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Completing Your Tax Return

Completing a self-assessment tax return may be a daunting task, but it’s an important one to get right. Sole traders and small business owners need to be clear on the deadlines and the rules around filing that annual tax return to HMRC. Things are starting to look a little different now too, as the deadlines for Making Tax Digital are getting closer.

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Who needs to complete a self-employed tax return?

First thing’s first, let’s be clear on who needs to complete a self-employed tax return and why. If you’re a sole trader, or you’re a partner in a business, you’ll need to complete a self-employed tax return if you made more than £1000 in the previous financial year (from 6 April – 5 April).

  • If you run a limited company or work as a limited liability partnership, you will pay Corporation Tax and complete a Company Tax Return. In addition, you will normally have to send a personal tax return, including your salary and dividends received through the company.
  • If you have an additional income (aside from your wages or pension payments) throughout the year, you may need to complete a return to pay the tax on it. For example, if you let out a property, you will need to submit a return on the rent received during the previous tax period.
  • If your only source of income is your wages or a pension, you will not usually be required to complete a return.

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How do I complete my self assessment tax return?

To get started you will need to register for self-assessment with HMRC. The deadline for this is 5 October, and you need to do it in the second tax year after starting your business. If you miss this date, you could be fined. Once you’re set up, you’ll receive a Government Gateway User ID and your own personal tax account.

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Do I need to file a sole trader tax return or a different type?

You’ll need to register as a sole trader and complete a sole trader self assessment if any of the below are applicable to you:

  • You earned over £1000 from being self-employed between 6 April of the previous year and the 5 April of the current year.
  • You require proof that you are self employed (for example you may need to claim Tax Free Childcare)
  • You wish to pay voluntary Class 2 National Insurance payments to enable you to qualify for benefits

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What information will I need to file?

You’ll need to make sure you have accurate records of all your income and expenditure.   Make sure you keep records throughout the year. This makes completing your return easy. It also means that should HMRC want to check your return after you’ve filed it, you have all the relevant records. You need to keep your records for five years after the 31 January deadline

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How do I file?

If you have not already filed online before, you will need to register to file online. HMRC will then send you an activation code and recommend that you allow 20 days to receive this.

Tips on completing your return:

  • Check that our personal details such as name and address are up to date.
  • Complete the sections that are applicable to you. The system is reactive so HMRC may remove sections that are not relevant to you as you fill in your details.
  • Report on your earnings – enter your turnover before expenses, using details from your sales invoices.
  • Enter your tax deductible expenses.

Allowable expenses include:

  • Office expenses including phone, internet, printing, computer software, postage,
  • Business premises such as rent, maintenance, utility bills property insurance
  • Travel business-related car or van costs including: vehicle insurance fuel, repairs, servicing.
  • Stock and materials – purchase cost of stock, raw materials, and direct costs incurred from producing your  goods.
  • Legal and financial costs – fees from an accountant, solicitor,  surveyor or an architect for business reasons
  • Finance charges - bank, overdraft and credit card charges, interest on bank and business loans, hire purchase interest and leasing payments.
  • Costs that you can’t claim include entertaining clients, suppliers and customers, or fines for breaking the law as business expenses, or for repayments of finance arrangements.

Finally, check all details before you submit and file. 

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How do I pay sole trader tax?

After you submit your return you should receive a confirmation message and a reference number. HMRC will calculate the tax you owe, as well as the National Insurance contributions you need to pay.

The deadline for paying your small business or sole trader tax return is the same day as the deadline for filing – 31 January. If you file your tax return late, you’ll get a £100 penalty (if it’s up to three months late – it’s more if it’s later). HMRC are changing the way that penalties apply by now using a points-based system.

One important point to note is that most self-employed people usually need to make a payment on account too. This can often catch out those who are newly self-employed people.

You can pay your tax bill in a number of ways including:

  • online or telephone banking
  • debit or corporate credit card online (you can’t pay using a personal credit card)
    at your bank or building society
  • You can also pay by Bacs, cheque or Direct Debit, but these take longer.

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What are payments on account?

You will need to pay one instalment by 31 January and one by 31 July.

Payment on account is intended to help the self employed keep on top of their payments by spreading them out, but it’s important to plan for these bills to avoid running into problems.

HMRC use the previous year’s tax bill to estimate the next one. If you expect your overall income for the following year to be considerably lower than the previous one, it’s possible to apply to HMRC to reduce payment on account for you.  To reduce payment on account for your business, log in to your HMRC account and select ‘reduce payments on account’.

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What is Making Tax Digital?

Making Tax Digital (sometimes known as MTD) was launched in April 2019. It’s overall aim to is to make the UK tax system more resilient and more effective, while increasing productivity for businesses.

To date MTD has impacted VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000). They are now required to keep digital records and use software to submit their VAT returns.
From April 2022, VAT-registered businesses with a taxable turnover below £85,000 are required to follow Making Tax digital rules for their first return.

Under Making Tax Digital you’ll need to use third-party software to maintain your records throughout the year, tracking your business income and expenditure digitally. You’ll use the software to send quarterly summaries of your business activity, and to file a report at the end of each year.

Many businesses are already finding that going digital saves time and increases efficiency.
To find out more, take a look at our article on Making Tax Digital for businesses.

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What deadlines for MTD do I need to be aware of?

All self-assessment taxpayers will need to comply with Making Tax Digital by April 2024. Currently, Making Tax Digital has only been enforced for VAT registered businesses with a turnover exceeding £85,000 and those who have volunteered, but eventually, HMRC will only be accepting digital tax returns. Some key dates to be aware of:

April 2024:

All self-employed businesses or landlords with annual business or property income above £10,000 will need to follow rules for Making Tax Digital Income Tax from their next accounting period from April 2024.

April 2025:

Unincorporated Partnerships with an income over £10,000 will need to join Making Tax Digital for their self assessment from April 2025 onwards.

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Business insurance from Towergate

Whether you’re a sole trader, a partnership, or a limited company, we have an insurance policy to protect every kind of business. Visit our business insurance page to find out more.

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About the author

Alison Wild Bcom Hons MAAT MATT Taxation Technician Commercial Tax Pensions Insurance And Marketing Specialist AuthorAlison Wild BCom (Hons), MAAT, MATT, Taxation Technician is a highly respected industry professional who has been working with and advising SMEs in areas including tax, pensions, insurance and marketing for over 25 years. She is a member of the Association of Accounting Technicians (AAT) and Association of Tax Technicians (ATT) and also has 20 years' experience as a residential landlord.

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This is a marketing article by Towergate Insurance.