It’s the time of year every freelancer, contractor and company director dreads; Self Assessment season. Time to dig out all those old invoices and expenses, dust off those ancient bank statements and tell HMRC how much money you owe them.
For first-timers completing a Self Assessment tax return can be a daunting prospect. For veterans, it’s part of the financial furniture.
To help out those worrisome first-timers (or just those who need to brush up on their tax return skills) we’ve put together a dead-simple 5-step guide to completing your Self Assessment.
Part 1: registering for Self Assessment
To complete your Self Assessment online, you first need to register with HMRC to tell them you need to submit a tax return. You can learn about the process here. You can register either online, by phone or by post (by completing form SA1 - PDF download here – and sending it to your local tax office). To register you will need:
- Your National Insurance Number
- Your personal details and those of your business
Do I need to complete a Self Assessment?
If you are a freelancer, yes! As a general rule Self Assessments are for anyone who receives income that is not taxed “at source”. In the case of a sole trader, the income you receive via your invoices does not have National Insurance contributions or Income Tax subtracted from it, so you must tell HMRC about that income on your Self Assessment so they can calculate what, if any, tax you owe.
Other examples of income not taxed “at source” includes rental income from any property you may own, or income from abroad.
If you are the director of a limited company you must complete a Self Assessment, so freelancers who have incorporated must file too!
When do I have to register?
The registration deadline is October 5th following the tax year for which you wish to submit a return.
For example, if you went freelance and set up your own business in June 2014, you would need to submit a Self Assessment for that tax year, which runs from 6th April 2014 until 5th April 2015. To submit that Self Assessment, you would need to register by October 5th 2015, in order to submit it (and pay any owed taxes) by January 31st 2016. All a bit confusing, if you ask us. You can read more about tax and financial years here.
If you miss the registration deadline there are penalties you must pay, but all is not lost! If you can prove to HMRC that your intentions are good and you still manage to submit your Self Assessment on time, these penalties can be reduced or even eradicated entirely – your accountant can help you with the appeals process.
What will I get when I register?
Your reward for registering for Self Assessment will be a Unique Taxpayer Reference Number (or UTR Number). This is a ten-digit number that HMRC allocate to those needing to complete Self Assessment to help streamline the process. You will only have one UTR (much like a National Insurance Number), so if you have previously registered for Self Assessment you need not get a new one.
After you have registered for Self Assessment HMRC will send you your UTR in the post (aren’t they adorable?), and you will need it to submit subsequent Self Assessments, so keep a record of it!
Do I have to register every year?
No! Once you are registered you will be reminded to submit a Self Assessment every year until you inform HMRC you no longer need to complete one. This could be because you return to full-time employment, move abroad etc. etc.
Bear in mind if you inform HMRC you no longer need to complete a Self Assessment, but further down the road end up in a situation where you need to start filing personal tax again you will have to re-register, and get a new UTR.
Part 2: keeping proper records
Being a diligent little freelancer and keeping proper financial records can seem rather tedious a lot of the time, but it will all be worth it when you come to complete your Self Assessment.
When you come to submit your financial information through the Self Assessment Online portal, having an organised stack of paperwork (or better yet a swanky online accounting system) can save your heaps of time and stress.
Before you start, here is a small selection of the financial records you should have to hand when you go to complete your Self Assessment. Many of these will not apply depending on the complexities of your finances; and this is not an exhaustive list (just a selection of the most common items).
If you are a sole trader, this means all your invoices & business related expenses.
If you are running your own limited company and draw money from your business with a salary / dividend split, this will apply. You will need all the vouchers for dividends issued in the relevant tax year.
Details of any income your received through a Partnership.
Information on interest on things like loans and credit cards is needed, so get the relevant statements from your provider.
Own rental property? You’ll need details of all the income you’ve made through it in the previous tax year. Extra points if you receive your rental income into a separate bank account for ease of organisation.
Receiving any income from overseas? Keep the details handy.
If you pay into a pension you should keep details of all the payments you’ve made.
If you’ve done any charitable giving and claimed Gift Aid on it, these details will be needed too.
Payment on Account
This means payments towards your last year’s tax bill – these will count against your income this year.
Redundancy lump payment or Unemployment benefit
If you left a full-time job or claimed Unemployment benefit in the last tax year, HMRC needs to know about it.
P11Ds are to inform HMRC of any benefits claimed by employees. If you have one for the last tax year, you’ll need it!
If you’ve made any profits disposing of things like rental property or shares, have these details handy too.
If in doubt, speak to a specialist
If you have a complicated financial setup, it can be well worth the money to engage a specialist to complete your Self Assessment rather than risk screwing it up! Signs it might be time to find yourself a good accountant:
- If any of the terms listed above gave you a headache
- If you think you have some of the above, but you’re not sure
- If you’re not sure which of the above relates to income and which to expenditure
- You are unsure of the tax law on how something is treated
Part 3: when should I complete my Self Assessment?
Conventional wisdom would have it that you should complete your Self Assessment at the earliest possible opportunity. Of course, the majority of people do not. As you might expect the day of the online submission deadline (January 31st) is the busiest for those completing their personal tax returns. This year, from a total of 9.45 million Self Assessments, almost half a million (445,000) were submitted online on January 31st!
During the busiest part of the busiest day (between 4pm and 5pm) 37,460 Self Assessments were submitted – that’s around ten every second! Despite this rush around 850,000 Self Assessments were still submitted late.
Clearly many freelancers and contractors choose to leave their Self Assessment to the last minute. This isn’t without its risks, though. In 2012 HMRC was forced to extend the online submission deadline until February 2nd after their call centre staff staged a walkout, leaving many people unable to seek advice and support while completing their tax returns.
In part two of this guide we covered collecting the necessary paperwork to complete your Self Assessment – if you come to file online at 11pm on January 31st and discover you are missing a statement or invoice, you will have to delay your submission, earning yourself a penalty in the process!
The early bird catches the worm (and avoids the fines)
The mega-organised amongst you will be asking the question “When is the earliest I can submit my Self Assessment?”
The answer is the beginning of the new tax year, so 6th April. However, to successfully complete your Self Assessment you will need various tax forms from the previous year (P60, P45 and P11D, for example), and depending on the speed of your accountant these may not arrive for several weeks or months. So in practical terms, the earliest you can submit your Self Assessment is whenever you have all the necessary paperwork.
Why would I file early?
There are a few advantages to filing your Self Assessment as early as you can. From a financial planning point of view you will know how much tax you owe earlier, allowing you to budget effectively. The deadline for paying owed tax is also January 31st, so having some time to plan for this expense is obviously preferable to submitting your Self Assessment on the deadline, finding you owe thousands and having to pay it out of pocket (or worse still, not being able to pay and incurring fines and penalties!).
On the flip side, if you have over-paid tax submitting your Self Assessment early means you will be at the front of the line when HMRC starts issuing refunds.
Part 4: completing your Self Assessment online
The time has finally come. You’ve registered for Self Assessment online, you’ve collected and organised all the relevant paperwork, and you’ve decided on the best time to file (hint: not the evening of January 31st). Let’s do this thing.
Be gentle, it’s my first time
If you’ve never filed a Self Assessment online before, you will need to create an account with HMRC Online Services. To register you will need your Unique Taxpayer Reference number (we got that in Part One, remember?), and either your postcode or your National Insurance Number. Once registered, HMRC will send you an Activation Code. This will be sent in the post (groan) to your home address. You must use this code to activate your Online Services account within 28 days, or you’ll have to request another one.
Once you’ve activated your Online Services account you will have a User ID and password, you can use these to log in to HMRC Online Services and away you go!
If you want to see what you’re getting yourself into, HMRC have an online demonstration of their Self Assessment system.
This isn’t my first rodeo
If you’ve filed your Self Assessment online previously, you’ll already have a User ID and password for HMRC Online Service – you can use this to log in and get started.
Let’s get filing!
If you’ve done all your preparatory work, completing your Self Assessment online isn’t actually a particularly arduous task. It basically amounts to transposing data from your financial records into HMRC’s system. You’re just filling in a form.
The easiest and safest way to complete Self Assessment is to start with a stack of records in front of you, and put each record to one side as you input the relevant data. Assuming you have all the correct records in front of you, this will mean that when you have no more records in your stack, your Self Assessment is complete.
This also means that if you run across an item which you are not sure applies to you, you can eliminate it by exclusion once you’ve put all your records to one side.
Take your time
HMRC’s system can save your progress for you, meaning you don’t necessarily have to complete your Self Assessment in one sitting. If there’s an item you’re unsure about you can go away, read up on it or consult an expert, then come back to make sure it’s done properly.
Similarly, you can go back to edit previous sections before you finally submit your Self Assessment – so if you make a mistake it’s not the end of the world!
Help is at hand
The Online Services Self Assessment system is full of helpful hints while completing your return. In many cases the section you are filling in will tell you exactly where to look to find the information you need. Each field also has a little help tooltip next to it with more information.
Double-check and submit!
It’s in everyone’s interest that your Self Assessment is accurate, so HMRC give you every opportunity to make sure your information is correct, and will highlight any errors it spots for you. Once you’ve finished every section, you can review your tax return and finally, when you’re ready, file it.
You’re finished, congratulations!
Part 5: what happens if I miss the filing deadline?
So, you’ve diligently registered for Self Assessment, collected and organised all your financial records, and come to complete your tax return when – disaster – you realise you don’t have a certain bank statement or tax form, and can’t get it until after the January 31st deadline!
Or, perhaps a more likely scenario, you completely forgot about your Self Assessment, remembered on the evening of the 31st only to find you haven’t registered to get a UTR, so can’t file.
Whatever your excuse, if you don’t submit your Self Assessment by 11:59:59pm on January 31st you’ll be in line for a tasty fine, with more looming down the road if you delay further.
If you miss the deadline you will be hit with an on-the-spot, do-not-pass-go £100 fine. You will by no means be alone; in January 2014 around 700,000 people missed the deadline (meaning a windfall of £85 million for HMRC overnight). After this initial penalty you will have three months to get your act together and file your Self Assessment.
Should three months pass and you have still not filed, HMRC will begin to fine you £10 per day for up to 90 days. If those 90 days elapse and you’ve still not filed, you’re in line for an additional fine of £300 or 5% of the tax you owe – whichever is greater. This same fine will be applied after twelve months, too.
So if a year should go by and HMRC have yet to receive your Self Assessment, you will have accrued a minimum of £1,600 in fines.
HMRC also have additional powers to punish those they believe are intentionally withholding information from them or attempting to conceal their true tax liabilities, including a fine of up to 100% of their tax liabilities in addition to the penalties above.
So, the moral of the story is do not delay! HMRC claim their penalty regime is designed to encourage submission rather than generate income through fines – however you look at it, everyone benefits from an accurate and on-time Self Assessment.
If you need more help, HMRC have a handy walkthrough of their Self Assessment service -