A Contractor's Guide To Self-Assessment Tax Returns
As if you weren't excited enough about Christmas, every freelancer and contractor's favourite time of year is fast approaching too ..Tax Season!
Whether you're a seasoned pro, or just starting out, self-assessment can be intimidating, particularly when the press is full of horror stories about fines, recent government policy changes and HMRC taking measures to answer to the recent criticisms they've been facing around avoidance. Hopefully we can help with our guide to self-assessment.
1 - First you'll need to register with HMRC for self-assessment.
You can register online, by post or by phone; find more details here. To register for self-assessment you'll need your National Insurance Number as well as all the details of your business and your personal details. Registration (if you haven't already done it) needs to be submitted by 5th October after the end of the tax year for which you need a return. If you are new to self-assessment you will receive a UTR (Unique Taxpayer Reference) which stays with you to keep you linked to your self-assessment records. If you aren't new to this then you'll need you reference number to hand to complete the forms.
2 - You need to keep your records in order.
They key to submitting your assessment on time and correctly is in keeping accurate financial records. Just some of the financial records you should have to hand when you are completing your self-assessment are: your self-employment income, any dividends, any income that may have come from partnership and interest paid on things such as loans and credit cards. This only the basics so be prepared to also list any additional income or expenditures.
Don't forget, you always have the option of speaking to a professional and having them help with your accounts and financial information.
3 - Timing is important
You may have already guessed that leaving your self-assessment to the day before its due is not the best idea. The earliest you can realistically submit it is the beginning of the new tax year. You do, however need to make sure you have all of your tax forms from the previous year, P60, P45 and P11D, for example, so whenever you have received those you can get cracking. The advantages to early filing are the fact you'll know how much tax you owe so you can plan the rest of the year on the back of that, knowing in advance can also prepare you for any shocks and having to pay out of your own pocket!
4 - Completing your self-assessment
So, you've organised all your papers, you feel prepared and ready, next comes the task of actually filling out the assessment. You can now register online (if you haven't done it before) and receive your UTR (which we mentioned earlier). Next you'll use that code activate your account online and you're ready to go. You can check this HMRC guide if you're stuck at this point. If you've filed a return online before you'll have an Id and password and you can get started straight away.
If you're already prepped it's an easier task of simply copying data from your records and documents into HMRC's system. It's simply form filling. Keep all of all your forms in front of you and once one form has had its data inputted online put it to one side, once all the forms are aside, you're done!
The great thing is that the online system saves your progress so you don't have to complete the assessment in one sitting and if there are things you need to double check you can always go back before you decide to submit it. Once you've double-checked everything and are happy that you've completed the forms you can submit.
5 - Finally, don't miss the deadline of January 31st.
If you let the deadline go by you'll be hit with an on the spot £100 fine and be given an extra three months to work through the online forms. If you miss the second deadline the fine will then go up to an additional £300, or a 5% fine of the tax you owe, whichever is greater. So it pays to be prepared for your self-assessment.