Running your own business may feel like a step towards personal freedom – but one downside is that you may need to start to file a Self Assessment tax return.
Self Assessment is a system that HMRC uses to collect information needed to calculate how much income tax you should pay. And if you’re running a small business, it can feel like a big task to work out how much you owe.
In this article, we share seven top tips to help you complete your Self Assessment tax return. We’ve pulled together advice from HMRC and Shaw Gibbs – a top 100 accountancy and financial planning practice, which has offices in Oxford and London.
And there’s a bonus tip from one of our Sage Business Experts, too.
1. Get your house in order
Completing a Self Assessment tax return is much easier if you have good records.
Use a separate business bank account, as well as accounting software, to track your income and expenses throughout the year rather than leaving it all to the last minute.
You need to keep good records (such as bank statements or receipts) so you can fill in your tax return correctly.
2. Be clear on the expenses you can claim back
The more legitimate expenses you can file, with accompanying evidence, the less tax you will pay because you can offset costs against profit.
It’s worth getting advice from an accountant or a tax adviser on any big purchases such as cars and vans.
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3. Don’t be afraid to ask for help
Accountants can often ‘pay for themselves’ – highlighting tax efficiencies can be worth more than the cost of their services.
They can also spot potential mistakes, reducing the risk of you having to face an audit by HMRC and possible penalties for getting your tax return wrong.
If you are considering getting help, it’s worth appointing an adviser early, according to Shaw Gibbs.
The majority of businesses complete and submit their Self Assessment tax returns during the same period of time (typically in December and January). Therefore, if you leave it late, you might struggle to find an accountant who has the capacity to support you.
4. Register for Self Assessment
The first time you complete a Self Assessment tax return, you will need to register with HMRC as either self-employed, not self-employed, or as a partner or partnership. The process varies according to your status.
Make sure you leave up to 20 working days for HMRC to process your application and give yourself plenty of time before the deadline to complete your return.
Once you register, you’ll be sent a Unique Taxpayer Reference (UTR), which you will need when you file your return.
You can choose whether to file your Self Assessment tax return by post or online – the latter allows you to save drafts, review returns and print tax calculations.
If completing your tax return online, you will need to register for online services first. HMRC will send you an activation code. Allow up to a week for this to arrive.
You will need to input the UTR, activation code and your postcode in Government Gateway or GOV.UK Verify.
Once you are registered to use the system, you will need all your tax records, dividend vouchers, receipts and other information in order to complete the online form.
You can save your progress at any time and return to complete the form at a later date.
5. Have a clear plan
If there’s anything worse than having to file a tax return, it’s having to file it under pressure.
The deadline for paper returns was 31 October 2020. Online tax returns need to be completed by midnight on 31 January 2021. And tax must be paid by midnight on 31 January 2021 for the previous tax year ending 5 April.
Make sure you allow enough time to complete and submit your Self Assessment tax return so you can avoid late filing penalties.
You’ll get a penalty of £100 if your tax return is up to three months late. And you’ll have to pay more if it’s later than that, or if you pay your tax bill late. You’ll also be charged interest on late payments. No one needs that.
Read more about Self Assessment
- How to file a Self Assessment tax return online: A step-by-step guide
- Self Assessment: A guide for small businesses on filing tax returns
- 7 tips to get your Self Assessment tax return right
- How to make Self Assessment less stressful for your practice
- Allowable expenses to add to your Self Assessment tax return
6. ‘Doing the deed’
Many of the questions in the Self Assessment tax return form are similar. If it’s the first time you’re submitting one, it may be worth reading through everything first before you start to fill it in.
That way, you can be clear exactly what information goes in each section and can complete the task more quickly.
When working online, tax calculators will work out how much you owe. The amount will depend on the income tax band you’re in. For some people, tax will be deducted automatically from wages and pensions.
If you have additional income, such as a second property that you rent out, you will need to fill in an extra section in the return.
There’s also a different rate for Capital Gains Tax if you need to pay it, if you sell shares or a second home, for example.
7. Get ahead of the game
According to Shaw Gibbs, if you need to send a Self Assessment tax return, it is worth submitting it as soon as possible after 6 April in any tax year so you can plan your finances for the year around any tax liabilities or refunds.
Robert Shadbolt, personal tax adviser with Shaw Gibbs, says: “There are a lot of tax allowances that go unclaimed every year.
“A tax adviser knows what these are and can help you to be more tax efficient – for example suggesting you use the Trading Allowance.
“Accountants can advise on the best course of action on big decisions or purchases, such as gifting assets to family members, selling second properties and making large pension contributions.
“Accountants can also easily spot mistakes and misclaimed expenses – items that are not ‘wholly and exclusively for the running of a business’.”
Bonus tip: Don’t leave it to the last minute
Steve Johnson, a Sage Business Expert and the owner of Graphite Web Solutions, says: “While there is a deadline to complete your Self Assessment tax return, there is no need to leave it until 31 January as that just piles the pressure on and can increase stress.
“Try to get your accounts completed close to your year end as that will give you the time to complete your tax return, then you can relax knowing it’s all done.
“Moreover, you can focus on your new year promotions rather than worry about getting your tax return in.
“Personally, from day one of running my own business, I decided to use an accountant to submit my return for me – that way he collates all the information, asks me to check it and then ensures it is completed and submitted around June/July time.”
By following this advice, we hope you will find it easier to complete your Self Assessment tax return, so you can focus on what you do best – running your business.
Editor’s note: This article was first published in November 2019 and has been updated for relevance.
Boss your tax returns with our Self Assessment guide
Is filing your Self Assessment tax return a struggle or is it the first time you're doing it? Check out our step-by-step guide, which covers what you need to know.