Self Assessment Tax

If you are a self employed sole trader, then you will need to complete a Self Assessment tax return. This annual return needs to be filed with HMRC by the end of January following the end of the tax year.

Preparing your self assessment tax return can be confusing, complicated and costly. Many taxpayers make the same simple mistakes on their tax returns leading to lost time and money. At Heron Accounting Services, we can ensure your tax return is filed on time and that you minimise your tax liability and take advantage of any tax reliefs you may be entitled to.

The following is a short guide to the Self Assessment basics for self employed professionals and sole traders.

Keep accurate records from day one

To be able to fill out a self-assessment tax return correctly, you need to keep a clear record of all your sales and purchases. This includes all invoices you have issued and received, plus any receipts.

You should aim to reconcile your income and expenditure with your business bank statements and also keep information relating to Cash or Credit Card transactions relating to your business. You will also need to keep a record of money you have personally taken out of the business. All of this paperwork will help you work out what profit your business is making. It can be as simple as revenue in, minus expenses out… although some purchases may not be counted as genuine business expenses. Whatever is left is your profit and what you will be taxed on.

If you use our affordable Bookkeeping Service, then all of this will be performed for you by our team of accounting professionals.

Alternatively, our Small Business Accounting Software range of products are ideal for this purpose, the range is aimed at business professionals who want to keep accurate records and prepare their own Self Assessment forms. The accounting software range caters for VAT Registered (both Standard and Flat Rate Schemes) and Non VAT Registered businesses.

Finally, there are further tax allowances you can use to reduce the tax impact such as capital allowances on any equipment you buy. 

What else you’ll have to pay tax on

When you come to fill out your tax return you will also be taxed on any other income you have, such as any salary from paid jobs you have, interest from any savings and investments, rental income form property you own and gains by disposing of assets.

If you are going to turnover £70,000 or more per year (from 1st April 2010), you must also Register for VAT.

How much tax will you have to pay?

If you are calculating your tax for the 2009-10 tax year, you have a personal allowance of £6,475. This means you can earn this amount without paying any tax. After that you pay either 20%, 40%, or even 50% tax on your earnings depending on how much they are. You will also have to pay National Insurance Contributions (NIC) on your earnings.

These rates are regularly revised in the budget, so check out the latest rates on the HMRC web site.

What forms do you need?

Once you are  registered as self-employed you will be automatically sent a tax return soon after the end of the tax year on 5th April. You will need the basic tax return document SA100 and the self-employment pages SA103. These will be sent to you, but you can also download them from HMRC. You may also need additional pages if you have other employment to declare, or specific kinds of investments or earnings. 

Making the tax return process easy

Don’t leave it till the last minute. The deadlines for filing are generous, but the worst thing you can do is put it to one side and forget about it. Deal with your tax return as soon as you can or instruct us to do it for you. 

Tax returns are fairly easy to understand. You just work your way through the questions, giving the information requested. As there is a single tax return for everyone, a lot of the questions will be irrelevant to you. Don’t forget to fill out the extra self-employment pages and any other pages you need.

If you have kept proper records through the year you will find this process fairly easy. By far the simplest way to complete the return is using Self Assessment Online, as it will help you with the calculations.  

Your deadlines

The tax year runs from 6th April to 5th April.

If you want to send in a paper return, you must do this by 31st October, otherwise you have until 31st January if you are submitting your return online.

If you do your return online the HMRC system will work out the figures for you and how much tax is owed.

Self-employed people must pay tax in three instalments. The first payment is “on account” by 31st January, and is usually half of your previous year’s tax bill. You then have to make a second payment by 31st July, usually the same amount you paid in January. Finally on 31st January the following year you must pay a final balancing payment, calculated from your actual profits for the year. Of course if you have overpaid tax you will get a refund.

This seems complicated but Heron Accounting Services will be able to show you what it actually means in your situation.