December 6, 2024 | eBook

Filing your self assessment may seem like just another box to tick, but it’s actually a valuable opportunity to get a clearer view of your finances.

In this guide, we’ll cover who needs to file a tax return, the key dates you can’t afford to miss, and how to prepare effectively for the process.

By taking a more considered, methodical approach to calculating income and claiming allowances, you’ll find that self assessment is a straightforward process – and you might even save money!

Let’s begin by looking at who needs to file a self assessment return, as it’s not always as obvious as many assume. 

Who needs to file a self assessment tax return?

Self assessment isn’t limited to the self-employed. HMRC requires individuals in various financial situations to file a return. 

Some 12 million people across the UK filed one in 2023. Let’s first look at who exactly needs to complete and submit a self assessment:

Self-employed individuals and sole traders

If you’re self-employed or a sole trader, you’ll need to file a self assessment tax return if your income from self-employment exceeds £1,000 in a tax year. This threshold is known as the ‘trading allowance‘.

It’s important to note that this £1,000 limit applies to your turnover (total income before expenses), not your profit. Even if your expenses mean you’ve made a loss, you still need to file if your turnover exceeds £1,000.

Examples of self-employed individuals who need to file include:

• Tradespeople (plumbers, electricians, carpenters)
• Online sellers with regular income
• Freelance professionals (writers, designers, consultants)
• Taxi or delivery drivers working through apps

Business partners

If you’re in a business partnership, each partner needs to file an individual self assessment tax return, as well as a partnership return for the business. This applies regardless of how much profit the partnership makes.

Landlords

If you receive rental income from property, you may need to file a self assessment return. This applies to most types of property rental, including:

• Residential properties
• Holiday lets
• Rooms rented out in your own home
• Overseas properties

The rules here are a bit more complex. If your rental income falls between £1,000 and £2,500, you need to contact HMRC to determine how to report it. 

If your rental income is over £2,500 (after allowable expenses) or £10,000 (before allowable expenses), you’ll need to file a self assessment tax return.

Company directors

If you’re a director of a limited company, you’ll typically need to file a self assessment return, even if the company isn’t making a profit. This is because directors often receive income in the form of dividends or benefits in kind, which need to be declared.

High earners

Individuals with high incomes are required to file self assessment returns. Specifically:

• If your income is over £100,000 a year
• If you or your partner’s income is over £50,000 and one of you claims Child Benefit

In these cases, you need to file even if all your income has been taxed at source through PAYE.

Those with savings and investment income

You may need to file a self assessment return if you have significant income from savings or investments. This includes:

• Income from savings and investments of £10,000 or more
• Income from dividends of £10,000 or more
• If you need to pay tax on interest from savings (and your income is above £100,000)

Individuals with foreign income

If you’re a UK resident with foreign income or gains, you may need to report this through self assessment. This could include:

• Rental income from overseas properties
• Foreign investment income
• Income from work performed abroad

Other situations requiring self assessment

There are several other lesser-known scenarios where you might need to file a self assessment return:

• If you need to claim tax relief on pension contributions
• If you’re a trustee of a registered pension scheme or a trust
• If you’ve sold assets and need to pay Capital Gains Tax (CGT)
• If you’re claiming certain tax reliefs (like Enterprise Investment Scheme relief (EIS))
• If you’re a minister of religion

This list isn’t exhaustive, and tax rules change. If you’re unsure whether to file a self assessment return, it’s always best to check with HMRC or consult a tax professional.

Key dates and deadlines for self assessment

The tax year runs from 6 April to 5 April the following year, which forms the basis for several important dates in the self assessment calendar. Let’s break down the key dates you need to be aware of:

5 April: End of the tax year

This marks the end of the tax year. All income and expenses you’ll be reporting on your next self assessment return will be for the period up to and including this date.

6 April: Start of the new tax year

The new tax year begins. Any income or expenses from this date onwards will be reported in the following year’s tax return.

5 October: Registration deadline

If you’re new to self assessment, this is the deadline for registering with HMRC. This applies if you’ve become self-employed or started receiving other income that needs to be reported through self assessment.

For example, if you became self-employed during the 2024/25 tax year (which ends on 5 April 2025) you would need to register for self assessment by 5 October 2025.

31 October: Paper return deadline

If you prefer to submit your tax return on paper rather than online, this is your filing deadline. It’s earlier than the online deadline because paper returns take longer to process.

30 December: Deadline for PAYE tax code adjustment

If you owe less than £3,000 in tax and want HMRC to collect it through your PAYE tax code (if you’re also an employee), you need to submit your online return by this date.

31 January: Online return deadline and payment due date

This is the most important date in the self assessment calendar. It’s the deadline for:

1. Submitting your online tax return
2. Paying any tax you owe for the previous tax year
3. Making your first payment on account for the current tax year (if applicable)

For example, for the 2024/25 tax year (which ends on 5 April 2025), the online filing deadline and payment due date would be 31 January 2026.

31 July: Second payment on account due

If you make payments on account (advance payments towards your tax bill), the second instalment is due by this date. 

Understanding payments on account

Payments on account can often catch people off guard. Here’s how they work:

• If your tax bill is over £1,000, HMRC usually requires you to make payments on account for the following year’s tax.
• Each payment is half of your previous year’s tax bill.
• They’re due on 31 January and 31 July.

Let’s illustrate this with an example. If your 2023/24 tax bill is £2,000, your payment schedule will look like this:

• £2,000 by 31 January 2025 (for the 2023/24 tax year)
• £1,000 by 31 January 2025 (first payment on account for 2024/25)
• £1,000 by 31 July 2025 (second payment on account for 2024/25)

This means you’ll need to budget for £3,000 by 31 January 2025, which can be a substantial sum if you’re unprepared. 

Consider setting aside money throughout the year to cover these costs, or explore options like budgeting apps or separate savings accounts to ensure you’re ready when the payments are due.

Adjusting payments on account

If you expect your income to decrease, you can apply to reduce your payments on account. You can do this through your HMRC online account or by sending form SA303. 

Be careful, though – if you reduce your payments too much and end up owing more tax than expected, HMRC will charge interest on the underpayment.

Preparing for self assessment

The key to a smooth self assessment process lies in thorough preparation. By staying organised throughout the year and understanding what information you’ll need, you’ll speed up the entire filing process. Trust us, it’s worth it!

So, throughout the tax year, make sure you’re tracking:

• All income sources, including self-employment earnings, rental income, dividends, and interest from savings
• Business expenses, if you’re self-employed
• Relevant paperwork such as P60s, P45s, bank statements, and investment records

Consider using digital tools or apps, such as accounting software like Xero and QuickBooks, to streamline your record-keeping. Many of these can link directly to your bank account, making it easier to categorise income and expenses.

Understanding expenses

Understanding allowable expenses are costs you can deduct from your taxable profit, reducing your tax bill. Here’s a detailed look at common allowable expenses:

• Office costs: This includes stationery, phone bills, internet costs, and software subscriptions used for your business.
• Travel expenses: You can claim for business travel, including train fares, bus tickets, taxi fares, and vehicle costs if you use a car for business. If you use your personal vehicle, you can claim a mileage allowance.
• Accommodation costs: If you need to stay away from home for business, you can claim hotel expenses.
• Clothing expenses: This is limited to uniforms, protective wear, or costumes for performers. Regular business attire isn’t claimable.
• Staff costs: Salaries, bonuses, pensions, and National Insurance contributions for employees are all allowable expenses.
• Stock and raw materials: Any items you buy to sell on or use in your products are claimable.
• Financial costs: This includes insurance premiums, bank charges, and interest on business loans.
• Marketing and advertising: Costs for promoting your business, including website fees, business cards, and advertising campaigns, are allowable.
• Training courses: If they’re directly related to your business, you can claim the cost of training courses.
• Professional fees: Costs for accountants, solicitors, or other professional services related to your business are allowable.
• Subscriptions: Professional body memberships or trade publications directly related to your business can be claimed.

In all cases, expenses must be “wholly and exclusively” for business purposes. If an expense has dual purposes (business and personal use), you can only claim the business portion.

Filing your self assessment tax return

Once you’ve gathered all the necessary information, it’s time to file your self assessment tax return. First, you’ll need to register for self assessment if you haven’t already done so. This is typically done through the HMRC website. Once registered, you’ll receive a Unique Taxpayer Reference (UTR) number, which you’ll need to file your return.

When you’re ready to file, you have two options: paper filing or online filing. Paper returns must be submitted by 31 October following the end of the tax year, while online returns have a later deadline of 31 January. 

To file online, you’ll need to set up a Government Gateway account if you don’t already have one. Once logged in, you’ll be guided through the process of filling out your tax return. The online system has built-in calculators and will automatically fill in some information if you’ve filed before.

Here’s a general overview of what you’ll need to complete:

• Personal details: Name, address, National Insurance number, and UTR
• Income from employment: If you’re employed alongside self-employment, you’ll need to enter details from your P60
• Self-employment income: You’ll need to provide your total income and expenses
• Other income: This includes rental income, dividends, and interest from savings
• Pension contributions: If you’ve made any
• Charitable donations: If you’re claiming tax relief on these
• Student loan repayments: If applicable

As you complete the form, be sure to check and double-check your entries. Simple mistakes, like typos in numbers, can lead to incorrect tax calculations. Always read the prompts at least twice, then check everything twice again prior to submission!

If you need clarification on any part of the form, HMRC provides guidance notes that can be very helpful. Don’t rush through these sections – taking the time to understand what’s being asked can help you avoid errors. 

Once you’ve entered all your information, the online system will calculate your tax liability. Review this carefully. If you agree with the calculation, you can submit your return. You’ll receive a confirmation once it’s been successfully submitted.

Note: Filing your return doesn’t automatically mean paying your tax. The payment deadline is the same as the online filing deadline (31 January), but you’ll need to arrange payment after your information is confirmed. More on this below. 

Paying your tax bill

After filing your return, the next step is paying any tax you owe. HMRC offers several payment methods, including:

• Direct Debit: You can set up a Direct Debit for a one-off payment or for regular payments if you’re using a budget payment plan.
• Online or telephone banking: You can pay using Faster Payments, CHAPS, or Bacs.
• Debit or corporate credit card online: Personal credit cards are no longer accepted.
• At your bank or building society: You can pay using the payslip provided by HMRC.

Allow enough time for your payment to reach HMRC by the deadline, especially if you’re using a method like Bacs that can take several working days.

What if I’m struggling to pay?

If you’re struggling to pay your tax bill, don’t ignore it. Contact HMRC as soon as possible. They may be able to offer you a Time to Pay arrangement, allowing you to spread your payments over a longer period.

For the self-employed, budgeting for tax throughout the year is an important skill to learn. A good rule of thumb is to set aside 25 to 30% of your income for tax. 

This should cover your Income Tax and National Insurance contributions. If you’re VAT registered, you’ll need to set aside additional funds for this.

Common mistakes to avoid in self assessment

Even with careful preparation, making mistakes when filing your self assessment tax return is remarkably easy. Being aware of common pitfalls can help you avoid them. Here are some frequent errors to watch out for:

• Missing the deadline: This is perhaps the most common mistake. Late filing results in an immediate £100 penalty, with further penalties for prolonged delays. Set reminders well in advance of the deadline.
• Forgetting to declare all income: Make sure you include all sources of income, not just your main job or business. This includes rental income, dividends, and even cash-in-hand work.
• Claiming ineligible expenses: Only claim for expenses that are wholly and exclusively for business use. Personal expenses or those with dual purposes may not be fully claimable.
• Forgetting to claim tax relief: Many people miss out on tax relief for things like charitable donations or pension contributions. Make sure you claim all the relief you’re entitled to.
• Not keeping proper records: If you can’t prove your income and expenses with proper documentation, you may face issues if HMRC investigates your return.
• Misunderstanding payments on account: Many first-time filers are caught off guard by payments on account. Understand how these work to avoid unexpected bills.
• Not declaring child benefit: If you or your partner earns over £50,000 and receive child benefit, you need to declare this on your tax return.
• Entering information in the wrong sections: Take care to input your figures in the correct boxes on the form. Mistakes here can lead to incorrect tax calculations.

After filing: What happens next?

Once you’ve submitted your self assessment tax return, you’re almost done – but not quite! 

There are a few important things to keep in mind:

1. Look out for your tax calculation: HMRC will send you a tax calculation (SA302 form) after you’ve filed. Check this carefully to ensure it matches your expectations.
2. Pay your tax bill: Remember, filing your return and paying your tax are separate actions. Ensure you pay any tax owed by the deadline (usually 31 January) to avoid interest and penalties.
3. Keep your records: HMRC requires you to keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year. These might be needed if HMRC has any questions about your return.
4. Check for errors: If you realise you’ve made a mistake on your return, you have 12 months from the filing deadline to submit an amendment. Do this as soon as you notice an error.
5. Review your payments on account: If your income is likely to change significantly in the coming year, consider adjusting your payments on account.
6. Consider professional help: If you found the process stressful or time-consuming, you might want to consider hiring an accountant for next year. 

Late charges and penalties

Let’s have a quick look at the fees and penalties you could incur if you don’t manage your self assessment properly.

Firstly, for late filing of self assessment tax returns, penalties escalate over time:

• 1 day late: An immediate £100 fixed penalty, even if you have no tax to pay or have paid the tax you owe
• Up to 3 months late: £10 per day up to a maximum of £900, in addition to the fixed £100 penalty
• Up to 6 months late: £300 or 5% of the tax due, whichever is higher, on top of the earlier penalties
• Up to 12 months late: Another £300 or 5% of the tax due, whichever is higher

Late payment also incurs penalties:

• 30 days late: 5% of tax unpaid at that date
• 6 months late: Another 5% of the tax unpaid at that date
• 12 months late: Another 5% of the tax unpaid at that date

HMRC also charges interest on late payments from the date they were due. While there are no penalties until the payment is 30 days late, you’ll pay interest right away.

Payments on account, due by 31 January and 31 July, are subject to the same late payment penalties:

• 30 days late: 5% of the unpaid tax
• 6 months late: Another 5% of the unpaid tax
• 12 months late: Another 5% of the unpaid tax

These penalties can quickly add up. For example, if you file your return 6 months late and pay your tax 6 months late, you could face penalties totalling hundreds or even thousands of pounds, plus interest on the unpaid tax.

It’s tempting to leave your tax return until the last minute, with some 3.8 million leaving it until the last week in January 2024, according to HMRC. But the £100 fine is often much more severe than submitting the return itself and paying late. 

Wrapping up

Self assessment doesn’t have to be a source of stress. With proper knowledge and preparation, you can handle this task efficiently. 

Each step of the process matters – from identifying whether you need to file to gathering records, completing your return, and steering clear of common errors. Each task contributes to meeting your tax obligations accurately and on time. Master them all, and you’ll be just fine!

If any aspect of self assessment proves challenging or your finances are particularly intricate, seeking professional guidance could be beneficial.

At James Scott, we know that taxes can eat into your time and cause stress. We have extensive self assessments experience for everyone from freelancers and tradespeople to landlords and company directors. We offer help with:

• Clarifying if you need to file a self assessment return
• Effectively organising your financial records
• Spotting all allowable expenses to lower your tax bill
• Accurately completing and filing your return on schedule
• Planning ahead to avoid tax surprises in future years

Don’t let your self assessment worry you unduly. Contact us now to take the hassle out of your tax affairs, freeing up your time, improving your tax position, and ensuring peace of mind.