Tax season is not such a big deal if you are a salaried employee. Most of the time, taxes get automatically deducted from whatever salaries, wages or pensions you receive. When you are self-employed, however, you must file a Self Assessment tax return and report all your income and/or capital gains to the HMRC.
This can be complicated and time-consuming, even if you are filing online, but there are ways to make it easier and avoid hefty penalties – especially if you do not file the returns on time.
The deadline for paper Self Assessment returns for the 2021/22 tax year is October 31, 2022, and online filing is January 31, 2023 (midnight).
We have compiled six of our most helpful Self Assessment tax preparation tips for people like yourself who are submitting a Self Assessment tax return to ensure that you are ready in advance of the deadline:
1. Know which taxes you have to pay
There are several categories of taxes that might potentially apply to you as a self-employed individual, such as income tax, Capital Gains Tax, tax on dividends earned and National Insurance. This mostly depends on how much your business has earned over the year, so look up the requirements for your income bracket.
2. Compile all of your paperwork
While no one enjoys paperwork, it is a non-negotiable part of tax filing. The earlier you start the process, the more time you will have to locate everything and follow up on documents that might be missing or incomplete.
Documents you will need include all statements of income and expenses, interest earned, gift aid payments, rental income records, dividends earned, pension statements and forms like P11D, P45 or P60 as necessary. Get into the habit of filing your documents away as you receive them to avoid the last-minute scramble.
3. Get your UTR number in time
This is your unique taxpayer reference number, which you must apply for with the HMRC if you have not submitted Self Assessment returns before.
You will ideally want to submit your application at least a month before the tax deadline because it takes about ten days from then until the number reaches you by mail and an additional ten days until you get the activation code and you can activate the UTR.
Many first-timers have to pay late penalties because they left it until the last minute, so budget enough time to complete this.
4. Know which categories of tax relief apply to you
As a self-employed business owner, you almost certainly qualify for some sort of tax relief. This could take the form of tax relief for having made some contributions to other areas like pension funds or tax deductions for your business expenses.
Some applicable ones you might be eligible for include personal allowance, dividend allowance, marriage allowance, trading income allowance and pension tax relief. If you are getting capital from venture capital schemes, you could also be eligible for investor tax relief.
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5. Know the deadlines and file on time
This is perhaps superfluous, but you should always submit your returns in advance of the deadline (January 31, midnight for online returns; October 31, midnight for paper returns) if you do not want to pay hefty fines to the HMRC.
You must also pay for both online and paper tax filing by January 31. HMRC is pretty strict about late fees, so take this one seriously! And if you do have a reasonable excuse, such as an unavoidable emergency, you should inform them as soon as possible so that you can appeal against any late fees.
6. Understand how payments on account work
In some cases, HMRC requires you to spread out your tax liability by making two payments in the year. The first one is on January 31, when you settle your tax bill for the previous year and make the first payment on account for the next year.
The second payment on account is on July 31. The exceptions to this dual payment system are if your earlier self-employed Self Assessment tax bill was under £1000 or if you have already paid more than 80% of the taxes you owe. Several online resources help you understand how payments on account operate.
7. Consider working with a professional accountant
It is perfectly possible to complete your Self Assessment tax return on your own. However, as an individual business owner, keeping in touch with all the complexities of tax relief amidst your day-to-day business duties can be cumbersome and it’s all too easy to miss out.
An accountant can take that burden off your shoulders and ensure that all your papers are submitted well in time. Not only that – an accountant can go through your business books and suggest ways you can reduce your tax bill, including any exemptions you can apply for that you might not have been aware of.
Over to you
Hopefully, these tips have demystified the Self Assessment process a little. Remember – as long as you are fully prepared for documents and records, you are already halfway there. And there is no shortage of assistance you can ask for, including consulting with an accountant who can handle the filing process on your behalf.
We at Bradleys Accountants are already gearing up for the Self Assessment tax return filing season and helping self-employed, company directors, and those receiving foreign incomes to file taxes on time. If you are frustrated or confused about how to get started. Fret not, just contact us, and we will sort out the Self Assessment for you. Speak soon!