Tips for filling out your Tax Return when you’re self employed

The first time you fill out a tax return can be daunting, so here are a few tips to make it easier and ensure you don’t end up paying more than you should.

It’s the time of year that even seasoned freelancers often dread – tax time. No sooner are you done with new year celebrations than you need to start filling out that dreaded form for HMRC. It’s not the most appealing of tasks, but it’s important to get it right. If you don’t you may find yourself paying out more tax than you need to or in line for a fine from the tax man. Here’s a few tips to help you on your way.

Signing up

One of your first tasks as a freelancer will be to register for self-assessment. You can do this online at the government’s self-assessment gateway.

There are two types of registration – one for people who are self employed and another for people who are not self employed but need to declare taxable income. As soon as you’re registered you’ll be sent your Unique Taxpayer Reference Number (UTR). Keep track of this as it’s going to be useful.

You can submit your form by post, but many people take the quicker and easier route of doing so online. For this you’ll have to set up a Government Gateway account. For this you should follow the instructions in the letter containing your UTR. If you have previously been self employed and had an old UTR, you’ll need this to set up a new account. Once this is done, it’s worth checking that you have access and can log in. Theoretically, everything should be good to go.

When to submit

Freelancers work on the basis of calendar years rather than tax years and are always working in arrears. The current tax year runs from April 6th 2020 to April 5th 2021. To sort things out for this year you would need to register for self-assessment by 5th October 2021 and submit your return by 31 October 2021 if filing a paper return or midnight 31 2022 if filing online. That will also be the deadline by which you have to pay any tax owed or incur a fine for late payments.

These penalties run as follows:

  • Missing the deadline: £100.
  • Interest incurred: 5% on balance due for every 30 days you are late.
  • Late penalties: £10 per day up to a maximum of £900.

To fill in a return, you’ll need the following information to hand:

  • Ten-digit Unique Taxpayer Reference (UTR).
  • National Insurance number.
  • Details of any untaxed income, including self-employment, dividends, and interest on shares.
  • Records of any expenses you incurred relating to self-employment. For example, if you rent an office or purchase a laptop, this could be set against tax.
  • Details of any charitable contributions which might be eligible for tax relief.
  • Details of any pension contributions which might be eligible.
  • If you are also employed, you should include a P60 or any other records which shows how much income you’ve received that you have already paid tax on.

Filling it in

The tax return breaks down into two parts. The first section (SA 100) related to untaxed income from interest earned from bank and building society accounts and dividends from shares. You’ll also have to note down details of any income from pensions, or benefits such as jobseeker’s allowance and incapacity benefits.

You will not need to declare:

  • Attendance Allowance
  • Lump sum Bereavement Support Payment
  • Personal Independence Payment (PIP)
  • Pension Credit
  • Working Tax Credit
  • Child Tax Credit
  • Income-related Employment Support Allowance
  • Maternity Allowance, or War Widow’s Pension

The self-employment section

If you received money from self-employment, the section you really need to pay attention to is the SA103 form. This is where you fill in details of any income or expenses you incurred as a result of your activities.

First you’ll need to fill in your turnover – this is the total amount you made from your business activities. For example, if you’re a self employed contractor you should add up the total for all your invoices which paid during the year.

Against this you should add your expenses. This will be subtracted from your turnover to produce your total taxable profit. This can be a complicated area and there is always some confusion about what constitutes an allowable expense and what does not.

There are two ways to declare your expenses. If your annual turnover is less than £85,000 you can simply enter your total expenses without itemising them. If your expenses are more than £85,000 you’ll have to enter an individual amount for each kind of expenses, plus a total at the end.

The different expenses you can include if you’re self-employed are:

  • Wages, salaries or anything to spent on staff.
  • Cost of equipment or stock brought at resale.
  • Any payments to subcontractors.
  • Travel and vehicle expenses.
  • Repairs and maintenance for any work buildings or vehicles.
  • Office costs including access to phones and stationary.
  • Interest on loans.
  • Bank, credit card and other financial charges.
  • Accountancy or legal costs.

You will not need to submit proof of your expenses with your self-assessment return, but you should keep them for up to five years in case HMRC asks you to produce them.

Self-employment support grant

This year your tax return comes with an added complication if you received a self-employed income support grant. HMRC has announced its intention to chase these up and to claim back any grants which they say were paid incorrectly.

These will not be declared as income, but under an optional question in the section entitled ‘other adjustments for your business trading name’.

The first three grants, paid before April 2021 will need to be included on your tax return for 2020/21. The final two grants will need to be listed on your 2021/22 tax return which should be paid before 31 January 2023.

Getting help

Filling out your tax return can be daunting, especially the first time. However, if you understand your obligations and keep your finances in order, you can ensure you don’t pay over the odds and get everything done as quickly, and simply, as possible.

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