments on account must be made to HMRC unless your tax bill is assessed at less than £1,000, or you’ve already paid more than 80% of the tax owed, for example, if you’ve been taxed through PAYE.

If you made payments on account in the previous year, you should deduct any payments made towards your current bill to work out what you owe. If you didn’t pay enough because, for example, your trading profits have increased from the previous year, you’ll need to make an additional payment to make up the shortfall. This is called a balancing payment. Unless this is your first self assessment bill, your bill will include any tax you owe for the last tax year.

 

Self assessment payment deadlines

 

Your HMRC self assessment bill, including any balancing payment, will be payable by 31 January of the year following the tax year to which it applies. For those using the online system, the deadline for payment is the same date for filing your online tax return. If you’ve filed a postal return by 31 October, you will have a period of 3 months to pay what’s owed.

If you’re liable to make payments on account to cover your estimated tax for the year ahead, these will be payable twice yearly: one in the January and one in the July. This means that the first instalment will fall due by the same deadline date for payment of your tax bill for the previous year. The second instalment will be payable by midnight on 31st July of that year.

 

Is there a penalty for late filing or paying HMRC self assessments?

 

A financial penalty will be payable for filing your HMRC self assessment late, together with penalties and interest charges for late payment of any tax due. It’s therefore important that you file your return and make any payments due by the relevant deadline dates.

The deadlines for filing self assessment tax returns are strict. Late filing of your self assessment tax return can result in:

• 1 day late — a penalty of £100
• 3 months late — a penalty of £10 a day, for a maximum of 90 days (£900)
• 6 months late — a further penalty of 5% of the tax you owe or £300, whichever is greater
• 12 months late — a further penalty of 5% of the tax you owe or £300, whichever is greater – in some cases, you may have to pay up to 100% of the tax you owe

This means that if you’re late in filing your return, you’ll be automatically charged a penalty of £100, even if you don’t owe any tax. There will be additional penalties if your return is more than 3, 6 or 12 months late. You may also be penalised if you fail to register for self assessment within the relevant timeframe.

If you’re late in paying your tax bill, you may again be charged a penalty:

• 30 days late payment — penalty of 5% of the tax owed at that date
• 6 months late payment — a further penalty of 5% of the tax owed at that date
• 12 months late payment — a further penalty of 5% of the tax owed at that date

This means that you must factor in any payment processing time. Where payment falls over a weekend or bank holiday, your payment must reach HMRC on the last working day before. Penalties for late payment can be as much as £750, although the penalty can be up to 100% of your tax bill if you deliberately fail to pay. You’ll also be charged interest on the outstanding balance.

 

How much will I be liable to pay through self assessment?

 

Self employed workers are liable to pay Income Tax on any business profits made, minus allowable expenses. The amount of tax you’ll be liable to pay through self assessment will depend on how much taxable income exceeds your personal allowance, as well as how much of this income falls within each tax band for the relevant year.

For the tax year 2023 to 2024, the personal allowance threshold is set at £12,570. This means that you will not pay any tax on income earned up to this amount.

For taxable income between £12,571 to £50,270, you will pay tax at a basic rate of 20%; between £50,271 to £125,140, the rate is 40%, and over £125,141, the applicable rate is  45%.

If your earnings exceed £100,000, you will start to lose your personal allowance; for every £2 earned over £100,000, the taxpayer loses £1 of personal allowance. This means, as a high earner, your personal tax allowance could be zero. For example, if your taxable income for 2023 to 2024 is over £125,141, you will not have any remaining allowance before you have to start paying tax.

Tax is calculated on your total earnings, so if you also get paid a salary though PAYE, any additional tax will be assessed on your combined income.

If you’re eligible to claim either the marriage allowance or blind person’s allowance, your annual personal allowance may be higher. Income tax is then paid on the amount of taxable income remaining after any applicable allowances have been deducted.

You may also be liable to Class 2 and Class 4 National Insurance contributions, depending on how much you’ve earned. For 2023-2023, the small profits threshold for Class 2 is set at £6,725. If you’ve exceeded the relevant threshold, Class 2 contributions are payable at a fixed weekly rate of £3.45. For Class 4, you’ll become liable on earnings over the lower limit of £12,570, with an upper profit limit of £50,270. For profits over the lower limit, you’ll pay Class 4 contributions at a rate of 9%, and for profits over the upper limit this rate is reduced to 2%.

 

Can I pay my HMRC self assessment bill through PAYE?

 

If you’re taxed at source, for example, as an employee or you get a company pension, you may be able to use your PAYE tax code to collect any tax you owe through your wages or pension. You can pay your HMRC self assessment bill through your PAYE tax code, provided:

• you owe less than £3,000 tax
• you submitted your paper return by 31 October or your online return by 30 December (so earlier than the usual deadline date of 31 January).

HMRC will automatically collect what’s owed through your tax code if you meet these conditions, unless you’ve expressly asked them not to on your tax return. You’ll not be able to pay your tax bill in this way if you don’t have enough PAYE income for HMRC to collect it, you’d pay more than 50% of your PAYE income in tax or you’d be paying more than twice as much tax as you normally do. If you’re self-employed, HMRC also cannot collect any Class 2 National Insurance contributions though your tax code, as it may affect your claim to certain benefits.

Where tax can be collected through your tax code, this will be taken from your salary or pension in equal instalments over a period of 12 months, along with your usual deductions.