Self-assessment for contractors: 7 tips for your tax return
As we get to the end of the year, all eyes are on Christmas, so it’s easy to forget that the final deadline for 2020/21 self-assessment tax returns is on 31st January. But more than a few contractors have got to January and felt that sinking feeling as they remember they only have a few weeks to pull everything together and get it submitted lest they end up getting fined.
If you’re thinking you’d like to get everything sent off to HMRC before Christmas, rather than waiting until the very last moment, but are staring atnd your spreadsheet from the 2020/21 tax year and a pile of expenses receipts, not really knowing where to start, there’s no need to panic. The Kingsbridge team have some excellent tips to help you to get organised.
1. Register with HMRC for self-assessment
If you’re new to contracting, there’s a chance that you may not yet be registered with HMRC for self-assessment. The good news is, it’s really easy to do and you can do it through GOV.UK. You need to register for self-assessment by 5th October in your business’s second tax year or else you could be fined.
If you’ve never filed an online tax return before, you just need to register online and, within 10 days, you’ll be sent a letter with your Unique Taxpayer Reference (UTR). You’ll also get a second letter with an activation code for your account.
If you have filed an online return before and already have a UTR, you simply need to re-register (if the work you plan to do is different to previously) and you’ll receive a letter within 10 days with a new activation code. However, if you intend to do the same work as before, you just need to sign in to your account. All of the links you need are on GOV.UK.
2. Remember the key dates
There are a couple of key dates for your diary to remember each tax year:
– The tax year runs from 6th April until 5th April the following year. You can fill in your self-assessment tax return any time after 5th April.
– The last deadline for your tax return is always 31st January.
Put these dates in your diary and on your wall calendar if you have one. Highlight them, draw circles round them, whatever it takes to make sure you remember.
3. Timing is everything
Basically, you have from 6th April until 31st January to complete and submit your self-assessment tax return online and the earlier in that window you complete it, the better. Ideally, you would start getting everything together in April and May before completing the tax return over the summer or in the autumn, leaving you plenty of time for contingency if you need it.
If you’re in a position this year where you haven’t started yet, don’t wait any longer. Get going ASAP and don’t leave it until the day before. There’s too much chance that you’ll submit it late and end up subject to a fine. You’ll pay a late filing penalty of £100 for a tax return that’s up to three months late, and more if it’s later.
4. Get your financial records in order
Hopefully, you’ve already got your financial records in order for this particular tax return. If not, take a day or two to do it as soon as you can so that you can get on with the return.
For next year, bear in mind that it’s worth collating everything in advance. Presumably, you have a spreadsheet or accounting software to record your income and expenditure in. Make time every month to input everything and file away your invoices, receipts and other paperwork. This way, come self-assessment time, you already have everything ready to go and just have to fill in the form – it saves you an enormous chunk of time over doing it all in one go.
5. Beware of late payments
We don’t mean late payments from your clients here (although you should beware of them too), we mean late payments to HMRC. There are a couple of payment deadlines throughout the year – usually on 31st January and 31st July. If you are late with a payment, you will have to:
Pay interest on the amount owed. This is an automatic charge and is calculated based on the due date of the payment and the date you actually pay – so the longer you leave it, the more you pay.
Pay a penalty fee on top of the interest. This equates to:
– After payment is 30 days late – 5% of outstanding tax
– Six months late – a further 5% of outstanding tax .
– 12 months late – a further 5% of outstanding tax
As you can imagine, this can really get expensive the longer your payment is late.
6. Consider getting an accountant
Doing your own accounts and tax return while trying to manage your business is a lot of work, so it’s no wonder bookkeeping gets pushed down to the bottom of your to do list. If you find doing your accounts a challenge, consider hiring a contractor accountant to look after your books. You just need to send them your incomings and outgoings and they will look after the rest for you, even submitting your tax return on your behalf.
Although this is another expense for your business, it can save you a lot of time and stress, as well as helping you avoid mistakes that could prove costly.
7. Don’t leave it this late next year!
Without wishing to sound as if we’re preaching, don’t leave your 2021/22 tax return to the last minute, it’ll save you a lot of panicking and will mean you can sit back, relax and enjoy Christmas.
This article is for information purposes only and should not be seen as financial advice.