As a business owner, a Self Assessment Tax Return is something that you will be required to complete each tax year to declare your income (and pay over any tax owed) to HMRC.
Many individuals and business owners prepare and submit their own tax returns directly to HMRC.
If you haven’t done so already, now is the time to get your 2019/20 tax return prepared and submitted well before the 31st January 2021 filing deadline.
Who needs to complete a Self Assessment Tax Return?
You are required to complete a tax return if in the last tax year (2019/20) you were:
Self employed as a ‘sole trader’ and earned more than £1,000
A partner in a business partnership
A director of a Limited company
An employee or pensioner and earned over £100,000
Owing Capital Gains Tax from selling assets
Claiming child benefit and you or your partners income was over £50,000
Living abroad but receiving an income in the UK
If you have untaxed income such as:
Money from renting out a property
Tips and commission
Income from savings, investments and dividends
Please note that it is your responsibility to make sure you notify HMRC of any changes in circumstances and to make sure you declare all taxable income each year.
If you have received a notice to file a tax return you must complete it regardless of whether you owe tax or not.
Here are some of my top tips for preparing your own tax return:
1. Make sure you have registered for Self Assessment with HMRC
If 2019/20 was the first year you needed to prepare a Self Assessment tax return you are required to notify HMRC by 5th October 2020.
This will allow HMRC to set you up with a Self Assessment record and they will issue you with a Unique Taxpayer Reference (UTR) number which will be required to submit your tax return.
2. Make sure you have a HMRC online services account
To file your tax return directly with HMRC you will need to have a HMRC online services account and have registered for the Self Assessment online service.
If you haven’t done this already you can register on the HMRC website but a point to note is it can take up to 10 working days to receive your activation code by post from HMRC. You will not be able to file online without this so do not leave this to the last week in January!
3. Get your paperwork together
Before even starting to think about preparing your tax return make sure you have all of your information to hand.
This might include your P60 (from your employer or pension provider), P45 (if you have changed jobs in the tax year), P11D (if you receive benefits from your employer such as a company car), bank interest certificates, dividends from investments.
If you have self employment, partnership or rental property income you will also need to calculate your income and expenses to include on the relevant pages of the tax return.
4. Don’t leave it until the last minute
The tax year ended on 5th April 2020 and although the tax return doesn’t need to be submitted until 31st January 2021 (if filing online) that isn’t a reason to leave it to the last minute to prepare.
I would always recommend preparing your tax return as early as possible so that you know what your tax bill will be so that it gives you chance to budget for it if needed.
Filing your tax return late by just 1 minute will result in an automatic penalty of £100.
5. Remember payments on account
Payments on account are advanced payments of your tax bill.
You’ll need to start making payments on account if your tax bill is more than £1,000 (and at least 80% of your income is from self-employment).
Payments on account are made twice a year (31st January and 31st July) to spread the cost of next year’s tax. They are calculated based on your current year’s tax bill and are due in two instalments - 50% in each one.
For example, if your 2019/20 tax bill is £2,000 you will need to pay £2,000 + £1,000 (50% of £2,000) = £3,000 by 31st January 2021 and then a further £1,000 by 31st July 2021. This will mean that when you come to pay your 2020/21 tax bill you will have already paid £2,000 towards it.
The biggest impact of payments on account will be your first year as you'll have a higher bill to pay, so it's important to be aware of them!
6. Use the HMRC guidance to do your homework
HMRC has loads of help and support on their website on a variety of topics which may be relevant to you so it is worth spending some time to familiarise yourself with these.
Some areas that would be worthwhile reading up on are:
Tax deductible expenses (if self employed)
Job expenses (if employed)
HMRC have also produced a number of videos showing you how to navigate your way through filing your own tax return online.
HMRC do have telephone helplines and webchat available if you have any questions but please be aware there may be wait times especially during busy periods.
7. Know the key dates
5th October 2020 – deadline to register for Self Assessment for the first time for the 2019/20 tax year
31st October 2020 – paper tax return filing deadline
31st January 2021 – online tax return filing deadline
31st January 2021 – 2019/20 tax payment deadline and first 2020/21 payment on account due
31st July 2021 – second 2020/21 payment on account due
8. Use an accountant
If you have complicated tax affairs or preparing your tax return fills you with dread each year it may be worthwhile getting an accountant to prepare your tax return for you.
Not only will it take the stress away but accountants are much more likely to make sure nothing has been missed and that you have claimed everything you are able to claim.
I hope that you have found these tips useful and if you need any help or advice preparing your tax return please feel free to contact me.