The Self-Assessment Tax Return can seem daunting, especially if you are a freelancer, contractor, or sole trader in the UK. However, by following a clear process and avoiding common pitfalls, you can manage it efficiently. This guide will walk you through the steps needed to complete your tax return and highlight key mistakes to avoid to keep your finances in order and prevent penalties.
Who Needs to File a Self-Assessment Tax Return?
Self-assessment is required if you:
- Are self-employed as a sole trader, freelancer, or contractor
- Earn more than £1,000 from untaxed income, such as from a side hustle or rental property
- Are a partner in a business partnership
- Receive high-income child benefit
- Earn more than £150,000 a year
- Have foreign income or are a non-resident landlord
If you fall into any of these categories, you need to file a tax return by 31st January following the tax year. The deadline for paper submissions is earlier, by 31st October, but online filing is more common due to its convenience.
Step-by-Step Guide to Filing Your Self-Assessment Tax Return
1. Register for Self-Assessment
Before you can file your tax return, you need to register with HMRC. If you’re new to self-assessment, you must do this by 5th October in the second year after starting your business. Registering gives you a Unique Taxpayer Reference (UTR) number, which is essential for filing. You can register through the HMRC website.
2. Collect Your Financial Information
Before starting the form, gather all relevant documents, including:
- Invoices and income records: Make sure you have a complete list of all the income you’ve earned.
- Expense receipts: Only allowable expenses can be deducted, such as business travel, office supplies, and professional fees.
- P60 or P45 forms: If you’ve also had PAYE employment during the tax year.
- Bank statements: To cross-check financial data.
- Details of any additional income: Such as dividends, interest, or rental income.
3. Log into HMRC’s Online Portal
Once registered, log into your account via the Government Gateway and click on the “Self-Assessment” section. Select the relevant tax year and begin your tax return.
4. Complete Your Personal Information
This section includes your name, address, National Insurance number, and UTR. Ensure this information is accurate to avoid potential issues later.
5. Declare Your Income
- Self-employed income: Enter your total income and allowable expenses. HMRC allows you to either list individual expenses or claim a simplified flat rate for certain items like mileage.
- Other income: Declare income from dividends, interest, or property. If you receive rental income, you may need to fill in the Property section.
- PAYE income: If you’ve had employment income taxed at source, you’ll need to declare this too, typically using your P60 or P45.
6. Claim Your Deductions
The good news is that certain deductions reduce your tax liability. These can include:
- Business expenses: Travel, office supplies, and insurance.
- Capital allowances: If you’ve purchased assets such as equipment for your business.
- Pension contributions: Contributions to approved pension schemes.
- Charitable donations: Under Gift Aid, donations to UK charities can also be deducted.
7. Submit and Pay Your Tax Bill
Once everything is filled out, you’ll see an estimate of your tax bill based on the information you provided. Review the data carefully, then submit the return. Payments for any tax owed must be made by 31st January for the previous tax year. You can pay via direct debit, bank transfer, debit/credit card, or through your online HMRC account.
If your tax bill exceeds £1,000, you may also be required to make Payments on Account, which are advance payments for the following tax year, due on 31st January and 31st July.
Top Mistakes to Avoid When Filing Your Self-Assessment Tax Return
Completing your self-assessment correctly is crucial. Here are some common mistakes that can lead to errors, penalties, or even investigations by HMRC.
1. Missing Deadlines
Late submission or payment can result in hefty fines. Missing the 31st January deadline will incur a £100 fine. If it remains unfiled for three months, additional penalties of £10 per day (up to 90 days) apply. For extended delays, you could face even higher fines, including interest on the unpaid tax.
2. Failing to Register on Time
New freelancers and sole traders often forget to register by the 5th October deadline. Without registration, you can’t file your return, and failure to register promptly could result in fines.
3. Incorrect or Incomplete Information
Providing incorrect figures or leaving sections blank can cause issues. This can lead to recalculations, penalties, or HMRC inquiries. Make sure to double-check your entries and ensure that all relevant income is declared.
4. Overclaiming Expenses
While expenses reduce your tax bill, it’s important to only claim allowable expenses. Claiming personal expenses as business-related (such as personal travel or meals) is one of the most common mistakes. If you’re unsure, consult HMRC’s guide on allowable expenses or speak to a tax advisor.
5. Forgetting Payments on Account
If you owe more than £1,000, you may need to make Payments on Account. Failing to factor these into your budgeting could leave you with unexpected tax bills. Be sure to budget for both your annual tax bill and these advance payments.
6. Not Keeping Accurate Records
HMRC requires you to keep detailed records of your income and expenses for at least five years after the 31st January submission deadline. If you are audited, lack of records can lead to fines or additional tax assessments.
7. Ignoring HMRC Notifications
Once your return is submitted, HMRC may still send follow-up questions or notices. Failing to respond promptly can lead to further penalties or tax adjustments. Always monitor your HMRC account for updates.
Conclusion
Filing your Self-Assessment Tax Return as a freelancer, contractor, or sole trader can indeed be a complex process. However by following a structured process, gathering the right information, and avoiding common mistakes, you can handle it smoothly. It’s essential to file your tax return on time, maintain accurate records, and seek professional assistance if necessary to avoid penalties .
Self-Assessment Tax Return Help
Struggling with your Self-Assessment Tax Return? MBSC Accountancy and Consultancy is here to help! Whether you’re a freelancer, contractor, or sole trader, our expert team will guide you through the process, ensuring accuracy and avoiding costly mistakes. Contact us today for stress-free tax return assistance and keep your finances in check!
