Thinking about how to file a tax return online so you can make the self-assessment deadline of 31 January? You’re not alone.
According to Google Trends, searches for “tax return” start increasing towards the end of December and, according to HMRC, more than 10,000 people submitted them on Christmas Day and Boxing Day in 2017.
Others are less organised, however. While more than 10 million people filed by 31 January in 2017, 750,000 missed the deadline, running the risk of a fine.
Filing a tax return online can seem daunting but good preparation can take the pain out of this task and help you complete it ahead of the deadline.
This article will tell you whether you need to file a tax return and how to do it. It will also give details about dates, penalties and allowable expenses, and look at why many businesses use an accountant.
It covers the following topics:
- Do you need to file a tax return?
- Tax return dates and deadlines
- How to register and file a tax return online
- Other software
- Allowable expenses
- Charity donations on tax returns
- Penalties for filing late and appeals
- How to pay your tax
- Ways to pay
- Why business owners may use an accountant and how much they cost
- Accountant helps strategist Kerry Needs focus on core strengths
- Conclusion on filing a tax return online
Do you need to file a tax return?
For employees and pensioners, tax is usually deducted automatically at source from wages, pensions and savings. But people and businesses with other income not deducted at source must report it in a self-assessment tax return.
If, in the last tax year (6 April 2017 to 5 April 2018), you were self-employed as a sole trader and earned more than £1,000, you must file a tax return. You must also file one if you were a partner in a business partnership or director of a limited company.
Even if your main income is from your wages or pension, you may still need to send a return if you have any other untaxed income, such as from renting; tips and commission; savings, investments and dividends; and foreign income.
You can also file a tax return online to claim some income tax reliefs or prove you are self-employed, for example, to claim tax-free childcare or maternity allowance.
HMRC offers this decision tree if you are still not sure whether you need to file a return.
Nick Levine, head of enterprise at the Institute of Chartered Accountants in England and Wales (ICAEW), offers some further advice: “If HMRC has sent you a notice to file a return, you must complete one.
“Even if you have not received such a notice, you may still need to file a tax return if you had a new source of income or capital gains in the last tax year on which you need to pay tax – if so, tell HMRC straight away.”
Tax return dates and deadlines
For the last tax year, the deadline for registering for self assessment if you are self-employed or a sole trader, not self-employed, or registering a partner or partnership was 5 October 2018.
The deadline for filing paper tax returns was midnight on 31 October 2018. The online deadline is midnight on 31 January 2019. So if you have not yet filed for the last tax year, you will have to do it online to avoid a penalty.
You have to make two payments towards your tax bill, known as payments on account, every year. The exception is if your last self assessment tax bill was less than £1,000, or you’ve already paid more than 80% of all the tax you owe.
The deadline for paying the tax you owe for the last tax year is also midnight on 31 January 2019 for the first payment on account and 31 July 2019 for the second.
You can be eligible to have HMRC collect the tax you owe from your wages and pension automatically.
This applies if you owe less than £3,000 on your tax bill and you already pay tax through the pay as you earn (PAYE) scheme, for example, if you are an employee or you get a company pension.
These people must submit their online return by 31 October (paper) or 30 December (online) to be eligible.
If you are a trustee of a registered pension scheme or a non-resident company, you must file a paper tax return by 31 January. You cannot send a return online.
How to register and file a tax return online
92% of people file their tax return online because, according to HMRC, it is easy, secure, available 24 hours a day, and you can sign up for email alerts and online messages to help you manage your tax affairs.
If you have not completed a tax return online before, you will need to register for an HMRC online account.
When you have signed up, HMRC will post you an activation code. This can take 10 working days to arrive – or up to 21 days if you are abroad – so do this well in advance. You will also receive a user ID and Unique Taxpayer Reference (UTR).
If you have filed a return before but not last year, you will need to register again.
HMRC should send you the right form for your circumstances. But before you fill it in, check you have the right form by reading the first two sections and checking if it has the right supplementary pages that apply to you.
Gather all the information you need in advance. You will need your UTR, National Insurance number and employer reference, if you have one. You may need your P60 end of year certificate, P11D expenses or benefits, P45 details of employee leaving work, payslips and or your P2 PAYE coding notice.
You may also need your bank or building society statements, dividend payment or investment brokers’ records, and personal pension contribution records. If you work for yourself, you may need your profit or loss account or other business records too.
Do not send any receipts, accounts or other paperwork with your tax return, unless HMRC asks for them. If you do, it will take longer to deal with your tax return and will delay any repayment.
Now you are ready to tackle the form itself. (Here is the pdf version to familiarise yourself with it.)
The first section asks for personal details. The next asks about where you have received income or gains from, for example, from employment or self-employment, from a company or partnership, properties, trusts, capital gains, or from the UK or overseas.
Answer “Yes” to any of the boxes on this page to show that you did receive income from any of these sources. If so, you must fill in and send the supplementary pages for that income or gain. If you do not fill in the right supplementary pages, HMRC will treat your tax return as incomplete and send it back to you.
The third section asks about income from bank or building society interest, pensions, share dividends and benefits.
Finally, the form asks for other information such as about student loans, pension contributions, gifts, charitable donations, child benefit and marriage allowances.
You are responsible for the information provided, so take your time filling in your information, enter the figures carefully and double check everything before you click submit.
Assuming you file on time, you must keep records of all information used to complete your self-assessment tax returns for 22 months after the end of the tax year the return is for. A penalty of up to £3,000 can apply for each failure to keep or preserve adequate records.
Nick advises: “Fill in as much information as you can on your return. The information you enter on each screen can be saved as you go along, allowing you to continue later.
“You can go back and correct figures at any time before you hit the final submit button. Save a copy of your final return and print a copy of the receipt. If there are significant changes to last year’s return, explain why in the section for further information.”
You can buy software that sends HMRC your personal self-assessment tax return. You also need to use other software or download other forms to send a self-assessment tax return for a partnership; for a trust or estate; if you lived abroad as a non-resident; to report multiple chargeable gains, for example from life insurance; if you get income from a trust; and if you are a Lloyd’s underwriter; or a religious minister.
If you are self-employed, your business will have various running costs. You can deduct some of these costs to work out your taxable profit providing they are allowable expenses.
These can include:
- office costs, for example stationery or phone bills
- clothing expenses, for example uniforms
- staff costs, for example salaries or subcontractor costs
- financial costs, for example insurance or bank charges
- costs of your business premises, for example heating, lighting, and business rates
- advertising or marketing, for example website costs.
Charlie Walker, partner at TaxAssist Accountants in Bedford, says HMRC’s online filing system will calculate your tax liability, but it will not check whether your figures are correct or that you have claimed your full entitlement to expenses, reliefs and allowances.
“Allowances are a very broad area,” he says. “A few of the common or generous deductions and allowances are for research and development; use of home as office, within certain limits; buildings bought for business use; and travel and accommodation when working away from home.
“Don’t forget capital allowances such as expenditure on business equipment. Thanks to the annual investment allowance many capital allowances for SMEs such as plant and machinery offer up to 100% tax relief.”
Charity donations on tax returns
Donations by individuals to charity or to community amateur sports clubs (CASCs) are tax free, so make sure you include all charitable donations in your return.
The tax goes to you or to the charity depending on whether you donate through Gift Aid; straight from your wages or pension through a Payroll Giving scheme; give land, property or shares; or donate in your will.
This applies to sole traders and partnerships. There are different rules for limited companies as they pay less corporation tax when they give to charity.
To qualify for tax relief, you must keep a record of your donations.
Penalties for filing late and appeals
In 2018, 1.5 million taxpayers had not filed their tax returns at the start of 31 January, according to HMRC. Only half of these people managed to file before the midnight deadline.
You will usually have to pay a penalty if you file after the deadline, or if you pay late. However, you can appeal against a penalty if you have a reasonable excuse.
You will be fined £100 if your tax return is up to three months late or if you pay your tax bill late. You will have to pay more if it is later and you will be charged interest on late payments.
Charlie says if you are doing your own tax return and are concerned your online access to the HMRC website won’t be active in time to file before 31 January, all may not be lost – an accountant or tax adviser could be able to file your return for you via their special agent logins with HMRC.
Nick adds: “Filing late also increases the chances of HMRC taking a closer look at your return. So complete the form as early as possible to avoid stress and a missed deadline. If you expect to miss a tax payment deadline, contact [HMRC] immediately.
“You may be able to get more time to pay or to make ad hoc or monthly payments. Keep in mind that, as 31 January approaches, the online service gets busier as do tax advisers.”
How to pay your tax
When filing online, once you have completed your self-assessment return, HMRC will tell you how much tax you owe.
Each of the two payments on account is half your previous year’s tax bill. If you still owe tax after making your payments on account, you must make a balancing payment by midnight on 31 January the following year.
If paying your tax bill by debit card, allow two working days for the transaction to clear.
If you prefer to pay regularly throughout the year, you can use HMRC’s budget payment plan, but only if your previous payments are up to date and if you are paying in advance.
Ways to pay
The ways to pay your tax are through online or telephone banking (faster payments), CHAPS, debit or corporate credit card online, your bank or building society, Bacs, direct debit (if you have set one up with HMRC before), or by cheque through the post.
You can no longer pay at the Post Office.
Pay your self-assessment tax bill has more details on each option.
If the deadline falls on a weekend or bank holiday, make sure your payment reaches HMRC on the last working day before the deadline, unless you are paying by faster payments or by debit or credit card.
Charlie says: “Make sure you put something aside for your tax bill each month – particularly if it’s your first year of being self-employed. As a rule of thumb, we recommend setting aside a quarter of your profits for tax. If you’re a higher rate taxpayer, increase that to a third.”
Why business owners may use an accountant and how much they cost
The main reason for doing your own tax return is to save money on accountancy bills. However, many business owners are too busy to do it themselves and find that using an accountant pays for itself quickly.
Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants (ACCA), says: “Business people can come unstuck if they cut corners to save money. Consulting an accountant should save money in tax savings, and in avoiding mistakes and penalties.
“Also tax rules change regularly so using an accountant is a good way to ensure you are up to date. Plus professionally qualified accountants have codes of conduct and ethics, continuing professional development requirements and you will also have recourse if something goes wrong.”
Chas recommends shopping around to ensure you are paying the right amount for an accountant. A typical fee would be between £100 and £200 an hour for a small to medium-sized practice. Charges can also depend on where the business is situated and the complexity of the work. A smaller accountant might charge around £250 to £300 all-in for a straightforward tax return.
ICAEW’s Nick Levine says an accountant can help a client understand income tax rules and make sure they are fully aware of the rules and timings. He says using an accountant to file a self-assessment tax return can ensure correct claiming for all allowable expenses.
As well as helping avoid errors, they can also help handle any disputes with HMRC, says Nick.
“Your accountant should always keep in touch, not just at the year-end,” he adds. “This will be even easier if you use cloud-based accounting software, which will allow your accountant to keep track of how the business is performing in real time.”
The ICAEW and ACCA websites allow you to search for members in your area.
Accountant helps strategist Kerry Needs focus on core strengths
Kerry Needs, a writer and marketing strategist at kerryneeds.com, set up her business as a sole trader in 2015 and works remotely with clients around the world.
She did her own tax return in the first year but then started using an accountant from the second year.
“I could do it myself but I like to focus on my craft rather than things that I’m not strong at,” says Kerry. “And as my business gets more complex, it’s a lot easier to outsource and one less administrative task to do.
“My accountant is knowledgeable. I send my books to him and he completes my self-assessment and submits the returns for me. He keeps on top of things, chases up information and provides me copies of everything.
“The cost is reasonable at £250 and it pays for itself in saved time. Using an accountant also minimises the risk of making a mistake.”
Doing her own self-assessment in the first year also means Kerry has a good understanding of the process. To anyone doing it themselves, she recommends doing HMRC’s free training and webinars on self-assessment.
“It’s important to get to know HMRC and what they require in as much detail as possible, including allowable expenses and things like how to record mileage,” she says. “Make sure that you document everything, file your receipts carefully, and pay for as much as you can on your business card. You must keep copies of receipts as HMRC can ask for them.”
Conclusion on filing a tax return online
By now you should be feeling less dread about starting to fill in and send your tax return form.
If you decide to do it yourself, but are still not sure of anything, remember you can always contact HMRC and ask them to be sure that you have the right answer.
This is worth doing because if you complete your tax return incorrectly, you could be subject to fines and penalties.
While many small companies switch to using an accountant at some point, it could well be worth doing your own self-assessment for the first year at least – as it will you save some money and you will have a better understanding of how the tax system works in future.
The key to filing on time is planning. Squeezing in some self-assessment preparation now will lead to a less stressful January as the deadline approaches.
Editor’s note: This article was originally published in December 2018 and has been updated for relevance.