Taxes are always a daunting topic, no matter if you’re running your own business or if you’re employed. In employment, paying income tax is quite straightforward as it is deducted from your salary and you don’t typically don’t have to do anything (unless you’re fortunate enough to earn above £100k in which case you’ll need to file a self-assessment).
Things get a little more complicated if you have any form of income that is not taxed at source (i.e. through employment). This can be any income you received from renting out a property, income from savings or investment, government grants (e.g. any COVID-19 support you received), tips and commissions or any gains made from the sale of an asset. Anything you pay yourself as a business owner, apart from salaries, also falls under this category. In all these cases, you need to file a tax return. This is not only to inform HMRC about your income, but it also serves as proof of self employment, for example, to claim Tax-Free Childcare or Maternity Allowance and will normally be requested when applying for a mortgage.
Self Assessment: First Steps
If you’re sending a tax return for the first time, you will have to register for self-assessment and class 2 National Insurance. You can do this via your business tax account. If you don’t have one yet, you can create one. If you’re not self-employed but still need to register (e.g. if you have rental income) you can also register using this form.
Once registered, you will receive a letter with your Unique Taxpayer Reference (UTR). This is a 10-digit number that you need to file the tax return.
You will now also receive reminder letters for when a tax return is due.
Tax return deadlines
The UK tax year usually starts on 6th April and ends on 5th April. The deadline to register for self assessment is usually 5th October for the past tax year.
If you submit your tax return in paper form, you must do so by 31st October for the past tax year. If filing online, you must submit and pay any tax you might owe by 31st January for the past tax year.
As an example, if you have tax to pay for the tax year ending 5th April 2022, you’ll need to register for self-assessment by 31st October 2022, and submit your return (presuming its online) and pay your tax by 31st January 2023.
Penalties apply if you file or pay late.
It’s possible the deadlines for registering, submitting and paying could change in the future so always review current self-assessment deadlines on the HMRC website.
Files and documents to prepare for self-assessment
Which documents you need to file your tax return depends on your circumstances. In general, we can say that you will need anything that relates to your income in the respective tax year, and any corresponding expenses related to generating that income.
Before you start, make sure you have your Unique Taxpayer Reference (UTR) and National Insurance number at hand.
You will then have to provide details about the following:
- Untaxed income that you received during the respective tax year, e.g. income from self-employment, dividends, rental income, interest, capital gains
- Expenses relating to that income (keep all those receipts to hand)
- Charitable donations or pensions (or anything else that might be eligible for tax relief)
- Income you might have received that you already paid tax on (e.g. a P60 for salaries received)
At the time you file your tax return, you won’t need to send any documents to HMRC for the above-mentioned income and expenses, but you should keep any documentation for your own records and be aware that HMRC might ask questions. In this case, you should have those documents ready to show. You need to keep those records for 12 months after the filing deadline. For property income, records must be kept for 5 years.
Important: If you are self-employed, you must be able to show how you worked out your profit or loss.
If the tax due to HMRC is more than £1,000 and more than 20% of your total tax bill for the year (when considering PAYE deductions), you’ll also be required to make a “payment on account” – this is an estimated prepayment towards next year’s tax bill (with 50% of it due on the 31st January and the remainder due on the 31st July).
We know that filing a tax return can be a little overwhelming. If you have any questions or need advice, feel free to raise the question in the Othership community. or watch online workshop with Steven Tanner of Leap Accountants or email him directly at firstname.lastname@example.org.
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This article was written by Steven Tanner of Leap Accountants.
At Leap Accounts & Outsourcing, we believe the days of the old-fashioned accountant are over. No more should your accountant turn up once a year to hand you a set of accounts for signing and an invoice for paying. In today’s modern age, an accountant should be pro-active and forward looking, helping you to identify areas in which your business can perform better.
Leap is not an old-fashioned accountant. We don’t just want to help you meet deadlines… we want to work with you to help your business grow.
An all too common complaint from small business’s is that they only hear from their accountant when a deadline is looming. Not us. We provide a business health-check every six months for all clients to review how the business is performing and how we can help it improve. And if an unexpected tax issue arises or you’re thinking about raising some cash to expand? We are always available to lend an ear and offer practical, effective solutions. We believe clients should pay for the value we provide, not for how long we spend on the phone with you.