TAX AND PENSIONS

The Self Assessment Tax Return for Beginners

13 min read
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First time Self Assessment – survivors tell all

Your first time can be daunting. How are you meant to know what you’re doing? What if you make a mistake?

We’re talking about completing your self assessment tax return, by hard copy or online, of course. More than 10 million tax returns are submitted to HM Revenue and Customs (HMRC) each year. But nearly one in five (19%) of those who have filed a Self Assessment in the past two years think they may have lost out financially because they made an error or didn’t understand the document.

That’s a scary statistic for first timers. But remember, all your self-employed friends have been there, and they all got through it – each with their own story to tell.

Completing a Self Assessment tax return for the first time

If you’re self-employed, you’ve probably already started receiving emails from HMRC reminding you to fill out your Self Assessment tax return before the online deadline of 31 January. 

But what is a Self Assessment tax return? And how do you properly complete it for the first time? Luckily, it can easily be done online in a series of simple steps. And don’t worry if you’re struggling during your first time - the process can seem daunting even to those who do it every year.

In this guide on how to do an online Self Assessment, we’ll help you consider in more depth some of the basic questions you might have when completing your Self Assessment tax return for the first time.

What is a Self Assessment tax return?

A Self Assessment tax return is one system that Her Majesty’s Revenue & Customs (HMRC) uses to collect UK Income Tax and National Insurance. If you are an employee, tax is usually deducted automatically from your wages, pensions and savings. 

But if you have additional income from freelance or self-employed work – or even just a side-hustle– you need to report it yourself in a Self Assessment tax return. You can submit this to HMRC online or by post. Bear in mind that, for the latter, the deadline for submitting paper forms is the 31st October.

In the simplest terms, Self Assessment means what it says: you assess your earnings and expenses yourself before sending what you owe directly to HMRC.

In the simplest terms, it means what it says: you assess your earnings and expenses yourself before sending what you owe directly to HMRC.

Do I need to file a Self Assessment tax return?

Examples of when you need to complete a UK Self Assessment tax return include:

  • Earn self-employment income over £1,000

  • Run a small business

  • Are a registered sole trader

  • Earned more than £1,000 in a given tax year in your capacity as a corporate partner

  • Are employed but earn over £100,000 a year

  • Having rental income over £2,500

  • Earn untaxed income over £2,500

  • Need to pay Capital Gains Tax

  • Have a high income and are claiming Child Benefit

  • Are a trustee of a trust or registered pension scheme

  • Have State Pension as the only income over the personal allowance or,

  • Receive a P800 from HMRC stating that you didn't pay enough tax last year

If you are the director of a limited company, you may need to complete a Self Assessment, depending on how you receive your income and whether you are already taxed through PAYE. 

Filling in a Self Assessment tax return is also an option if you wish to make voluntary Class 2 National Insurance contributions. Doing so can enable you to meet the criteria for benefits like the State Pension.

Tax Rules for Property Owners

If you have sold residential property in the UK, and have capital gains tax to pay after 5th April 2020, you must inform HMRC and pay the tax within 60 days. Non-residents selling any UK land or property, even when no tax is due, must also comply with similar regulations.

What do you need to complete a Self Assessment tax return?

There are a number of key details that you will need to include when completing your Self Assessment tax return. You’ll have to input all of your key financial information in order for HMRC to calculate the tax chargeable on your earnings.

And, as well as supplying details about your income, you may need to include other financial information such as:

  • Charitable donations that are eligible for tax relief

  • Your P60 information

  • Your 10-digit Unique Taxpayer Reference

  • Your National Insurance number

  • Records of any expenses related to self-employment

  • Details about your untaxed income from self-employment, dividends and interest on shares

Make sure you get hold of this information in good time rather than waiting until the end of January to dig it out.

When submitting your tax return, you’ll need to maintain records of your taxable income and gains. Throughout the year, set yourself up for this by keeping a copy and backup copy of every invoice for outgoing expenses, and every documented gain. This may take the form of payslips, bank statements, or for landlords:  rental income.

Not only this, but it’s also important to keep track of any other business-related expenses or assets you have relied upon. For example, this may include transportation logs used for company vehicles.

Should you ever have to answer HMRC questions about your tax return, all of this information will prove that you have taken steps to ensure your tax return is accurate.

How long do I need to keep my Self Assessment tax records for?

Should you be supporting your Self Assessment tax return with self-employed or property income, you’ll need to keep your updated records for five years following the deadline. 

If you don’t, you only need to keep your records for 12 months. That is, if you file them on time - if the returns are filed late you’ll need to keep them for 15 months.

What does a Self Assessment form look like?

A Self Assessment form is a document that UK taxpayers use to report income, capital gains and other information relevant to HMRC. The form differs based on the taxpayer’s situation and includes sections for personal details, tax reliefs, income, expenses and allowances. 

The main return in a Self Assessment is the SA100. The SA100 deals with declaring taxed and untaxed income, pension contributions, charitable donations, and benefits such as State Pension and Child Benefit. If you have income to declare from other sources, you will also need to fill in supplementary pages. 

Some of the most common supplementary pages you may need to fill in are for self-employment (SA103), property income (SA105), and capital gains (SA108), although there are many others.

With each supplementary page, you need to report income from these sources that you haven’t paid tax on. You also need to declare any allowable expenses, which will be deducted from your tax bill. 

For example, if you’re filling in the self-employed form (SA103), you need to report your turnover under the business income section and any expenses. If you received a self-employed income support grant, you need to declare it under the ‘Other tax adjustments for your business trading name’ section. 

Meanwhile, for the SA105, landlords need to enter their income from rented properties in two separate sections and can claim expenses for rates, insurance, ground rent, repairs, loan interest, and other professional fees. 

And, for the capital gains (SA108) form, you need to declare ‘disposal proceeds’ for residential and non-residential properties, and shares and securities. You can claim for ‘allowable costs’ such as the price paid to buy the asset and costs of any improvements.

Taxpayers submit the forms together as a full Self Assessment tax return online or by post with a deadline depending on the filing method, and failure to meet the deadline may result in penalties and interest charges.

Now we know what it looks like, let’s get into how to do a self assessment tax return.

How is Self Assessment calculated?

Under the Self Assessment system, UK taxpayers calculate their own tax liability. To do this, they will have to factor in income tax, NI contributions, student loan repayments and any other relevant expenditures or gains. 

The exact figures that will contribute to the calculation for Self Assessment can vary, and depend largely on which deductions you’ll need to make.

This is then reported to HMRC via their online submission portal. 

When submitting tax returns, it is vitally important that you check the calculations that have been made, both by yourself and HMRC. It’s only natural that errors may occur, however rare they are, and the best way to protect yourself from this is to keep good documentation and bookkeeping practices. 

Let’s look at an example:

Self Assessment example

For this Self Assessment example, let’s take the position of a self-employed person with income from two separate sources: from a business and from owning property. 

Business Income

Rental Income

Income

£50,000

£10,000

Less Allowable Expenses

£10,000

£3,000

Total Allowable Expenses

£10,000

£3,000

Taxable Income

£40,000

£7,000

Final Calculation:

Total taxable income: £40,000 (from business) + £7,000 (from rental) = £47,000

Based on the current tax rates and allowances, the tax due would be:

Basic rate (20%) on the first £37,500: £7,500

Higher rate (40%) on the remaining £9,500: £3,800

Total tax due: £7,500 + £3,800 = £11,300

In addition to income tax, you may also owe National Insurance contributions (NICs) and student loan repayments, if applicable. These would need to be factored into the calculation as well.

Please note: this is just a simplified example, and the real calculation may be a lot more complicated depending on the individual circumstances of the person submitting the return. 

Now we know what a Self Assessment looks like and how it is calculated, let’s pull everything together and explore how to do a Self Assessment tax return from the beginning. 

How to do a Self Assessment tax return

The process of doing a UK Self Assessment tax return can seem convoluted, but it’s quite straightforward if you break it down into steps.

1. How to Register for Self Assessment

You can register for the Self Assessment online. However, before you can register you’ll need a Government Gateway account.

Once that’s set up and you’ve registered, HMRC will send you a 10-digit Unique Taxpayer Reference (UTR) number, to be used in all correspondence and on your tax return. HMRC should also provide you with an ID and password to access the system.

The password will be sent electronically by HMRC, so remember to make a note of it. However, HMRC delivers the user ID by post which could take anywhere from a few days to a few weeks. You’ll need to make sure you leave enough time to allow for any postal delays.

2. How to File your Self Assessment Tax Return

Once you’ve accessed your account, the next step is to log in and file your return. You can also file our return through commercial software or through paper. 

Whichever filing method you use, this will mean reporting all your income and expenses and calculating how much tax you owe, which you can easily do with the help of our Self Assessment calculator

It’s worth checking guidelines on what’s taxable and what isn’t, as you can save on your tax liability by writing off things like stock, insurance and costs for your premises - including a portion of your home costs (like electricity or heating) if you work from home. 

At the same time, you should remember that some forms of income support for the self-employed are taxable, which makes submitting your self-employed tax return properly vital.

3. How to Pay your Self Assessment

Once you’ve submitted your return, you’ll be told how much tax and National Insurance you need to pay. It’s worth making sure these add up, and keeping good records throughout the year can help with this. 

When it comes time to pay, you can do this through a range of methods, including by debit or corporate credit card, through a bank transfer or in person at your bank. The final payment you need to make is due on the 31st January.

The first time you submit a self-employed tax return, you have to pay any tax due from the previous tax year, as well as half of the tax you expect to pay this tax year. So, effectively you pay 150% of the tax.

You’ll then make a second payment on account by 31 July. Once you are in the payment on account system you’ll only have to make the January and July payments.

Self Assessment returns will still be due at the usual time- but preparing yours doesn’t have to be a headache. Using software like QuickBooks can make it simple. It automatically tracks your business mileage and reconciles all your expense receipts with a click of your phone camera.

Want to get an idea of how much tax you’ll owe this year? Try our Self Assessment tax calculator.

4. What is the deadline for submitting Self Assessment tax returns?

These are the Self Assessment deadlines for a submission to HMRC:

  • 31 October for postal submissions

  • 31 January for online submissions

The UK tax year runs from 6 April to 5 April the following year. So, for example, the 2023/24 tax year covers the period from 6 April 2023 to 5 April 2024. 

Can’t make your final payment by 31 January? If needed, you can set up a Time to Pay Arrangement with HMRC. See the Government website for more information.

When should you begin your Self Assessment tax return?

The sooner the better.

Register for Self Assessment now if you haven’t done so already and make sure you are storing all of your client invoices, business-related receipts and bank statements safely. You might choose to keep paper copies, but these can get damaged or lost. Digital storage is the safest option. It also takes up less space and can help you stay organised, especially if you use an accounting software like QuickBooks. With all your records stored safely throughout the year, you’ll have much less to do when it comes time to complete your Self Assessment tax return.

If working all this stuff out sounds complicated, or even like a poor use of your time, we provide Self Assessment services to help everything run smoothly, with features that let you scan bills and receipts, automatically import transactions from your bank and keep all your important information in one place. While these services are unable to offer tax advice or guidance, they will help you set up Quickbooks software correctly.  

We hope this blog post has answered your questions about first time Self Assessment and self-employed tax returns. As with everything related to running a business, it’s crucial you keep thorough records and stay on top of changes. HMRC is already moving away from paper returns with its Making Tax Digital programme, for instance. Stay in the loop about changes to make sure you don’t get caught out.

Feel you’re better informed about completing a first time Self Assessment tax return? Learn more with the QuickBooks blog, which covers a wide range of business-related topics – it’s all part of our mission to help small businesses grow.

Feel you’re better informed about first time Self Assessment tax returns? The QuickBooks blog covers a wide range of business-related topics – it’s all part of our mission to help small businesses grow. Stay compliant with QuickBooks

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