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Self Assessment for Self-Employed Comprehensive-Guide

Self Assessment for Self-Employed Individuals: A Comprehensive Guide

In the world of self-employment, managing your finances can be a complex task. One crucial aspect is filing your Self Assessment tax return. If you’re a self-employed individual, this article is your comprehensive guide to understanding the ins and outs of Self Assessment, who needs to submit it, how it works, and crucial deadlines. So, let’s dive right in.

Table of Contents

  1. Do I need to complete a Self Assessment if I’m self-employed?
  2. How does Self Assessment work for self-employed people?
  3. Do self-employed people need to send a tax return if they make a loss?
  4. When should I sign up as self-employed?
  5. When should I submit my Self Assessment tax return?
  6. Who has to complete a Self Assessment tax return?
  7. What is Self Assessment?
  8. Can I ever get out of Self Assessment once I am in it?

 

Do I need to complete a Self Assessment if I’m self-employed?

Determining Your Obligation

Self-employed individuals need to submit a Self Assessment tax return if they earn income through self-employment. This includes sole traders and freelancers. The threshold for self-assessment is if you earn more than £1,000 from self-employment during a tax year (from 6th April to 5th April). If your income falls below the £1,000 trading allowance, you won’t need to register for Self Assessment.

Additional Employment

Even if you also work for an employer in addition to being self-employed, you still need to register for Self Assessment if your self-employed income exceeds £1,000. This is because your employer will only report your employment-related earnings to HMRC, and it’s your responsibility to inform HMRC about your self-employment income.

How does Self Assessment work for self-employed people?

Reporting Your Income

While employees have their taxes and National Insurance contributions automatically managed by their employers, self-employed individuals must report their income themselves. Your Self Assessment tax return should include details of all income sources during the tax year, which encompasses earnings from your self-employment and any income you receive from an employer.

What HMRC Wants to Know

Declaring all your income ensures that HMRC can determine various important factors:

  • What you earned
  • How you earned it
  • Any tax relief you might be eligible for (like claiming allowable expenses)
  • Any tax you’ve already paid to prevent double taxation

Do self-employed people need to send a tax return if they make a loss?

Yes, even if your self-employment results in a loss or your earnings are below the trading allowance, you are still obligated to submit a Self Assessment tax return. Failure to do so when expected by HMRC can result in penalties, so it’s crucial to meet your filing requirements.

When should I sign up as self-employed?

Registration Deadline

For individuals who start their self-employment journey, the deadline for registering as a self-employed sole trader is the 5th of October following the end of the tax year in which you began trading. To illustrate, if you started your self-employment venture in August 2023, which falls within the 2023/24 tax year, you must register for Self Assessment by no later than the 5th of October 2024.

How to Register

Registering for Self Assessment doesn’t occur automatically; you must take the initiative. Fortunately, you can easily sign up online, or you can contact HMRC through their Self Assessment Helpline at 0845 900 0444.

When should I submit my Self Assessment tax return?

Filing Deadlines

The deadline for submitting your Self Assessment tax return depends on your chosen method of submission:

  • If filing by post, submit your paper tax return form by the 31st of October.
  • For online submissions, the deadline is the 31st of January following the end of the tax year it pertains to.
  • If you’re submitting online and wish to have HMRC collect what you owe through your tax code, the deadline is the 30th of December.

It’s important to note that you don’t have to wait until the deadline to submit your tax return. You can file it as soon as the tax year ends, giving you ample time to ensure accuracy and to settle your tax bill.

Who has to complete a Self Assessment tax return?

Understanding the Obligation

Self Assessment is not exclusive to self-employed individuals. Various groups of taxpayers are required to complete a tax return, and it’s essential to determine your specific obligations. Here are the key areas to explore:

  1. What is Self Assessment?
  2. What are the important Self Assessment deadlines and dates?
  3. How does Self Assessment work if I am an employee and I have foreign income or gains?

 

What is Self Assessment?

Under the Self Assessment system, certain taxpayers must complete a tax return (referred to as form SA100) each year. This return requires you to disclose all sources of income and capital gains while claiming applicable allowances and reliefs. A tax return is a legally binding document, and it’s vital to report all sources of income, regardless of their size, unless they are below £1 or have had tax deducted at the source.

What are the important Self Assessment deadlines and dates?

For detailed information regarding the deadlines for submitting your Self Assessment tax returns and making income tax and National Insurance contributions (NIC) payments, please refer to our dedicated page titled “When to Submit Your Self Assessment and Make Payments.

It’s crucial to understand that there are automatic interest charges and penalties in place for failing to meet the deadlines for tax return submission and tax payment. HMRC has implemented a penalty system for late-filed tax returns, even if you find yourself in a situation where you owe no tax or are entitled to a refund. Being aware of these deadlines and the associated consequences is essential to ensure your compliance with tax obligations.

How does Self Assessment work if I am an employee and I have foreign income or gains?

In the United Kingdom, some migrants must complete an annual formal tax return, even if they are not self-employed and have their employment taxes managed under the PAYE system. This requirement primarily applies to individuals who are tax residents in the UK and have foreign income and gains.

To determine your specific tax obligations, you can refer to the “Do I have to complete a tax return?” section on our residence and domicile pages, which provides comprehensive guidance on whether a tax return is necessary based on your circumstances.

In terms of record-keeping, the extent and nature of the records you need to maintain will vary according to your individual situation. You may be required to keep records and comments that support your residence or domicile status, document information regarding your foreign income and gains, and maintain detailed records if you utilize the remittance basis of taxation, which may include bank statements.

It’s essential to store these records securely for at least 22 months from the conclusion of the tax year. For instance, for the tax year 2022/23, which concludes on 5th April 2023, you must retain your records until at least 31st January 2025 to meet your tax compliance requirements.

Can I ever get out of Self Assessment once I am in it?

If you’ve been issued a notice to file a tax return and believe you no longer need to do so, you can contact HMRC to request withdrawal from the Self Assessment system. It’s crucial to understand that you have a legal obligation to complete a tax return until HMRC formally withdraws the notice, even if you no longer meet the Self Assessment criteria. If you cease self-employment or leave the UK, you should fill in a tax return for the year your self-employment ends or the year of your departure. This will enable HMRC to close your Self Assessment record and cease sending you tax return requests. Always ensure HMRC has your correct contact information, even if you’ve moved abroad.

Conclusion

In conclusion, Self Assessment is a vital process for self-employed individuals, and compliance with filing requirements is essential to avoid penalties and legal consequences. Understanding when and how to register, what to report, and meeting deadlines will ensure you navigate the Self Assessment system smoothly and fulfil your tax obligations. Stay informed, take timely action, and you’ll find Self Assessment to be a manageable task in your self-employment journey.

 

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