What is a Self Assessment?
A Self Assessment is the Tax Return (referred to by the abbreviation SATR) that self employed people, or those with income not taxed at source, in the UK complete each year.
Who has to complete a SATR?
You will be asked to complete a Self Assessment Tax Return if you are self employed as a sole trader or in a partnership with gross income over £1,000.
You may also need to complete a return if you have dividend income, receive rent, your income is over £100,000 or you have other income that has not already been taxed.
Each year the rules, found on the GOV.uk web site, relating to who needs to complete a self assessment seem to change. If in doubt and especially if you want to make sure that the tax that you pay is correct then it is good practice to complete a self assessment tax return even if HMRC tell you that you don’t need to.
Of course if HMRC ask you to complete a SATR you must do so even if there is no further tax to pay.
I’m a Director – do I need to complete a SATR?
If you receive income that hasn’t been taxed, such as dividends, then a director (and shareholder) does need to complete a self assessment. The total amount of dividends received is entered onto the self assessment.
What do I put on the SATR?
All income regardless of the source needs to be recorded on your Self Assessment Tax Return.
So that means that your SATR will include, where applicable, the following:
- Dividends received from your limited company – record all and the tax calculation will automatically deduct the dividend allowance (the amount of dividends that you can receive before tax is paid)
- Salary or wages received for all jobs in the tax year even if you’ve left them
- Profit (income less costs) from any self employed businesses
- Any pension income
- Interest on savings – the tax calculation will take into account the savings allowance (amount of interest you can receive before you pay tax)
- Rental income less allowable costs
- Any capital gains made for example on the sale of a second property
- Any other income not recorded elsewhere
What time period does the return cover?
The Self Assessment Tax Return covers a tax year which runs from 6th April each year to the following 5th April.
So for example the tax year 2023 / 2024 covers the period 6th April 2023 to 5th April 2024. This return must be filed by 31st January 2025 and any taxes due must be paid by this date too.
It’s worth remembering that all income received during that period will need to be recorded on the SATR. That includes jobs that you may have left (you would have received a P45 when you left) as well as jobs that you still have (you will receive a P60 form from your current employer after the end of the tax year for your current job).
My tax bill is higher than I thought – why is this?
When your tax is calculated, if it is over £1,000, the amount due on 31st January will include the first payment on account. This is an amount demanded by HMRC as a down payment towards the tax bill for the current tax year.
Some people incorrectly think that HMRC are asking for tax in advance. This is not the case as when your first payment on account is due on 31st January you will already be 10 months into the tax year that the tax relates to.
Two payments on account are made each being 50% of the estimated tax due based on your tax bill for the last tax year.
The second payment on account for the remaining 50% of the tax bill will be made on 31st July which is 4 months after the end of the tax year to which it relates.
How do I make doing the return less painful next year?
Unfortunately by the time that you file your tax return at the end of January you’re already 10 months into the current tax year which will end on 5th April!
Take the time between now and the end of the tax year to catch up on your accounting paperwork. Get everything together and set aside a little bit of time each day to attack the pile of accounting admin. By breaking the backlog down into bite sized chunks the chore will seem smaller and manageable. You’ll soon be caught up and more in control of your finances.
From the start of the next year think about having a dedicated business bank account and an accounting system. These are absolutely essential to help you keep on top of your business finances, set aside the right amount of tax and to show how much you can take out from the business to live on. Systems are easy to use and cheap or even free.
A great example is to have a Mettle account (from NatWest) linked to FreeAgent accounting software which is also owned by NatWest and is free to use with a Mettle, or NatWest business account.
Only put business outlays and receipts through the business account making sure that you keep your business and personal transactions completely separate.
What if I cannot file my tax return on time?
If the Self Assessment Tax Return isn’t filed by midnight on 31st January a system generated automatic penalty of £100 will be sent to the tax payer. But that’s not the end of it. After 3 months daily penalties kick in which increase substantially. Not only this but there are fines for the late payment of your tax bill starting after 30 days and set at 5% of the tax due.
So it really is worthwhile getting your returns filed on time and taxes paid.
However if you do have a genuine excuse (not the dog ate my tax return type plea) then HMRC will listen and may waive the fines and penalties.
What can I do if I cannot pay the tax due?
HMRC do recognise that right now times are tough. If you do find yourself in a situation where you cannot pay your tax bill then engage with HMRC and ask them for time to pay. They are usually sympathetic to requests for time to pay, unless you already have outstanding tax debts.
Before you contact them set out your finances and have an idea of what you can pay and when. Whatever payment plan that you agree with HMRC must be adhered to as they take a very dim view of defaulters.