Completing a Self-assessment Tax Return
Introduction
Every individual who has sources of income that have not been taxed under PAYE (Pay As You Earn) must declare their income to HM Revenue & Customs (HMRC) annually by completing a self-assessment tax return. This applies to individuals including the self-employed, partners in a business partnership, individuals with investment or rental income and company directors.
Here we explain the business records that must be kept by self-employed people in order to complete a tax return and cover how to complete and submit the return. The deadlines for submitting returns and the penalties for missing deadlines.
Business records of sole traders and partnerships
In order to complete their tax returns, sole traders and individuals within partnerships must keep full and accurate records of all business sales, income and expenses, as well as details of personal income such as interest on investments. If their business is VAT-registered they must also keep VAT records that relate to each tax year, and if they have employees they must keep PAYE records.
Taxpayers do not need to send records to HMRC with their tax returns, but they must keep their records as proof of the amounts claimed in case HMRC wishes to check them. The types of documentary evidence that must be kept include all invoices and receipts for sales made and goods or stock purchased, cheque book stubs, bank statements, till rolls and bank slips.
If records have been lost, stolen or destroyed, HMRC requires sole traders and partnerships to provide estimates of income and expenses in their tax return and to inform them if estimated figures have been included.
Records must be kept for five years after 31 January following the end of the tax year concerned. For example, records for the tax year 6 April 2023 to 5 April 2024 must be kept for five years from 31 January 2025, which means until January 2030.
Completing and sending a tax return and filing deadlines
The self-assessment tax return includes a number of different pages that might need to be completed depending on an individual's circumstances. The main tax return is known as form SA100, but additional supplementary pages might need to be completed depending on the type of income that has to be declared. For example, form SA103S is used to declare income from self-employment.
Tax returns can be completed and submitted to HMRC online by using specialist software approved by HMRC (that must be purchased from a third-party supplier).
The deadline for submitting tax returns is 31 January following the end of the tax year to which the return relates. For example, online tax returns for the tax year 6 April 2023 to 5 April 2024 must be filed by 31 January 2025.
The tax bill and payment deadlines
Anyone who completes their tax return online can view their tax calculation or bill as soon as the return has been completed.
Sole traders and partners in their first year of trading who make taxable profits usually have to pay any tax and Class 4 National Insurance contributions (NICs) due in arrears, calculated from the date of start up to the end of the first tax year. This must be paid by 31 January following the end of that tax year. For example, anyone starting to trade in July 2023 would be required to pay any tax and NICs due for the 2023/24 tax year by 31 January 2025, around 18 months after starting trading.
After the first year of business, in addition to paying the tax due for the tax year that has ended, the taxpayer will need to make payments in advance to cover the tax due for the current tax year. (This applies unless the previous self-assessment tax bill was for less than £1,000, or 80% of the tax due has already been paid, for example through PAYE.)
These advance payments are known as 'payments on account' and are usually paid in two equal instalments, each of which is half of the previous year's tax bill. The first payment on account is due by 31 January and the second payment on account is due by 31 July.
If the profits made in the second year's trading are higher than those in the first year, a further payment known as a 'balancing payment' may be required. This has to be paid by the 31 January following the end of the second year's trading.
Penalties for missing deadlines
If tax is not paid on time, HMRC may charge interest, together with a penalty or surcharge. HMRC will take enforcement action against anyone who does not pay tax that is due, and this can include collecting what is owed through other earnings or a pension, instructing a debt collection agency to recover the tax, taking the taxpayer's property and selling it, taking money directly from the taxpayer's bank account, taking court or bankruptcy proceedings, or closing a business down.
Hints and tips
Keep records up to date so that it is possible to predict and plan for tax liabilities in advance.
Be aware of deadlines for filing returns and paying tax to avoid penalties.
Make self-assessment easier by getting accounts prepared as soon as possible after the year end.
Always check payments on account to see if they need to be reduced if profits or other income have fallen.
Some self-employed people can choose to join the Making Tax Digital pilot for income tax. This involves using HMRC-approved software to keep business records digitally and send quarterly income tax updates to HMRC, instead of completing an annual self-assessment tax return.
 Contact Ashored for help and support with your Business and Personal Tax Return.
