Paying the correct amount of tax is an important part of running your business. In this easy guide, we’ll talk you through how to pay self assessment tax.
In most instances, the tax we pay is calculated automatically as part of our employment. However, in certain circumstances, you must complete a self-assessment tax return. This applies if you work for yourself as a sole trader or earn additional income from a side hustle.
In this guide, we look at what self-assessment tax is, who has to pay it, and how you can complete your self-assessment tax return.
In this guide to how to pay self assessment tax guide…
- What is self assessment tax?
- Who has to pay self assessment tax?
- Self assessment tax tools and info
- Step by step guide
What is Self Assessment Tax?
Self Assessment is not technically a tax. Instead, it is the process of completing your own tax return and paying any relating tax. You are essentially assessing yourself and your business and the amount of tax you need to pay each year.
Registered UK businesses typically pay tax via the PAYE system. This is relatively automated and the traditional method of paying tax. If you have ever been employed by a business, you will usually see PAYE tax deductions on your payslip. This is done for you and requires no input from yourself.
In contrast, self-assessment is manual. The HMRC relies on you to submit truthful financial information about your business/job so that they can calculate your tax.
Who Has to Pay Self Assessment Tax?
Not everyone has to complete a self-assessment tax return. For example, if your only source of income is as an employee for a business that uses the PAYE scheme, you do not need to self assess. The following conditions require self-assessment tax returns and payment if applicable:
- You are self-employed;
- You are a partner in a partnership business;
- You are a registered minister in any religion, faith, or denomination;
- You are an executor or trustee of an estate
These are the common four types of people that must file a self-assessment tax return. There is also a range of other caveats and conditions in which self-assessment tax is necessary. You can find full information about who must send a tax return via the official government website.
Useful Self Assessment Tax Tools and Info
There are many different online tools available to help understand self-assessment tax returns. These include official government tools, information sites, and third-party apps. We have listed some useful links below:
- Official Self-Employed Ready Reckoner: Simple government tool to calculate how much estimated tax you must pay.
- Nutmeg Self Employed Tax Calculator: A more detailed tool that also includes pension contributions and self-employed expenses.
- Government Self-employment information: Info relating to self-employment including self-assessment, setting up as a sole trader etc.
- Government Self-Assessment information: Detailed info relating to self-assessment including keeping records and paying your tax bills.
How to Pay Self Assessment Tax – A Step-by-Step Guide
Now that you understand more about self-assessment tax, we can look at how to file your tax return. Please note that if you do not feel confident doing this, we recommend contacting a registered accountant.
You can submit your tax returns digitally, which is made easier by using an accounting software which will help you do this automatically.
Qualified accountants often provide tax services and can easily talk you through the process. Regardless, it is important to understand the steps involved and we have listed these below:
Step 1: Register with HMRC and obtain a Government Gateway ID
Before you can do anything, you must register with HMRC and obtain a government gateway ID. The government gateway ID is a unique identifier that is used in conjunction with your password to log in to your HMRC dashboard.
To obtain a government gateway ID, you must head to the login/register page for HMRC. You must then click on the “Register for HMRC Online Services” link. This will take you through the registration process in which you must provide various personal details.
On completion of the registration, you will eventually receive an email with your ID. From there, you can log in to your account using the ID and create an account password.
We also advise enabling SMS authentication for your login. This means that when you log in, you will have to enter a 6-digit code sent to your mobile number to authenticate your login.
Step 2: Calculate your net profit for the current tax year
Before actually completing your self assessment tax return, it is vital that you know your net profit for the current tax year. A tax year runs from April to April. In the UK, a new tax year starts on the 6th of April and ends on the following 5th of April.
When completing a self-assessment return, you are submitting financial data within those months. You must have a record of how much you have earned, and any expenditures relating to the business. This is why it is important to maintain a set of accounts and keep track of your received payments and outgoings.
Step 3: Complete the self-assessment tax return
Once you have all the relevant information, you can log in to your HMRC account and complete your self assessment tax return.
This can be a lengthy process and there are many different stages involved. As a result, we advise setting aside dedicated time for this process. Don’t simply try to complete it in-between tasks – you need to be focused and concentrating.
The self-assessment tax return includes many sections such as:
- Personal details
- Other employment details
- Business details
- Business income
- Business deductible expenses
- Charitable payments
- Investments
- Pensions
Each stage has clear instructions and helpful tips too. We advise reading all the available information and tips the first time you complete your tax return. This will help make things clear, and show if there are sections that you do not need to complete.
Make sure to be as thorough as possible. When entering your financial information, you can also choose to submit supporting documents such as accounts. This is not necessary, but it could be beneficial if you have a large income that could be questioned.
It is important that you fill out the self assessment form properly. At the end of the form, you have the option to check everything and make changes if necessary. However, once the return is submitted, you cannot make any further amendments.
Step 4: Make payments for your self-assessment tax bill
With your self-assessment return completed, you are given an overview of your payable tax. This will show a breakdown of the payments you have to make.
Please be aware that you typically have to make payment for the current tax year, plus a contribution payment for estimated tax for the next financial year.
Tax payments must be made no later than January 31st for the previous tax year. Also, your self-assessment return must be completed and submitted ideally at the start of the new tax year.
Tips for Self Assessment Tax
To finish, we have provided some simple tips on self-assessment tax.
Keep detailed records of your self-employment finances
To submit an accurate self-assessment form, you must have a clear understanding of your business finances. It is vital that you keep accounting records and things like payment receipts from customers if applicable. You can then easily calculate your total earnings for the tax year.
We advise creating a spreadsheet or even using accounting software to keep track of this important information.
Keep records of business expenses as they can be deducted
While keeping records of your income is important, it is also important to keep a record and receipts of business purchases you make. This is because when completing your tax return, you can enter the value of deductible business expenses.
These are dedicated to your tax bill and thus mean you pay less. You can find a full list of information and examples on the government website. But deductible expenses include things like equipment, car hire, clothing, financial costs, and training courses.
Set aside enough cash to pay your tax bills each month
When self-employed, it can be difficult to keep track of your finances. This includes your tax bills. There is nothing worse than completing your self-assessment tax return, only to find that you owe a huge sum of money that you can’t afford.
As a result, we advise monitoring your income on a monthly basis and estimating the tax you expect to pay each year. You should then aim to set aside the required amount each month in a savings account or separate business account. Having this money set aside means that you should not experience any issues with paying your tax bills.
Be aware of the deadline dates relating to self-assessment tax
Lastly, it is vital that you are aware of the associated deadlines with self-assessment tax. These include the deadline for registering yourself for self-assessment for the current year, completing and submitting your self assessment tax return, and paying your tax bills.
Mate a note somewhere visible – in your home office, for example. Or even set reminders on your phone and email. It is vital to be prompt with your self-assessment tax returns and payments in order to avoid penalties.
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