Self Assessment Basics – What You Need to Know
As a business owner, you may be wondering how self assessment works and how it will affect you as an individual. Let’s take a closer look at self assessment and what you should be aware of to ensure you meet with your reporting and tax obligations towards HMRC.
What exactly is Self Assessment and what is it for?
HMRC is the Government body that manages and collects taxes in the UK. They set rules about how much tax individuals must pay according to their earnings, and this includes sole traders as well as business owners that run a company. Your self assessment payments are completely separate to your company business turnover and tax liabilities.
Using the figures and guidelines supplied by HMRC, we can work out exactly how much tax we need to pay each year as individual tax payers. We are responsible for accurately calculating how much tax we owe and making sure we pay HMRC within their payment deadlines.
Do I have to do a Self Assessment?
When you are operating as a sole trader, then yes you will need to submit a self assessment each year. HMRC will not know how much tax to expect from you because they don’t know how much profit your business has made during the past year. This is why you need to submit your figures for profit and loss in your self assessment form so that they can work out exactly how much tax and National Insurance you need to pay at the end of each tax year.
When you are a director of a registered limited company, meaning that you have gone through the company formations process to officially register you company with Companies House, HMRC will know what salary you have been paid by the company. They get this information through your company payroll submissions under RTI (Real Time Information).
However, what HMRC will not know is how much money you have taken from the company in form of dividends. They will also need to know about any extra payments you have received in the form of rental income, trusts or other taxable forms of income.
How do I work out my Self Assessment Tax Payments?
You will receive a self assessment tax return request once per year. This may be in the form of a paper document that you get through the post from HMRC that will need filling in by yourself and returning through the post. Or if you have an online account with HMRC, you will receive a notification to complete and submit your self assessment return through your online government gateway portal.
Your self assessment tax return will cover one complete tax year that runs between 6th April one year to the 5th April the following year. You don’t have to fill in and submit your self assessment tax return right away, but you do need to make sure you file your paper form by 31st October, or if you are submitting your return online, by the 31st January.
What information is included on my tax return?
What information you need to include on your tax return is clearly set out for you on the form. The details you will need to supply would include all of your income received as an individual. This allows HMRC to get a clear picture of how much tax you should be charged. For a sole trader, this can be quite straightforward as you should have detailed bookkeeping accounts that show your income and expenses for the year.
For a company director, HMRC will already know how much salary you have been paid through RTI, but they will also need to know about any additional income received during the year on top of your salary, such as income from a trust fund or share dividend payments.
Summary guide for what you need
Here is a handy step by step guide to help you successfully complete your self assessment tax return:
1: Gather together all your essential paperwork
Collect together everything you will need to help you complete your return. This makes it easier to find information and to save time having to go looking for it later. This will include a copy of your financial accounts that accurately show you profits and losses, your bank statements so you can check bank charges and interest payments etc. so you can quickly double check figures if needed.
2: Break the task up
Remember that you don’t need to submit your self assessment tax return straight away. Once the tax year ends on the 5th April, you have until October 31st to file your paper copy, or January 31st to file online. You can make it easier on yourself by tackling the tax return in smaller chunks. Set aside some time over a couple of weeks to complete the form and work through each section step-by-step only doing as much as you feel comfortable with each day.
3: Get help if needed
Should you not understand any of the questions being asked, or you are not sure if you should fill out a specific section on the form, then you can get help from your accountant or you can find free advice, guidance and help sheets via HMRC website, or you can call the HMRC self assessment helpline for help with filling out your self assessment form. Before you call you will need to have your National Insurance number and Self Assessment Unique Taxpayer Reference (UTR) to hand.
Telephone: 0300 200 3310
Textphone: 0300 200 3319
With the right preparations, you can make filing your self assessment tax returns easier each year. The earlier you can get your tax return completed and submitted the better you will feel about it. The longer you leave filing your return the more daunting the task will start to feel.
Getting important tasks like this out of the way can give you great peace of mind. Plus filing as early as possible will guarantee that you won’t be subjected to late payment fines should you fail to meet your submission deadline.