Self-assessment tax return – all you need to know!

Each year anyone self-employed as a ‘sole trader’ and who has earned more than £1,000 (before taking off anything for tax relief) or is a partner in a business partnership needs to complete their self-assessment tax return by 31st January 2022.

·      You earn more than £1,000 from renting out property
·      You earn more than £2,500 in untaxed income from tips and commission and this is not included in your PAYE code
·      You’re a director of a company
·      You or your partner’s income was over £50,000 and you’re claiming Child Benefit
·      Your income from savings, investments or dividends is £1,000 or more before tax
·      You need to pay Capital Gains Tax on profits from things like selling second homes or shares
·      You receive foreign income
·      You live abroad but have an income in the UK
·      Your taxable income was over £100,000
·       If you earn over £50,000 in the 2020/21 tax year and make pension contributions, you might have to complete an assessment to claim back tax relief you’re owed
·       You are a trustee of a trust or registered pension scheme
·       Your State Pension was more than your personal allowance, and your only source of income
·       You received a P800 from HMRC saying you didn’t pay enough tax last year

If your only income is from your wages or pension you don’t need to do this as your tax is already calculated and removed from your earnings.

If you have to make Payments on Account, don’t forget this is also due on 31st January, so it is a good idea to crack on with your self-assessment tax return now, so you know what you’ll need to be paying in January and not get caught out.
Payments on Account are tax payments which self-assessment taxpayers have to pay twice a year if their previous year’s tax liability was more than £1,000 to spread the cost of the upcoming year’s tax; they are calculated on the previous year’s tax bill. Essentially both Payments on Account are approximately 50% of the previous tax bill. The two deadlines are 31st January and 31st July.

Pros of Payments on Account:
· It allows individuals to make two advance payments towards their tax bill to help keep on-top of their tax bills
· They include Class 4 National Insurance Contributions
· Payments on Account can be reduced if the taxable income for 2021/22 will be less than the income from 2020/21

Cons of Payments of Account:
· It can lead to financial hardship for individuals who are already struggling to pay their tax bill
· It can catch newly self-employed people out with a much larger bill than they had initially accounted to pay

Yes, the ugly bit – ensure you don’t pay penalties and surcharges for late tax return submissions.
·      If your tax return is three months late, you’ll pay a late filing penalty of £100
·      If your tax return is later than three months, you’ll pay more, or if your tax bill is late
·      You will be charged interest on late payments

Filling in the information required for your self-assessment tax return can be, well – a little bit taxing! There’s a lot of industry language used, and it can seem rather intimidating and the thought of getting it wrong can be scary.

Hayley at Hedges-Quinn & Co Ltd helps clients of varying business sizes complete their tax return on time, ensuring they are filled correctly and late payment penalties are never incurred; whilst always looking at methods to help reduce her clients’ tax bills.