Understanding the self assessment tax return for UK small business owners

One of the first steps you’ll take when setting up your own enterprise or business is to register with Her Majesty’s Revenue & Customs (HMRC) to pay tax on your income. Even if you think it’s unlikely that you’ll make any money in the first few months or year of setting up your business, you’ll still need to register with HMRC.

Tax is deducted from your wages, pensions and savings. If you set up a business then you must complete a self assessment return each year to report on your other earned income. Even if you work in a job for which your tax is collected through PAYE (Pay As You Earn), you’ll still need to declare your income on your other earning activity.

What is self-assessment?

So what is a self assessment? After the end of each tax year you will submit a tax return to HMRC. You can login and file your tax return online, or you can request a paper copy. Completing your tax return online is very straightforward as you will not be obliged to complete any unnecessary boxes as the system will guide you through as appropriate

The online return is not especially daunting, and if you have a relatively straightforward business there might in fact be very few boxes to complete. Aim to make the process of completing your self assessment tax return as straightforward as possible for yourself by keeping detailed records of your income and expenditure throughout the year. That includes everything from your invoices to customers or clients to petty cash receipts for mileage and stamps and all your business running costs.

You may be able to offset a number of your allowable business expenses against the bottom line. When setting up a new business it’s not uncommon for expenditure to exceed your income in the first year or two, but even if you find you have made a loss you are still required to document all this on your tax return.

What information do you need to provide in your return?

There’s other information you will need to supply on your annual tax return too. This includes declaring £2,500 or more from tips or renting out property (although you’ll need guidance if you brought in under this figure). You’ll need to declare income from savings and investments, dividends and shares as well as any other chargeable assets.

You must also specify whether you were a company director, unless you directed a non-profit organisation and you didn’t get any benefits from that organisation, like a company car. There are several other stipulations too, and these are outlined on the government website

Upcoming HMRC deadlines

So when is the self assessment tax return deadline? The tax year runs from 6 April to 5 April the following year.

Paper tax returns must be with the Inland Revenue by midnight on 31 October of each year, while online tax returns must be submitted by midnight on 31 January each year. Any tax you owe must also be paid for the previous tax year by this date.

If you are employed alongside your self-employed work, you may be able to pay outstanding tax through PAYE, but you must submit your online return by 30 December if you want this taken out by HMRC automatically and you must be eligible  for this.  

Self-assessment and tax

There’s sometimes more to the submission of the self assessment tax return in the UK, however. Self employed people need to ‘prepay’ tax for their current year. This essentially can lead to two years’ worth of tax in your second financial year of business. Therefore you will need to undertake careful financial planning. This prepayment is called ‘Payment on Account’ and includes the submission of Class 4 National Insurance if you’re self-employed.

In short you have to make 2 payments on account each year unless you last Self Assessment tax bill was less than £1,000, or you’ve already paid more than 80% of all the tax you own through your tax code for example.

Getting help with your self-assessment return

There is plenty of self assessment tax return help available, which you can access easily by visiting the government website. You might also consider hiring a tax specialist to complete your paperwork on your behalf, which can free you up to focus on other aspects of your work.

Setting up a business or going it alone can be an exciting and rewarding process, not least financially. Your business is your investment, so you’ll want to look after it. Tailor your cover according to your individual needs with Small Business Insurance from NatWest and get a quote today. 

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