If you’ve just started out on the road of self-employment or you’re doing additional work alongside your main job, then before you know it you’ll need to start thinking about your Self Assessment.
If you’ve never had to complete one, your first time could be a bit stressful, but don’t worry – we’re here to demystify the process.
If you’re unsure whether or not you need to enrol for Self Assessment then, as a general rule, anyone who receives income that isn’t taxed at source needs to complete a Self Assessment. If you’re a sole trader, in a business partnership, or a company director, you must file a Self Assessment. If you receive a notice for Self Assessment from HMRC you’re legally obliged to complete it. There are a number of other reasons why you may need to complete a Self Assessment, you can find out more in our article, “Do I have to complete a Self Assessment tax return?”.
There are special rules that have been brought in for the Self Assessment filing of 2019/20 returns due on 31st January 2021 as a result of the COVID-19 pandemic, these are covered later in our article.
You may also find this breezy video, “What is Self Assessment and how do I file one with HMRC?”, useful.
What is a Self Assessment?
Every year, millions of people in the UK have to complete a Self Assessment by the 31st January each year. This involves completing a Self Assessment (or Form SA100) and is usually done online, though it’s still possible to file a Self Assessment in the old fashioned way with a paper form.
Self Assessment is HMRC’s way of finding out how much Income Tax and National Insurance you need to pay. Employees have their Income Tax deducted automatically from their employment income through the PAYE system – this doesn’t happen for self-employed workers, or for some other types of income, such as dividends, pensions or income from savings and investments, which is where the Self Assessment comes in.
You’ll need to enrol for Self Assessment, complete it, and submit your tax return to HMRC (usually online) before the 31st January deadline each year. HMRC will use the information you provide to calculate how much Income Tax and National Insurance you’re required to pay (which must also be paid by the 31st January).
What if I’m just doing a bit of work on the side?
Freelancing on the side is an increasingly popular way of supplementing your income. Many choose to keep this under wraps from their employer. However, while you may not want your boss to know about your other work, you can’t hide it from the taxman, so you’ll need to register as self-employed.
You’ll need to complete a Self Assessment so that the taxman knows exactly how much extra income you’ve earned, and how much tax you need to pay on top of your monthly PAYE tax.
Hopefully, those who started contracting, freelancing or became self-employed before the beginning of the last tax year (6th April 2020) will already be up to speed for the looming Self Assessment deadline on 31st January 2021, but for those who are new to the game, here’s the important information you’ll need to prepare.
How do I register with HMRC and submit my tax return?
You’ll need to register with HMRC to tell them you need to submit a Self Assessment tax return. You must enrol for Self Assessment by 5th October after the end of the tax year for which you are required to file a tax return – for example, if you need to file a Self Assessment for the 2019/20 tax year, you should register by 5th October 2020. If you miss this deadline, you may have to pay a penalty.
You can register online, by post or by phone – always make sure you give yourself enough time in case anything goes wrong. To register, you’ll need your:
- National Insurance number
- Personal and business details.
After you’ve registered, HMRC will send you a Unique Taxpayer Reference (UTR) number in the post. You use your UTR to register for HMRC Online Services. HMRC will then send you a PIN number in the post to access Online Services where you can file your Self Assessment. This arduous process should become simpler when HMRC rolls out online tax services, but for now, you’re reliant on Royal Mail and HMRC to get registered.
You can learn more about Self Assessment registration and accurate record-keeping in our jargon-free business guide.
Once you’re registered, you won’t need to re-register in the future. You’ll get a yearly reminder to file your Self Assessment until you tell HMRC that you no longer need to file, perhaps because you’re returning to full-time employment or moved abroad, for example.
The benefits of filing your Self Assessment online
We strongly recommend that you do register for online filing, that you give yourself plenty of time before the deadline, and that you also complete and file a Self Assessment online using the online service (or get an accountant to do it for you online).
The main benefits of filing online are:
- The deadline for online Self Assessment is later – paper returns must be submitted by October 31st while the deadline for online submissions is January 31st for each tax year
- Online tax returns are immediately acknowledged by HMRC so there’s no worry about your Self Assessment return getting lost in the post
- The tax and National Insurance contributions you owe are automatically calculated for you by HMRC, and you can adjust payments
- You can easily save or print a copy for your records
- You can check your account at any time to see what tax you owe and any previous tax payments you’ve made.
One of the most important things you’ll need to do to file an accurate Self Assessment is to keep comprehensive records. The sorts of things you’ll need to keep records of include:
- Self-employed income (details of your invoices and business expenses)
- Income from employment (a P60, or a P45 if you left a job within the tax year, and a P11D if appropriate)
- Dividends you’ve received
- Partnership income
- Interest from savings or investments
- Rental income
- Foreign income
- Pensions contributions
- Gift Aid
- Pension income
- Payment on account if you’ve made any previously
- Redundancy lump payment or unemployment benefit
- Capital gains.
If you’re ever in doubt about what you need to keep a record of, it’s better to err on the side of caution. Of course, the easiest way to know is to talk to a specialist and ask them for some advice. At Crunch, our easy-to-use online accounting software and unlimited support from expert accountants makes keeping on top of Self Assessments and your business finances simple.
How much tax will I pay when I'm self-employed?
How much income tax will I pay?
Income tax for the self-employed is calculated on profits plus any other income, so you’ll have to pay for any earnings that exceed the personal allowance on your total income. If you’re working on the side or in multiple jobs, then HMRC will want to know your income from self-employment profits – the amount left over after all business expenses have been deducted from your self-employment income.
Remember, your self-employment profits could push your total earnings into a higher tax band, which means you’ll have to pay more tax.
You can find all the tax rates and thresholds for the current and previous year in our handy article. We also have our free and easy-to-use Crunch Personal Tax Estimator that you can use to calculate what your tax bill is likely to be.
Don’t forget that if you had any business expenses from your self-employed work these can be offset against your income from self-employment, reducing your tax bill. We’ve got all the information you need on claiming business expenses, either as a sole trader or through a limited company.
If you’re an employee, the amount of tax you pay on your income through employment will be worked out by your employer through their PAYE system, so you only have to worry about paying the remaining tax owed through your self-employment profits or any other untaxed income you may receive, such as income from property or some types of investments.
It sounds complicated, and it can be, but HMRC will lend a hand with some of the calculations. You simply enter the amount you were paid in the tax year, which you can find on your P60, as well as the amount you’ve earned through your self-employed work, and HMRC will tell you how much you owe.
How much National Insurance will I pay?
It’s never that simple! While the National Insurance you pay on any income from employment is taken care of in your PAYE calculations by your employer, if you’re self-employed (or both employed and self-employed) then you’ll have to pay self-employed National Insurance on your self-employed profits. The amounts will be calculated by HMRC through your Self Assessment and must be paid by 31st January each year along with any Income Tax you owe.
How much should I put aside for my Self Assessment tax bill?
You'll always want to know how much tax you're going to pay when you're self-employed; it requires a lot more forward-planning and saving than it does if you're an employee, after all.
As a sole trader, it’s good practice to save around 30% of all of your self-employed earnings each month. We explain this more in our article “How do I pay myself as a sole trader“. You may need to put aside more if your profits are really high (say above £60,000). If you set up your business as a limited company then you may find you could pay less in tax. Here’s some information on whether being a sole trader or a limited company is the best option for you.
You may not actually have to pay 30% of your self-employed income, but it’s a good benchmark to ensure you’re covered when it comes to paying the tax you owe. We’ve seen far too many people find themselves in trouble when they don’t have enough cash to pay their tax bill.
One last thing to remember that catches a lot of people out is that as well as paying your tax from the previous tax year you’ll also need to pay half of your expected tax bill for the next tax year. You’ll then also need to make another payment on account on 31st July. You can find out more in our article “What is a payment on account and do I have to pay it?”.
How do I fill out my Self Assessment tax return?
Now comes the fun part. You’ve registered with HMRC, you’ve got all your logins and passwords, and you know roughly how much tax you owe and you’ve got enough cash to cover it. The exact amount you will have to pay on your profits from self-employment will be worked out using an annual Self Assessment tax return, which can be filled out online at Gov.uk.
We would always recommend filing your tax return as early as possible. This can be done anytime after the start of the new tax year, so long as you’ve registered and received your Unique Taxpayer Reference (UTR) code and log in details from HMRC. Leaving it to the last minute could result in a stressful festive season, and filing late will incur fines.
Once you’ve logged into the system, the process is not actually that daunting – so long as you’ve kept accurate records, which include all sales invoices and expense receipts. Essentially you’re just filling out a form and the system does the calculations for you. Essentially you’re just filling out a form and the system does the calculations for you. The best way to get ready for your Self Assessment is to use software (such as our amazing Crunch Free software) to make it really easy to keep on top of your bookkeeping.
How do I pay my Self Assessment tax bill?
After you’ve double-checked that all the information you’ve entered is correct, press submit and breathe. HMRC will tell you how much tax you owe and you then hand over the cash, usually via Direct Debit or bank transfer (the full list of how you can pay is on the Gov.uk website). One last thing to remember is that since January 2018 it is no longer possible to use a personal credit card to pay your Self Assessment tax bill. It’s also no longer possible to pay your personal tax bill at a Post Office.
How to delay paying your Self Assessment bill due to Coronavirus
HMRC is waiving late filing and late payment penalties for Self Assessment taxpayers for one month. This means you can file your Self Assessment tax return for the 2020/21 tax year and pay any tax due by 28th February 2022 and you won’t receive a penalty.
HMRC does encourage taxpayers to meet the deadline to file and pay any tax due by 31st January 2022 if they can.
You can find more information in our "What happens if I miss the deadline?" article.
This is just a guide – taxes change depending on your individual circumstances. For more personalised advice and to speak to one of our finance professionals, give us a call on 0330 127 7030.
The What, When and Why of Self Assessment
Still stumped by Self Assessment? Our Deputy Head of Accounting Lucinda Watkinson joins host Ben Schaefer to explain everything you need to know.
You can download the slides from this presentation. The webinar also talked about all the resources we’ve got to help you with Self Assessment – we’ve put together a sheet with all the links for you.
If you want more information about Self Assessment, check out our articles “Do I need to complete a Self Assessment?” and “Seven reasons why you should file your Self Assessment early“.
If you want something to download and read later, there’s our jargon-free PDF Self Assessment business guide.
We take the pain out of Self Assessments
At Crunch, we’re experts at looking after life’s numbers, so you can trust us to make your Self Assessment as worry-free as it can be. Our expert chartered certified accountants will take care of you, just like we did for over 7,500 clients in the last tax year. Speak to one of our friendly advisors to see how we could help you.
If you’re already a Crunch client then you can speak to your client managers for help and support. Self Assessment is included as part of our sole trader packages, or our limited company Premium package, and for any other Crunch packages we have our Crunch Self Assessment (Personal Tax) Service to take care of you or any other shareholders or directors who need their Self Assessment completed.