Self Assessment Returns Explained!
As a business owner you will be expected to submit a self assessment tax return each year to inform HMRC about your income. This is so they can record your information and work out how much tax and National Insurance you need to pay according to your earnings.
If you are self employed or you are a business owner, you will need to submit a self assessment to HMRC, but if you are an employee on the PAYE scheme, your income tax and National Insurance contributions are worked out for you by your employer. Your employer will automatically deduct payments from your wages throughout the year and pay them to HMRC on your behalf.
As an individual sole trader or company owner / director, we are responsible for accurately working out how much tax we owe, and make sure that we pay it by the deadline dates set by HMRC. If you are just starting out in self employment or you have just formed your first company, then all this can sound a little daunting, but don’t worry – it is not as scary as you think.
Why do I need to do a Self-assessment?
HMRC will not know exactly how much you are earning from your self employment, or what you are taking as dividends from your registered company. As this is something you cannot predict in advance as you will not know how much profit your business will make before you actually have made it, you need to tell HMRC at the end of the tax year through your Self Assessment tax return.
When you are the owner or director or a limited company, HMRC will know how much salary the company is paying you as this information will have been submitted through your payroll process under Real Time Information (RTI). They will easily be able to work out how much tax and NI you should pay on your company salary. However, HMRC will not know exactly how much you have been paid in dividends from your company shares, or payments from any other source of income you have. Once they have this extra information through your self assessment, they can work out what you need to pay.
How do I do self-assessment?
Each year HMRC will send you a Self Assessment Tax Return to complete. You may get this in paper form through the post. You will need to fill out the paperwork and post it back before the paper submission deadline of 31st October to avoid any penalties.
If you are paper-free, then you will receive a notification from HMRC via email. You will have signed up to an online account with HMRC, sometimes called your Government Gateway. Through your online tax account you can automatically update your personal details and file your Self Assessment online using their online Self Assessment form. The deadline for submitting online is 31st January.
Each self-assessment tax return covers one tax year. This runs between 6th April one year to 5th April the next year. So for example, you will get your Self Assessment form or reminder from HMRC usually in April or May. You will then have until October 31st to submit your paper form or 31st January next year to file your return online.
Here is a simple example for you:
The tax year for 2017/18 runs from 6th April 2017 to 5th April 2018. Your paper self assessment tax return should be submitted by 31st October 2018. Your online tax return should be completed by 31st January 2019.
What information does my Self-assessment contain?
You will need to complete all the required fields in your self assessment tax return. You will be asked to supply information about your income from all sources. As a company director, HMRC will already know your company salary total, but because they need to see everything you earn all together in one place, it makes it clearer to work out your final tax and NI contributions as a whole for the year from all income sources. Other income sources could be from rent for a property you let out, or income from a trust fund that has been set up in your name.
To make things easier for you to complete your self assessment form, gather together all the paperwork and data that you will need to be able to accurately fill out your return. Dig out bank statements, your bookkeeping accounts, invoice records etc. so everything is at hand.
Although your self-assessment form may look quite intimidating at first glance, it really isn’t as scary as it looks. It also helps to break the task up into easy to manage chunks. We are all busy people trying to run a business, so instead of letting the task consume all of your time, set aside an hour every other day to fill out a section and double check your figures to make sure that everything you have entered is accurate. You will be surprised at how quickly you can get through filling out your form by doing it this way and it will also weigh less on your mind as you know you are working your way though it in steps.
Getting help with your self-assessment
Should you need any help with sections, your paper copy will come with a handy guide to help you fill out each section explaining what is needed. Should you plan to submit your form online, you can fill out sections and save your progress to return to another day. There is also a lot of handy online guides to help you complete your self-assessment via the HMRC website.
If you really cannot spare the time to complete your self-assessment form or you would prefer someone else to do this for you, then it would be worth hiring an accountant to do all your necessary paperwork for you and then submit to HMRC on your behalf.
To make it easier for yourself next year, it would help to organise all of your business paperwork so that it is all kept together in an easy to access format. This is especially true for important correspondence from HMRC that may show how much tax you either overpaid or underpaid from last year that should also be carried over to this years figures.
Try not to put off completing your self-assessment tax return each year. The closer to the deadline you leave it, the more you will stress about it and this can lead to mistakes and errors being made that can result in a fine from HMRC for submitting incorrect information.
The earlier you can complete and submit your return after the end of the tax year the better it will be for your peace of mind.