Self Assessment for Small Businesses and the Self-Employed

Do you remember that "self-assessment - tax doesn't have to be taxing" tagline on the HMRC adverts? Every time I heard it, I wanted to scream. Not only was that ad REALLY annoying, but self-assessment IS taxing! It’s hard work. The maths itself is pretty straight forward. But gathering all the information you need, leaving out information you don't need, sticking to all the deadlines, even signing up with HMRC...it's not straightforward! So I really hope this little guide helps, and I will be posting additional, more in-depth information in the future.

Self-Assessment is the method that HMRC uses to collect tax from individuals who may own a business, or receive income outside of regular, formal employment. The self-assessment tax return (SA100) is the form used to gather the required information on net income (income less expenses or allowable deductions) received during the tax year. The tax year runs from 6 April to 5 April the following year. These days, the HMRC requires most individuals to complete their self-assessment online, allowing only those with exceptional circumstances to submit their tax return on paper by post.

Getting Started

To complete and submit a tax return, you first need to register for self-assessment with HMRC. The deadline to register for any tax year is usually by October following the end of the relevant tax year. Once you have registered with HMRC, you don’t need to do this again each year.

To find out the current situations where HMRC require you to complete and submit a self-assessment, see their website here. Once you’ve registered with HMRC, you'll receive a letter within 10 days containing your 10-digit unique taxpayer reference (UTR), and an activation code to set up your online account.

Be Prepared

To complete the self-assessment return, you’ll need your UTR, user ID and password. It will be essential to gather together financial records on the following:

Student loans
Interest received from banks and building societies (excluding ISA’s). Include personal and joint accounts.
Dividend income (including from your own company)
Pension income
Details of any private pension payments made
Any overseas income
P60 (or P45 if employment ceased) for any employment income other than your self-employment/business
Rental income.
Mortgage interest from mortgages on rental properties (If you have a repayment mortgage then the repayment element is not tax deductible so cannot go on your Tax Return).
Redundancy pay/compensation
Benefits from employment (you will be given a P11d form by your employer if relevant)
Trust income
Capital gains (assets disposed including shares and property)
Chargeable events certificates on certain bonds and life assurance policies
Child Benefit – if you or your partner earn over £50k new rules came into place in Jan 2013
Other state benefits (incl. Jobseeker’s allowance and Carer’s allowance)
Any other income received during the year (for example from self-employment other than your main source).

Records you need to keep

Additionally, if you’re running your own business, you’ll want to have kept some specific records, such as:

Bank statements for ALL your business accounts for the WHOLE tax period. Include any cheque or paying-in books.
Loan statements for the relevant tax year and not the calendar year. The interest suffered is a tax deductible expense.
Business credit card statements. If it's a personal card that you occasionally pay for business expenses on, spend the time highlighting these.
Details of any finance agreements taken out during the year, like a new hire purchase. The interest on the repayments is a tax deductible expense and the asset could fall under the annual investment allowance. Failure to disclose a new piece of equipment could add hundreds of pounds to your tax bill.
Your FULL payroll (PAYE) records for the year, if applicable. Pay slips are not enough.
All of your sales income. If you have any online shops, you need the total income BEFORE any fees are deducted
All of your purchase invoices and expenses receipts for the tax period.
Any petty cash receipts and the petty cash balance at the year end.
An estimate of your stock value at year end.
If you trade through a Limited Company, then keep a log of any business mileage. Keep in mind that business mileage is not driving to work every day; it's traveling to courses and your accountants, etc
VAT records (if registered)
Certificates from a Taxed Award Scheme

I will be writing further on the intricacies of allowable expenses and such, as they are often specific to your business type. The hard and fast rule that HMRC are always stating with regard to businesses, is: the expense must be “wholly and exclusively” for business use. So try asking yourself that question if you are unsure if an expense can be deducted. As a VERY brief summary, possible tax relief items include:

Charitable gift aid donations & charitable covenants
Personal pension contributions
Interest paid on loans
Professional subscriptions in relation to employment
Mileage claims where employer has paid lower than the standard rate

Completing your tax return

Online tax returns need to be completed by 31st January following the end of the tax year.

If you’re earning types of income like the ones listed about, such as from a rental property or savings, then you need to fill in more sections known as ‘supplementary pages’. Don’t panic, most people file their returns online now, and so the supplementary pages are automatically add using the initial information you enter at the start of the return. HMRC list the extra sections, along with notes on filing in your tax return, here.

After submitting your tax return

Once you’ve filed your tax return, and if your income is above the tax-free personal allowance (£12,750 for the 22/23 tax year) you will receive a bill from HMRC on how much tax you owe for the tax year.

This will then need to be paid to HMRC by midnight on 31 January following the end of the tax year. Your tax bill can be found in the ‘view your calculation’ section of your online account. The bill includes any tax you owe for the previous tax year and, if this is more than £1,000, it may include an additional payment towards next year’s bill. This is known as ‘payments on account’ with each payment being half your tax bill. Payments are due by midnight on 31 January and 31 July.

Payments can be made either by phone, online or by cheque through the post. Card or direct debit payments will arrive the same or next day, while sending by post can take up to three working days.

Important Deadlines and possible penalties

There are four deadlines (relevant to the 2016/17 tax year, but usually remain the same each year) to keep in mind when completing your self-assessment tax return and paying tax to HMRC. These are:

Registering - 5 October

Submitting paper tax return - 31 October

Submitting online tax return - 31 January

Paying tax - 31 January

If you miss the self-assessment deadline, you could face a penalty charge. If your return is up to three months late you’ll receive a penalty of £100, and this could go up further if you leave it even longer. You can appeal against a penalty but this can only happen if there’s a ‘reasonable excuse’.

A helping hand

If this all still seems a bit too eye-wateringly complicated (or just too much like hard work using time that can be better spent!), then thats why people like me exist! I can keep a track of your finances through the year, and gather all the relevant business records to either hand over to you to make your tax return a breeze - or even to complete your tax return for you! Just use my contact page to get in touch.

Help me with my Self Assessment!