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An Introduction to Tax Self-Assessment


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Introduction Tax self-assessment is the method used by HM Revenue & Customs (HMRC) to collect income tax and some types of National Insurance contributions annually through a tax return. Anyone who has sources of income that have not been taxed under PAYE (Pay As You Earn) must complete a self-assessment return and submit it to HMRC. This normally relates to sole traders or partners who are running a business on a self-employed basis. However, some individuals with investment or rental income, and company directors, must also account to HMRC under self-assessment by declaring their personal income.

This factsheet describes the tax self-assessment process, who it applies to, and how to register for self-assessment. It also briefly explains the process for paying tax and how this relates to the tax year.


What is the tax self-assessment process? In order for income tax to be collected under self-assessment, anyone who is required to declare their untaxed income must register for self-assessment with HMRC, complete an annual tax return and pay any tax due, usually in two instalments each year. Partnerships have to submit a partnership tax return in addition to individual returns on behalf of each of the partners.

HMRC sends a notification each April to everyone who is registered for self-assessment, reminding them to complete their tax return, which must be submitted by the following 31 October (if submitting a paper return) or 31 January (if submitting an online return).


Registering with HMRC for self-assessment All sole traders and partnerships must contact HMRC to register for self-assessment when starting up. Failing to register can result in a penalty of £100 and further penalties for trading illegally and not paying tax.

As best practice, sole traders should register for tax self-assessment with HMRC as soon as possible after starting to trade. At the latest they must register by 5 October after the end of the tax year for which a tax return is needed. For example, anyone starting to trade between April 2022 and March 2023 must register by 5 October 2023.

Anyone registering for self-assessment is issued with a unique taxpayer reference (UTR), and can then report details of any earnings from self-employment or income as a company director by completing an online tax return each year. The registration process takes at least 10 working days to complete.

When setting up a partnership, although the process for registration and deadlines are essentially the same as for sole traders, one person must be designated the 'nominated partner' who is responsible for keeping the business records and managing the partnership's tax returns. Each individual partner must be registered with HMRC for self-assessment, and the partnership must also be separately registered. However, nominated partners who register the partnership for self-assessment will also automatically be registering themselves.


Returns and payments Self-employed people trading as sole traders or partnerships pay income tax on their taxable profits rather than on their gross income, and these are calculated after deduction of the personal tax allowance (£12,570 in 2022/23) and allowable expenses of running a business.

. If their profits reach certain thresholds, self-employed people must also pay Class 2 and Class 4 National Insurance contributions.

The information included in a tax return, which is used to calculate any tax due, relates to the income received and expenses incurred that result in taxable profits in a given tax year. The tax year runs from 6 April in one calendar year to 5 April in the following year, for example 6 April 2022 to 5 April 2023.

Tax year dates do not always coincide with the business's accounting year-end, which is the annual period over which profit and loss accounts and other financial statements are prepared. However, in order to simplify accounting processes and the completion of tax returns for most start-ups, if possible the business's accounting year should also end on 5 April.

In the first year of trading, sole traders and partnerships can prepare their trading accounts over a shorter period than 12 months, in order that the accounting year-end can be brought in line with the tax year-end. For example a sole trader who starts to trade at the beginning of October could choose to end their accounting year on 5 April the following year, so that their first year's trading accounts would show figures for only six, rather than 12, months.


Record-keeping requirements Following registration for self-assessment, sole traders and partnerships must keep full and accurate records of all business sales and expenses as well as details of personal investment income so that a tax return can be completed in due course.

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