How to do self assessment tax

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Tax season can be a daunting time of year for many individuals. However, for those who are self-employed, freelancers, or have additional income sources, the process of completing a self-assessment tax return can feel especially overwhelming. Fortunately, with the right knowledge and guidance, it doesn’t have to be a stressful experience. In this comprehensive guide, we will walk you through the steps on how to do a self-assessment tax return.

Understanding Self-Assessment Tax

Self-assessment tax is a system used by HM Revenue and Customs (HMRC) in the United Kingdom to collect income tax. Under this system, individuals who have income not taxed at source, such as self-employed individuals, landlords, or those with investment income, must report their earnings and pay the relevant tax on these earnings. The self-assessment tax return is typically filed annually, covering the tax year from April 6th of one year to April 5th of the next.

Register for Self-Assessment

Before you can file a self-assessment tax return, you need to register for self-assessment with HMRC. This should ideally be done as soon as you realize that you have income that is not taxed at source. You can register online through the HMRC website or by calling the self-assessment helpline. Once registered, HMRC will issue you a Unique Taxpayer Reference (UTR) and set up your online account, which is essential for filing your tax return.

Gather Your Financial Information

To complete your self-assessment tax return accurately, you will need to gather all your financial records for the tax year in question. This includes:

Details of your income: 

This could be from self-employment, employment, rental properties, dividends, savings, or any other source of income.

Expenses:

 Keep records of all allowable expenses related to your income sources. This could include office supplies, travel, professional fees, and more.

P60 or P45 forms from employers:

 If you are employed, your employer should provide these forms, which show your income and tax paid during the year.

P11D or P9D forms: If you receive benefits in kind from your employer, you will need these forms to report those benefits.

Interest and dividend statements:

 If you have savings or investments, make sure to collect statements that show any interest or dividends earned.

Other financial information:

 This may include pension contributions, capital gains, and any other relevant financial details.

Completing the Tax Return

Once you have your financial information ready, you can start filling out your self-assessment tax return. You can do this in two ways:

Paper form:

 You can request a paper tax return from HMRC and fill it out manually. However, this method can be time-consuming and is less common in today’s digital age.

Online: 

Filling out your tax return online is the most convenient and efficient option. HMRC provides an online platform for this purpose. Here are the steps to fill it out online:

  • a. Log in to your HMRC online account using your UTR.

  • b. Select the option to complete a self-assessment tax return.

  • c. Follow the step-by-step instructions and provide the necessary information about your income, expenses, and other financial details.

  • d. The online platform will calculate your tax liability automatically based on the information you input.

  • e. Double-check your entries for accuracy, and once you’re satisfied, submit your tax return.

Deadlines and Penalties

It’s crucial to be aware of the deadlines for filing your self-assessment tax return with the help of local tax accountant in kent and paying any taxes owed. The tax year runs from April 6th to April 5th of the following year, and the key dates are as follows:

By October 5th: Register for self-assessment if you’re new to the system.

By October 31st (paper return) or January 31st (online return): Submit your tax return.

By January 31st: Pay any tax you owe for the previous tax year.

Missing these deadlines can result in penalties and interest charges, so it’s essential to stay organized and meet them.

Tax Liabilities and Payments

Once you’ve submitted your self-assessment tax return, you’ll receive a calculation of your tax liability from HMRC. This will include the amount you owe, as well as the payment deadline.

If you owe less than £3,000 in tax, HMRC will usually collect this through your PAYE tax code if you’re employed. For larger amounts or if you’re not employed, you’ll need to make the payment directly to HMRC. Common payment methods include:

  • Bank transfer

  • Debit or credit card

  • Direct Debit

  • Cheque

  • Claiming Deductions and Allowances

One of the benefits of the self-assessment system is the opportunity to claim various tax deductions and allowances that can reduce your overall tax liability. Some common deductions and allowances include:

Personal Allowance: 

This is the amount of income you can earn before you start paying tax. It may vary based on your income level and personal circumstances.

Business Expenses:

 If you’re self-employed, you can deduct legitimate business expenses, such as office rent, travel costs, and equipment purchases.

Capital Allowances:

 You can claim capital allowances for the cost of certain business assets, such as machinery or vehicles.

Charitable Donations: 

Donations to registered charities are often tax-deductible.

Marriage Allowance:

 If you’re married or in a civil partnership and one partner is not using their full Personal Allowance, you may be able to transfer a portion to your partner.

Tax-Relief Schemes: 

There are various tax-relief schemes available for specific activities, such as the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).

It’s crucial to research and understand the deductions and allowances applicable to your situation to minimize your tax liability legally.

Conclusion

Completing a self-assessment tax return may seem complex, but with careful preparation and an understanding of the process, it becomes a manageable task. Remember to keep accurate records of your income and expenses throughout the tax year, and use the HMRC online platform to file your return for a faster and more efficient experience. Don’t forget to meet the deadlines and make payments on time to avoid penalties and interest charges.

 

If you ever feel uncertain about any aspect of your self-assessment tax return, it’s advisable to seek professional advice from an accountant or tax specialist who can provide guidance and ensure your tax return is accurate and compliant with HMRC regulations. By following these steps and staying informed, you can successfully navigate the self-assessment tax process and ensure that your tax affairs are in order.

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