Self Assessment Guide
A self assessment is the UK version of a tax return. It’s a collection of forms outlining all the information needed to calculate your tax for the year. This includes any income you earned, expenses you incurred, and deductions you can be apply.
HMRC uses your self assessment to make sure you’ve paid enough tax in the year and make sure you are not avoiding any tax payment.
Who needs to do a self assessment?
There is no simple way to check if you need to do a self assessment due to the complexity of the UK tax system.
However, as a rule of thumb, anyone that earns a portion of their income outside of employment needs to do a tax return.
This could include money you make from a side hustle, as a partner in a business partnership, as a landlord, or being self-employed (as a sole trader).
Simply put, you need to submit a tax return and pay your bill if in the last tax year if you:
- made self-employed income above £1,000
- a partner in a business partnership
You may also need to submit a tax return if you have untaxed income from:
- renting out a property
- savings, investments and dividends
- crypto
- foreign income
- tips and commission
If you're employed by a company, HMRC will collect your income tax through the PAYE system. However, if you're self-employed (even if it is alongside your employment), you need to work out your income and expenses and then pay a bill each year.
What do I need for my self assessment?
You need your Unique Tax Reference (UTR) number, your personal details, an overview of your earnings, and an overview of the costs you incurred that can impact your tax bill.
- UTR - This is your Unique Taxpayer Reference number. You need to register for a UTR before you can submit a self assessment.
- Personal details, including your National Insurance number and your address
- Earnings: depending on your situation, this can be quite a long list. Commonly this includes your salary, dividends, interest, rental income or capital gains.
- Costs: A lot of costs you incur through the year can lower your tax bill. It’s again a long list but can include your student loan, expenses for your business, and gift aid contributions.
What expenses can I include in my self assessment?
Note that you can only expense things that you need to run your business. In the words of HMRC, anything expensed needs to be 'wholly and exclusively’ for the business.
Rather than keeping an itemised list of all your expenses, the Trading Allowance is a great benefit to take advantage of. The £1,000 trading allowance allows you to assume you've incurred £1,000 in expenses (even if your expenses are less than £1,000).
Using the trading allowance will likely save you hours of work preparing your tax return and relieve you of the stress of doing something wrong.
What are the key dates and deadlines?
Your tax return is due each year by the 31st January, and covers all your earnings from April to April (the tax year). This means that you normally have over 9 months to prepare your tax return each year.
In the UK, the tax year runs from 6th April to 5th April of the following year. In your tax return you need to include only earnings and expenses from this period.
Remember that you have to register with HMRC for self assessment by 5th October, if you aren’t already.
You don’t need to register every year as, once you’re registered, HMRC considers you self-employed until you say otherwise.
Here’s an example to make everything clear:
For the 2023/24 tax year, you need to include all your earnings and expenses between 6th April 2023 and 5th April 2024. Then you need to register with HMRC by October 2024 and submit your tax return and pay your tax bill by 31 January 2025.
Note that you can submit your tax return from the end of the tax year onwards! You don’t need to wait until January.
What happens if I miss a deadline?
It depends on what deadline you miss. Let’s see this in more detail.
If you don’t register with HMRC by 5th October
If you haven't registered by this date, it is unlikely that you'll be fined.
But, you'll have a higher probability of submitting late your tax return, meaning that you'll be more likely to receive a fine later.
If you didn’t submit you tax return by 31st January
If you don’t submit your tax return on time, you’ll receive an initial £100 penalty and then:
- £10 a day (up to £900) - 3 months after the due date
- Increase of the tax owing to £300 or 5% (whichever is the greater) - 6 months after the due date
- Another £300 or 5% of the tax owing - 12 months after the due date
If you don’t pay your tax bill by 31st January
If you submit your tax return on time but you don’t pay your tax bill, you’ll face the following penalties:
- 5% of outstanding tax - 30 days after the due date
- another 5% - 6 months after the due date
- another 5% - 12 months after the due date
Note that these penalties apply to anyone registered for self-assessment even if you have no tax due.
Why should you submit your tax return early?
You can submit your tax return from the end of the tax year onwards. We advise to submit it as soon as possible because the sooner you submit your tax return, the more time you'll have to pay your tax bill. This gives you enough time to set enough money aside.
You'll also have time to revise your submission if any problem arises, avoiding any penalty later.
And lastly, you won't have to worry about your tax return for the rest of the year!
Do I need to pay tax when I submit a self assessment?
Not necessarily. If you earn less than the tax threshold, then you don't need to pay any income tax or National Insurance.
If you do earn above this threshold, then you will be taxed over your income. For the 2021/2022 tax year, the thresholds you want to keep in mind are:
- You don't pay income tax if you earned less than £12,570
- You don't pay National Insurance if you earned less than £9,500
You may still want to voluntarily pay National Insurance to start saving up for your state pension and state benefits like maternity leave and statutory sick pay.
How do you pay for your tax bill?
There’re different ways to pay for your tax bill.
Note that each payment takes a different time, so make sure you pay HMRC by the deadline.
Here’re the different payment methods and the time they usually take!
Same or next day:
- Online banking
- CHAPS
- Debit or corporate credit card
- At your bank or building society
3 working days:
- Bacs
- Direct Debit (if you have set one up with HMRC before)
- By cheque through the post
5 working days:
Direct Debit (if you have not set one up with HMRC before)
How can I make this whole process easier?
HMRC doesn't make things very easy to understand, especially if you're busy enough with work and a social life!
But we’re here to help! Earnr can make it easier to stay on top of your income and tax return before the deadline. Our app allows you to categorise your transactions, store your receipts and notes, and will provide you with tax estimate. You can also submit your tax return directly from the app for a flat fee of £99.
Learn more and download Earnr here.
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