If you're self-employed it's up to you to declare and pay income tax on any profitable income from your business. Processing your own tax return can be confusing and stressful if you don't know what you're doing, and this guide will guide you through the basics of what you need to consider
Self-employed people pay tax on their profits only; as opposed to their gross income. In order to calculate the amount owed, you first need to work out the total of your business expenses, to deduct this amount from your annual profit.
Alongside the business expenses, you may also be able to claim for capital expenses which basically includes any business assets bought by you company. Business assets are things like computers and machinery, with £500,000 of spending being tax free under the 'annual investment allowance'. For more information, please refer to our guide: Tax for the Self-employed – Capital Expenses.
Self-employed tax return
Assuming you've registered as self-employed, HMRC will notify you when you're required to fill in a self-assessment tax form. You can do so via or post, or more conveniently, through their online portal (online submissions also have much later deadline dates). If you're submitting via post you should receive notification in writing from the tax officer as to when you need to complete the return. Alternatively, if you've registered online, you should receive notification via the messaging system on the portal, as well as an email asking you to check you account.
The basic return has 8 pages, but HMRC may ask for additional information depending on your circumstances. You should first fill in the 'self-employment supplement' (SA103) which will dictate whether or not you need to fill out a full or short tax return. If you have relatively simple tax affairs, and your basic turnover is less than £79,000, you can expect to fill in a short tax return. Although things might be more complicated, if for example you also have a foreign income, or have made capital gains, in which case it is likely you'll need to fill in a full return to declare everything.
Whilst it can be straightforward if your finances are relatively simple, keeping a track and processing all the relevant invoices and expenses for the whole year can be a challenge. Moreover, the guidance provided on the gov.uk website can often be light on information, leaving you to lack clear understanding of what's permissible. If you're not fully comfortable with submitting your own return, it will be well worth investing in an accountant to process your end of year tax return at the end of each financial year. It may seem like an unnecessary expense, but a good accountant will often be able to save you more on your return with their inside knowledge of allowances and loopholes. This means you'll often save much more than if you'd processed it yourself – even with the accountant's fees factored in.
For more information on allowable expenses, please refer to our guide:Self-employed and Tax Allowable Expenses