Self-assessment gets self-employed people to declare and work out the tax due on their own income.
We’re sorry to tell you this, but it’s not something to be done quickly or even completely ignore, as there are stiff penalties if you fail to declare correctly or pay late. Like other areas of the law – ignorance is no defence. So if you’re self employed or a contractor – check out these simple tips.
Who must complete a tax return?
Anyone whose income is not taxed automatically via the Pay As You Earn system (PAYE) needs to declare their taxable income. In practice, if you work for yourself or in partnership, you need to do a self-assessment.
When do you pay tax?
It’s a three-stage process, so pay close attention.
A first payment on account is made by 31 January for the current tax year, which runs April 6 to April 5 the following year. This is normally half your previous year's tax bill.
A second payment on account - which is the same amount as the first instalment – is then payable by 31 July (after the end of the tax year).
A final balancing payment - or repayment - is made by the next 31 January: this is the bill calculated on the actual income returned for the tax year less the payments you have made on account.
What must you do?
If you need to submit a tax return, you’ll need to register online at www.hmrc.gov.uk before you can file a return.
You will need the following details to hand:
- Your Unique Taxpayer Reference (UTR)
- National insurance number
- Post code
If you do not have these, HMRC can provide these, but it will delay your filing. Make sure your register before 21 January, as this is the latest date for registering to ensure you will be able to meet the 31 January deadline.
What does a tax return consist of?
Everyone on self-assessment is sent the basic eight-page return. But there are also a number of supplementary pages that you will only get if the Revenue knows you need them. This could cover a host of issues including income derived from other sources.
Who works it out?
If you are filing your return on paper and want the Revenue to work out how much tax you owe, you must return your form by 31 October.
If you return your tax form after 31 October, but before 30 December, the taxman will still work out what you owe, but cannot guarantee to tell you before the 31 January payment deadline.
If you choose to fill out your return online, the tax you owe is calculated automatically.
How do you file online?
To complete your return by this method, go to the Revenue and Customs website and click on the Self-Assessment button.
Once you decide to submit your tax return online you will be sent a security code by post that will enable you to go ahead. You should leave yourself at least two weeks before the final deadline for this code to arrive.
What paperwork do you need?
Your circumstances will change what documents you’ll need to fill in your return:
- Self-employed people must have invoices or payment slips from clients
- If you’ve left your job you’ll need a P45 and a P11D or P9D detailing benefits and expenses
- A P2 form giving notice of coding
You will also need details of interest on bank or building society accounts, dividends from shareholdings, unit trusts or investment trusts, and any other income you get.
Before you start, make sure the Revenue has sent you everything you need. The form has several sections and the Revenue will only send those that it thinks apply to you. Check if you need extra pages to give details of other sources of income. These can be downloaded by clicking here. You can also order more pages by calling 0845 9000 404.
Our other suggestions include:
Don't leave it until the last minute: Once you have gathered all the necessary paperwork, put aside a day to go through the forms. The biggest mistake most people make is forgetting to sign the form before sending it off.
Keep accurate records: If you face a Revenue inquiry you will have to produce evidence that your tax return is correct. Around one in 20 returns are liable to be subject to further investigation.
Don't throw your records away: Taxpayers must keep records for at least a year after filing. Self-employed or business owners must keep records for six years.
Do not round-up figures: HMRC have said this can indicate that a person’s affairs have not been properly maintained and could trigger a further enquiry.
Deduct all eligible expenses: HMRC allow individuals to take into account certain costs, such as student loan repayments and personal pension contributions.
Start saving now: Don’t forget that you will have to pay half of this tax year’s bill as a payment on account on 31 January (i.e. the same time as you pay your 2009-10 tax bill).
However, if you know that your circumstances have changed since last April, you should consider notifying HMRC, as it may be possible to decrease any payment on account for the 2010-11 tax year.
With thanks to:
This is Money
Tax return guide