Self Assessment is a system that HMRC use to collect Income Tax. The title of “self assessment” is very important. It means that as an individual you self assess the amount of tax that you must pay. Obviously you must follow the current tax rules when you do this. What this means is that you need to know the rules and you are ultimately responsible for your tax affairs even if you appoint someone else to act on your behalf to help you such as an accountant or tax advisor.
Who has to complete a self assessment
If you meet certain conditions then you need to file a self assessment tax return (SATR):
- you operated as a self-employed sole trader during the year with a gross turnover in excess of £1,000
- you were a partner in a business partnership
- your income exceeded £100,000 in a tax year (tax year 2022 / 2023) or £150,000 for the tax years from 2023 / 2024
- you had to pay the High Income Child Benefit Charge
It may also be necessary for you to complete a self assessment tax return if you received:
- income from renting out a property
- tips and commission
- income from savings, investments and dividends
- foreign income
- certain COVID-19 grant or support payments
You may choose to send a completed self assessment tax return to HMRC:
- to claim some Income Tax reliefs
- to prove you’re self-employed in order to claim Tax-Free Childcare or Maternity Allowance
- pay voluntary National Insurance contributions
In addition HMRC may ask you to file one in which case they will write to you.
Once you are within the regime of self assessment you must complete a return each year unless HMRC tell you not to complete one. If you think you do not need to complete a return you must tell HMRC and wait for them to send a letter confirming you do not need to file one in future.
Due date for the self assessment
The self assessment has to be filed by 31st January following the end of the tax year if you file it online. If you file a paper copy then it has to be filed by 31st October following the end of the tax year although it will be rare that anyone would file a paper copy preferring to use online tools or commercial software which are readily available.
For example for the 2023 / 2024 tax year, which ends on 5th April 2024, the self assessment tax return will need to be filed on or before 31st January 2025.
Tax rates and allowances are set by tax year and may change each year. So it is vital to keep up to date with them and make sure you are aware of the rates and allowances that are applicable to the tax year in question.
How to file a self assessment
The self assessment tax return can be filed for free through your Government Gateway account where you will log on with your user ID and password. The same page also gives you the links to follow if you have forgotten any of your log on details. If you do not have a Government Gateway account you can create one at https://www.access.service.gov.uk/registration/email. If you do need to create a Government Gateway account you will need to have your National Insurance number or postcode and two forms of identification to register for the service.
Alternatively you can use commercial software to file it but there may be a charge to use such software. HMRC publish a list of Self Assessment commercial software suppliers at https://www.gov.uk/government/publications/self-assessment-commercial-software-suppliers/self-assessment-online-commercial-software-suppliers although they say that they cannot recommend or endorse the software listed and will not be responsible for any loss, damage, cost or expense in connection with using any of the solutions on the list.
What is in the self assessment tax return
The self assessment tax return is made up of the main tax return called the SA100, where you record income from dividends, savings, pensions as well as claim any tax reliefs, allowances and record student loans. In addition, there are a number of other sections, known as ‘supplementary pages’, which would be used to tell HMRC about different types of income or capital gains such as:
- wages and salary as an employee or company director – SA102
- self employment – SA103S or SA103F
- business partnership – SA104S or SA104F
- UK property income – SA105
- foreign income or gains – SA106
- capital gains – SA108
- non-UK residents or dual residents – SA109
Self Employed Sole Trader
For your self employed business the relevant supplementary page is the “self-employment – SA103S or SA103F”. The S or F after the SA103 refers to a Short or Full version of the form. The short version is completed if your turnover is less than £85,000 or would have been if you had traded for a full year. If it’s over £85,000 then you would complete the full version.
Side Hustles
If you have a side hustle (a job or piece of work that you do in addition to your main income) you will need to register for self assessment and complete a SA103 if the gross turnover exceeds £1,000. If you have several side hustles you may need to complete separate SA103S for each one. Bear in mind that the £1,000 trading allowance is per person and not per side hustle.
Self Assessment for a Director or Shareholder
For an owner managed business where the main director is also a shareholder there will usually be a requirement to complete a self assessment tax return where dividends have been paid as there potentially will be additional (dividend) tax to pay on these. The self assessment for a director will include income from all sources including a salary (even if there was no tax to pay on the salary) as well as the dividend.
P45 and P60
The employment section (SA102) of the self assessment will need figures from any P60s or P45s that you may have received.
A P60 shows the gross salary and tax that you have paid on your salary in the tax year. If you are working for an employer on the last day of the tax year they must give you a P60. So you will get a P60 for every job that you have on 5th April. The P60 must be provided on paper or electronically by 31 May. You will use the information and figures for the P60 to complete the SA102.
A P45 is a document that you will get from your employer when you stop working for them. It will show how much gross salary you received and how much tax you paid on your salary so far in the tax year (6 April to 5 April). It has 4 parts (Part 1, Part 1A, Part 2 and Part 3). Your previous employer sends details from Part 1 to HMRC. They will give you the other parts. Part 2 and 3 will be given to your new employer or to Jobcentre Plus. You will keep Part 1A for your records and to use to enter the information on the SA102 employment supplement. It is a legal requirement for an employer to provide a P45 on termination of employment.
P11D
A copy of a P11D will be provided by your employer if they have filed one to tell HMRC about your ‘benefits in kind’. HMRC define benefits in kind as “goods and services provided to an employee for free or at greatly reduced costs”. These can include but not limited to for example company cars or interest-free loans made from the company. If your employer takes the tax owed on your benefits out of your pay you might not get a P11D. If you do have a P11D then the information will be entered onto your self assessment.
If you lose any payroll forms refer to the HMRC web site which guides you on what to do to replace them.
Property Income
Property income can come from a variety of sources; buy to lets, holiday lets, AirBnBs, lodgers, renting out a driveway or parking space to name but a few.
If you receive any income from a property it should be included on your self assessment tax return (using the SA105 for UK property income) unless the income is via a Limited Company, known as a special purpose vehicle (SPV) in which case the rules are very different. If being a landlord is your main job then you will need to register as self employed as HMRC deem this as running a business (see https://www.gov.uk/renting-out-a-property/paying-tax).
Property income can be very complicated and certainly one where expert advice is needed before you delve into this area and certainly before you purchase a property. There are different rules for different types of lettings such as buy to lets and furnished holiday lettings. Caution should be exercised around what can be claimed back on any loans that you may have to finance the property as e.g. you can only claim the interest, and not the capital, element of loan repayments and the tax relief is restricted to just the basic rate of Income Tax. In reality this means that there could be a tax bill to pay even if there is not a surplus on the property income over cost outlays.
There are two schemes for property income that are worthy of note:
- If your annual gross property income is £1,000 or less then you do not need to tell HMRC about the income. If you own a property jointly with others, each of you are eligible for the £1,000 allowance against your share of the gross rental income (full rules can be found at https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income#property)
- The Rent a Room Scheme lets you earn up to £7,500 per year tax-free from letting out accommodation in your own home e.g. if you take in a lodger, assuming it is furnished. If your home is jointly owned this allowance is shared. If your income is more than the allowance then you have to complete a self assessment tax return. Rules to apply to those using this scheme which can be found at https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme
If you sell a UK residential property other than your main residence on or after 6 April 2020 then you will need to tell HMRC within 60 days of selling the property. You can do that online at https://www.gov.uk/report-and-pay-your-capital-gains-tax/if-you-sold-a-property-in-the-uk-on-or-after-6-april-2020.
Other Capital Gains
If you have capital gains (profit made when you sell and asset that has increased in value) other than from a UK residential property then these should be included on your self assessment tax return (by completing the SA108 Capital Gains supplement) or you can report them using the Capital Gains Tax Service at https://www.gov.uk/report-and-pay-your-capital-gains-tax/if-you-have-other-capital-gains-to-report. Capital gains can be complicated and may be an area where you seek professional advice.
It’s worth noting that the amount of capital gains tax that you will pay depends on your other income – see https://www.gov.uk/capital-gains-tax/rates for more details.
Crypto Gains
If you have traded in Crypto currency during the year and made gains on the trades then these do need to be included on your tax return as a Capital Gain. It is useful to know that any losses made could be offset against the gains so reducing the amount of tax that may be due. Due to the volume and frequency of Crypto trades it can be difficult to keep tabs on the overall gains and losses. If you do trade often it is worthwhile using a reporting tool such as Koinly (https://koinly.io) which will calculate your cryptocurrency taxes for inclusion on your self assessment tax return.
Your Personal Tax Account
If you are registered with HMRC, via the Government Gateway, you will have access to your Personal Tax Account where you can prepare, amend, review and file your self assessment tax return. In addition you can:
- check your tax code
- claim a tax refund
- check your income and tax paid for the previous five years
- check and manage your tax credits, State Pension and Marriage Allowance
- track tax forms that you’ve submitted online
- tell HMRC about a change of name or address
Payments on Account
Many a first time self employed business owner is baffled when they fill in their tax return to be presented with a much larger than expected tax bill. This occurs because when you complete your tax return you may need to make a payment on account. A payment on account is an amount paid towards the tax due in your current tax year.
If your tax bill for the year that you are completing the self assessment for is more than £1,000 you will have to make a payment on account towards the current tax year. However, if more than 80% of your income is taxed at source e.g. CIS then you will not have to make such a payment.
Payments on account are made in two instalments each being half your previous year’s tax bill. The payments are due on 31 January in the tax year to which they relate and 31 July after the end of that tax year. In reality for a first time sole trader self assessment completer it will mean forking out 1.5 times your tax bill on 31 January but that should be OK as you should have been budgeting for it as you go!
All too often it’s thought that payments on account mean paying your tax bill in advance. This is incorrect as when you make your first payment on account (50% of the estimated tax bill) on 31 January then you already are 10 months into that tax year. The second payment is made on 31 July which is 4 months after the end of the tax year. So you are not paying tax in advance at all and in fact when the first payment on account is due you are nearly at the end of the tax year that the payment relates to.
If you have ceased trading or your profits are falling then it is worth requesting a reduction in your payments on account. You can do this on the self assessment itself or you can use the HMRC form specifically for this purpose being the SA303 which you can find at http://www.hmrc.gov.uk/sa/forms/sa303.pdf. Be aware though that HMRC do state that if you pay less than you need to they will charge you interest and they may apply a penalty if you haven’t taken reasonable care.