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guide self assessment tax returns

A guide to self assessment tax returns

by constructaquote - 22 June 2016


With January 31st looming it’s essential that as a business owner, you know exactly what to do when completing your online self-assessment tax-return (SATR).

Whether you are a self-employed tradespersonconsultant or a company director who has received income during the tax year, then you are required to complete a SATR, even if you don’t owe any tax.

Failure to meet the deadline can result in an immediate £100 fine up to 3 months, and as time goes on, the fine can escalate significantly.

This, coupled with the fact HMRC have actively been encouraging more and more people to file online the last couple of years, we’ve put together a handy constructaquote.com guide to help you complete your online tax return.

First things first, it’s probably worth checking whether or not you need to fill out a SATR – fortunately you can check that here.

If you are eligible, please continue reading:

1. Self-assessment

As a business owner, you need to self-assess the total sum of income tax and capital gains tax that is payable each year by submitting your annual tax returns to HMRC (6th of April to the 5th of April the following year). The deadline for sending your completed “2016 tax return” on paper was 31st October 2016 however to file it online is 31st January 2017.

Before undertaking your self-assessment, you should make sure that:

• You have given yourself plenty of time to complete the return – it can take up to 20 working days to register online and it different ways to register if you’re self-employed or a sole tradernot self-employed or registering a partner or partnership.

• All relevant paperwork and financial information is in date order

• You are as accurate as possible and if you are estimating, state that these are ‘provisional figures’. (HMRC will expect exact figures at a later date)

• Finally, check your emails. If you filed online last year, HMRC will not send you a paper tax return, instead you’ll get an email informing you to check your online account.

Please note: If you have previously filed tax returns but no longer need to then you must contact HMRC to inform them. You can do that here.

2. Who must send a self-assessment tax return

If in the last year you fell into one of the below categories you may need to send a SATR:

  • you were self-employed – you can deduct allowable expenses
  • you got £2,500 or more in untaxed income, for example from renting out a property or savings and investments – contact the helpline if it was less than £2,500
  • your savings or investment income was £10,000 or more before tax
  • you made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax
  • you were a company director – unless it was for a non-profit organisation (such as a charity) and you didn’t get any pay or benefits, like a company car
  • your income (or your partner’s) was over £50,000 and one of you claimed Child Benefit
  • you had income from abroad that you needed to pay tax on
  • you lived abroad and had a UK income
  • you got dividends from shares and you’re a higher or additional rate taxpayer – but if you don’t need to send a return for any other reason, contact the helpline instead
  • your income was over £100,000
  • you were a trustee of a trust or registered pension scheme
  • you had a P800 from HMRC saying you didn’t pay enough tax last year – and you didn’t pay what you owe through your tax code or with a voluntary payment

3. Registering

The first thing you will have to do as a tradesperson is register for self-assessment; once registered you will then receive your Unique Taxpayer Reference (UTR), a 10-digit number you’ll need to fill out your return.

Please note, if you’re planning on filling you return online you’ll also need to register online, allowing yourself 7 working days to receive an activation code from HMRC through the post.

If you are a limited company or a sole-trader and you don’t have a UTR, you will have to sign a Form SA1 to confirm that you are eligible for self-assessment.

A tradesperson’s UTR number will remain the same for the duration of time that you file your self-assessment tax return.

In the event that you revert to permanent employment, it is essential that you re-register with HMRC in order to receive a new UTR.

You will be notified annually to complete your tax return at the end of the tax year (April/May of the taxable year).

If you file on-line, you will be able to choose which sections you need to complete; the correct pages will then be created in order for you to successfully fill out your return.

When you’ve registered you can sign-in using the Governments very own Gateway portal. You can sign-in here.

4. Calculating

Once you’ve registered and signed-in, you can start completing your form. One of the major benefits of completing the form online via HMRC software means that the tax you owe will automatically be calculated. However, you will need to complete the following:

• Total income received under your main occupation

• Earnings within the taxable year from previous employment (if any)

• Dividend income from your limited company and/or any other companies

• Income from properties (landlord)

• Income from investment (pension)

• Income from benefits

• Child benefit income (repayable amount if your partner earned over £50,000)

As a sole-trader or a limited company it is essential that you maintain accurate financial documents. Organising your receipts, keeping a record of the work you’ve done, keeping copies of the invoices you’ve sent and documenting all received payments, it will be easier for you to determine all taxable income.

In some cases HMRC may request to review your financial records in order to validate the information you have provided. It is beneficial to keep an organised account of your financial records over a five-year period because if you are unable to provide them upon request, HMRC may impose a maximum £3,000 penalty for every year that records have not been held.

5. Tax deductions

Knowing what aspects of your business are considered ‘tax deductible’ will make your return easier to complete and will also save you money. ‘Tax deductible’ inclinations include:

• Equipment costs

• Training costs

• Travel expenses

• Advertising and marketing budgets

6. Payment

Your payment is due on the 31st of January following the end of the last tax year. This year’s deadline, for example, will take into consideration the taxable amount from the 6th of April 2015 to the 5th of April 2016.

It’s important to remember that each payment is half your previous year’s tax bill and are due 31st of January and 31st of July – this is known as ‘payment on account’.

You will have to consider ‘payments on account’ if your bill is more than £1,000 (unless you’ve already paid more than 80% of what’s owed).

You may have paid this via your PAYE tax code or it may have been deducted from any additional income you have i.e. interest on your savings.

For example, your tax due for the 2015-2016 taxable year is £1,000, £500 will be due by 31st of January and the remaining £500 will be payable on the 31st of July. This usually only applies if you owe more than £1,000.

If you are a new tradesperson, this means that you will be paying a proportion of your tax in advance on the presumption that you will earn the same amount over the course of the next tax year.

Click here, to find out more about paying your tax bill.

7. IR35 (contractors)

IR35 is a tax law specifically used for contractors who trade through their own limited company and would be considered an employee for the purposes of taking on work for a client (their title would not change).

In short, you will be required to deal with IR35 if you supply your services through your limited company but act as an employee to your client(s).

This is applicable per client and per project meaning that IR35 may not apply to all of your taxable work.

If you fall under this criteria, you’re self-assessment tax is likely to be very little or nothing as your income tax will be determined by the PAYE system and therefore deductions on your monthly income will be in accordance with your tax code.

If the IR35 does not apply to you then any additional tax due will depend on whether or not you’re a higher rate taxpayer. You will be considered a higher tax rate payer if you earn £31,866 to £150,000 (based on 2015 legislation). If this applies to you then your tax bill will depend on your dividends income.

Unless you are a higher rate taxpayer, it is unlikely that you will have a large self-assessment tax bill as your small income will be dealt with via PAYE. Your dividends up to the higher rate threshold will not incur additional tax liabilities.

8. Failing to meet the deadline

Failing to return the SATR on time and/or making the correct payments could incur a £100 fixed penalty. Even if there is no tax due you could still be liable to pay the penalty.

If the documents remain outstanding three months after the initial deadline, you could face additional penalties of £10 per day (max £900). A further 5% of tax due will be applied if they are outstanding for 6 month; or a £300 addition (whichever is greater).

Failure to complete the return after 12 months will result in an additional 5% (or £300 – whichever’s greater) will be applied; the penalty after 12 months can equate to 100% of the tax due. Interest will also be chargeable on top of penalties.

In short, it’s better to be both organised and prepared when it comes to filling out your return – if you need further help, please refer to the Governments A-Z of self-assessment.