Self Assessment Tax Returns | Making your tax return simple

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Self Assessment Tax Returns

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Most taxpayers may not even be aware of what a Self-Assessment tax return is, let alone the requirements surrounding why these forms should be filed for HMRC. The PAYE system makes tax filing mostly easy for those who are employed, but if you are self-employed or, fall into other categories not covered under the PAYE system, a Self Assessment tax return is required.

This guide will seek to explore all of what Self Assessment tax returns are, as well as the many different reasons you may need to file a Self Assessment tax form. Since the convenience that comes with the PAYE system is not available with Self Assessment tax returns, this guide will tell you everything you need to know to make the process easy and quick.

What Are Self Assessment Tax Returns?

A Self Assessment tax return is a standard tax return process that is required for any income reporting outside of HMRC’s PAYE system. Self assessments are essentially another term for self-employed tax reporting or, any income that is not taxed and reported to HMRC by an employer on your behalf.

This tax return process is basically HMRC allowing a taxpayer to self assess their income throughout the year and claim responsibility for reporting and paying the required tax on that income. Since calculating the proper income tax is not always easy, a Self Assessment tax return is widely considered to be the most confusing type of income tax return.

But the process doesn’t have to be confusing, in fact, filling out and filing a Self Assessment tax return is easy as long as you keep proper records of your income and how much tax needs to be taken out of your income throughout the year.

Who Needs to Do a Self Assessment Tax Return?

You will need to file a Self Assessment tax return if you meet any of the following circumstances:
  • You are self-employed and your income is not covered through the PAYE system.
  • You are a company director. The exception to this rule is if, like in the case of non-profits, you received no compensation at all for your role, including benefits like a company car.
  • You earned more than £10,000 before tax from savings or investments.
  • You earned income from selling shares, a second home, or other chargeable assets and need to pay Capital Gains Tax.
  • Your overall taxable income exceeded £100,000, or if you or your partner’s income was over £50,000 and you were claiming Child Benefit. It is important to keep track of your income if you are on Child Benefit since the income threshold is capped.
  • You were a trustee of a trust or registered pension scheme, or if your pension exceeded your personal allowance and was your only source of income. Although, pensions started after April 6, 2016, are exempt from this rule.
  • You received a P800 from HMRC saying you didn’t pay enough tax last year. This type of situation is handled on a Self Assessment tax return to settle your outstanding tax bill.
self assessment tax return service

Most individuals who need to file a Self Assessment tax return are usually self-employed. You will need to send the required tax twice throughout the tax year.

Filling out the Self Assessment tax return can be complicated if you are unfamiliar with the various tax terminology and codes, but the process is simple as long as you have all of the information you need to send to HMRC.

Once you have the Self Assessment form filled out, you will need to file the form, so let’s explore what exactly is involved with that aspect of the process.

What Is Filing a Tax Return?

Filing tax returns are a normal part of each tax year. A tax year runs from April 6-April 5 of the following year. When it comes to Self Assessment tax returns, the deadline to file is 31 January by 11:59 PM.

Filing a tax return is the process of submitting the completed form with all of your tax year information to HMRC by the required deadline. It is important to get this information in on time to avoid receiving a tax bill that will contain a penalty charge.

Once the tax return is filed, the return goes through the HMRC database where it is checked for accuracy. If you are due a tax refund based on an overpayment, which is normal within the construction industry, this will be sent within a few weeks of HMRC processing the return.

To avoid the long wait associated with filing by paper, registering online and filing online can reduce the processing and wait time for a refund considerably.

Why Should I File My Self Assessment Tax Returns Online?

Self Assessment tax returns that are filed online significantly reduce the wait time to both process the return and receive an applicable tax refund if you are owed one. To use the online system, you will need to register first, which doesn’t take that much time.

All you need to register is some basic information depending on the following Self Assessment types:

  • To register for Self Assessment and Class 2 National Insurance: register online with HMRC and receive your 10-digit Unique Taxpayer Reference (UTR) number and to set up your account.
  • Be on the lookout for a letter from HMRC within 10 days which contains your activation code.

Once your account is activated, you are officially registered for both Self Assessment tax filing and Class 2 National Insurance. Make sure you have your National Insurance number as well when registering with the online system and you will need a working email address.

Filing Self Assessment tax returns online also reduces the time it takes HMRC to process tax returns each tax year. The less work HMRC has to spend sifting through returns, the less time it will take to receive a potential tax refund.

What if I Can’t Use Self Assessment Online?

If you are unable to file your Self Assessment tax return online, you can go through the process the traditional way through pen and paper, and Royal Mail. You will still need to register and receive a UTR, however, this can be done by filling out this form and sending the form to HMRC through the mail.

The processing time for a tax return sent in by mail could take a bit longer, and a cheque will be mailed back to you if you are due a tax refund for the overpayment of taxes within the tax year. Additionally, you will need to send in physical copies of work performed and all applicable payments you received from work performed throughout the year.

If your work performed throughout the year was greater than a collection of £2,500, the tax must be paid on work performed past this threshold.

Self Assessment for the Self Employed

Self Assessment tax returns are the standard type of returns processed for those who are self-employed. When you are self-employed, nobody is going to deduct the applicable taxes due to HMRC from your wages, which means you are responsible for deducting the required tax and saving it for HMRC.

A Self Assessment tax return allows self-employed individuals to report all of the taxes due to HMRC each year. Utilising tax software or, hiring a tax specialist who specialises in self-employed taxes is always the best method for making the tax filing process much easier.

You will need to keep meticulous bank records of all the payments received for the work you have performed. HMRC will check this information and use the information to accurately calculate that you have paid enough tax.

If you have not paid enough tax or, if you choose to settle a tax bill once the tax return has been processed, the amount owed to HMRC will be stated on the tax bill.

If you haven’t kept accurate records of your payments and the tax owed from your work, the process will be much more difficult. To prevent this headache, always document a payment once work has been completed, this will ensure that your taxes can be calculated correctly.

What Documents Do I Need to File a Self Assessment Return?

Being prepared when it comes to filing a Self Assessment tax return is going to save you from experiencing confusion during the process. Make sure you have the following when you are ready to file:
  • National Insurance Number. This will be needed to verify your identity for tax purposes.
  • UTR Number. This is the unique number that verifies you within the HMRC tax database.
  • Details on income. The more details you can provide about your untaxed income throughout the year for HMRC to use, the easier it will be for HMRC to calculate your tax bill.
  • Expense records. Be sure to keep records of all the expenses you have incurred from your business throughout the year. This will help to drive down the cost of your tax bill and HMRC will use this information in calculating your deductions.
  • Records of miscellaneous payments. This can include any pension payments you have made as well as any charitable donations you have made throughout the year.
  • Records of tax payments. If you have made payments throughout the year, these will likely be collected on P60 forms, which HMRC will use to ensure that the information matches the current tax return.

The most important documents to have on hand are undoubtedly your records of payments. HMRC may or may not want to see proof of these payments or bank records to confirm the amounts.

What Happens if I Don’t Get My Self Assessment Tax Return In?

If you miss the deadline to submit your Self Assessment tax return, you will likely be fined a penalty by HMRC. Be sure to keep the following deadlines in mind when completing your Self Assessment tax return:

  • 5 October 2020. This is the deadline to register for a Self Assessment tax return.
  • 31 October 2020. This is the deadline to file a paper return.
  • 31 January 2021. This is the deadline to file with the online system.
  • 31 January 2021. The amount on your tax bill is due.
  • 31 July 2021. Deadline to make any advance payments towards a tax bill.

Most penalties HMRC will use to charge for a missed deadlines are typically £100 if your return is up to 3 months late. Interest will also begin to accrue on late payments in excess of 3 months.

What Does Employment Status Mean? Can I Choose Whether I’m Employed or Self-Employed?

Within HMRC, your employment status corresponds to the type of work you perform in the UK. If you work for an employer who is registered with HMRC as such, you are deemed to be an employee, and your taxes are handled through the PAYE system within HMRC.

Self-employment is just that – a type of employment where you as an individual control the amount of work you receive and perform without any oversight. This can extend to a wide range of professions, with freelancing and work as a subcontractor being a form of self-employment.

You have the right to choose what kind of employment you want to perform. If you apply to most jobs within the public, chances are, this is a job where you will be classified as an employee, which means your taxes are going to be handled by your management team through the PAYE system.

If you want to advertise a special kind of service, or do work that is mostly based on contracts, this usually classifies you as self-employed, and you are responsible for keeping track of what you owe HMRC.

Being self-employed is desired by many, yet the responsibility of calculating and paying tax to HMRC can be daunting for those who are new to this form of work. If ever in doubt, always consult with a tax specialist to help guide you through what can be an intimidating new responsibility.

How Do I Know if I’m Employed or Self-Employed?

The easiest way to know immediately if you are employed or self-employed is to analyse the environment of the job you are performing. If an employer is responsible for managing your employment, and your taxes are being automatically deducted from all of your paychecks, this is a clear sign that you are employed.

If you are truly self-employed, you will have no manager who makes a schedule or handles your responsibilities to HMRC. All income that you receive for jobs that you perform will be a quoted amount, with no tax deducted from the pay.

HMRC views you much like they do standard employers, which is to say that they expect you to pay what you owe when the deadline approaches for filing Self Assessment returns each year.

It is essentially a matter of logistical phrasing. Those who are self-employed typically have ‘clients’ who supply them with jobs that need to be completed, once a job is finished, a quoted rate will be paid to you.

You essentially employ yourself when you are self-employed. You will still likely have deadlines and expectations that must be met, such as subcontractors who perform jobs for contractors intermittently within the CIS system, but you are the ultimate decision-maker in how you control the amount of jobs you take on.

I’m Self-Employed, What Are My Allowable Expenses?

When you are self-employed, HMRC allows a certain type and amount of expenses related to your business to be deducted on a Self Assessment form. An assessment will be made by HMRC that may require proof of the expenses when factoring these measures into tax returns.

All tax returns allow a certain amount of deductions to be made, which is HMRC’s way of recognising certain cost-efficient behaviours in the workforce. Tax returns allow a wide range of allowable expenses, so here is a brief summary of common types:

  • Office supplies. Paper, electronic equipment, postage, and any expense that relates directly to the running of your business in an office setting. Writers and accountants are typically classed in this category of allowable expenses.
  • Business expenses. For example, if you run a home office, you can include certain allowable expenses related to utility bills and in some cases, even rent, if HMRC deems the expenses to be necessary to the functioning of your business.
  • The cost of travel. For example, if you are a subcontractor within the CIS system, you can claim allowable expenses for mileage and the use of a vehicle getting to and from job sites. The same rule applies for any self-employed position that requires a lot of traveling to properly perform the job specified.
  • Marketing and Advertising. If you need to advertise to promote your business, you can claim the costs associated with this as an allowable expense at the end of the year.
  • Job-specific clothing. For example, if you are required to wear a special kind of uniform or protective gear for jobs in construction, you can claim these costs as allowable expenses.

Is There a Simpler Way to Work Out My Allowable Expenses?

Doing a detailed breakdown of all allowable expenses can be a lengthy process. HMRC will typically allow a self-employed individual to give a single quote of all allowable expenses when they file at the end of the year.

Even with this convenience, it is important to have all of the receipts and proofs of purchase to ensure you can prove that the allowable expenses are real and binding. There is no way to predict if HMRC will want to take a closer look at your allowable expenses, therefore, being prepared is always the best process.

How Long Does a Self Assessment Tax Return Take?

The process can be quick and efficient based upon the track you choose to take. If you choose to file everything by paper, you can expect upwards of 2-3 months for HMRC to have everything reconciled.

Filing online and paying by credit card if you owe any taxes is always the quickest route to take. This route can take as little as 2-3 weeks to finish, and there may be an additional wait if you are due to receive a refund for an overpayment.

The actual filing of the form does not take long, granted you have everything ready to be inputted into the form.

Do I Need a UTR Number When Filing a Self Assessment Tax Return?

You will be unable to file online or anywhere else if you do not first have a UTR number given specifically to you by HMRC. This number is given to you once you register with HMRC for filing.

No business can be conducted without this number.

Why Should I Use VW Taxation for My Tax Return?

At VW Taxation in Portsmouth, we urge all of you who are self-employed to help us in spreading our service to make filing self-employed returns an easier and expertly managed process. Once you give us the chance to handle all of your filing requests and procedures, we perform tirelessly to handle all of the duties that come with taxes so you can focus on what matters most, your job.

If you are self-employed and need help in navigating the confusion of handling your taxes, allow our specialists to not only handle every aspect of the process, but to also find the best deductions and allowable expenses you deserve.

FREE no-obligation quote:

Tell us how we can help and what issues or concerns you may be having so we can make this process as easy and efficient as possible for you.

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