Being self-employed can give you the flexibility and freedom to make your own decisions and work the hours that you want. However, it does come with some legal obligations too. You will be responsible for filing your own tax returns on any profit that you or your company makes and then sending the information to HMRC so that you can show that you are in the correct tax bracket and pay the right amount of tax for the year.
There are several steps that you need to follow in order to file your tax return correctly, such as registering online and paying the tax you owe before the deadline. It is very important that you send in your tax return by the correct date, otherwise you may be faced with a penalty.
In this guide, we'll talk you through why completing a Self Assessment is important and how you can make sure that you keep on top of the required paperwork that you are required to complete for it.
HMRC will issue you with a penalty if you are late submitting your Self Assessment tax return or paying the bill. The late penalty fee starts at £100 if you submit the Self Assessment more than three months after the deadline. This will then increase to daily penalities if you still don't submit your Self Assessment or pay the required tax bill.
Along with the set penalties, you will also be issued with interest on the unpaid tax. This will vary depending on how much tax you owe, as the interest is calculated at 2.6% of the amount you have yet to pay. You can use the HMRC calculator to estimate how much you will have to pay in the way of penalties and interest for a missed tax return.
Continue reading to find out what is involved with a Self Assessment, how you can complete one and the penalties that you may face if you miss a deadline.
Anyone who is self-employed (a sole trader) and earning over £1,000 or working as a partner in a business partnership are responsible for paying and submitting Self Assessment tax returns. This document will show how much an individual earns, the amount of tax that they should be paying and any savings that they have.
Following the submission of your Self Assessment, HMRC will calculate the bill that you need to pay in that tax year. The amount that you are required to pay will depend on which Income Tax band you fall into. Below is a table showing the band rates and the percentage of tax outstanding that you must pay to HMRC.
|Band||Taxable income||Tax rate|
|Personal Allowance||Up to £12,570||0%|
|Basic rate||£12,571 to £50,270||20%|
|Higher rate||£50,271 to £150,000||40%|
|Additional rate||over £150,000||45%|
You will need to register on the government website to pay your tax return online. After completing the registration, you can then decide whether you want to submit your returns by using commercial software or through physical paper forms.
Although it can seem daunting to fill out a tax return, there are several ways that you can get help. HMRC is able to assist with general enquires, or you can hire an accountant to fill in the forms on your behalf. It's important that you keep a record of your company's bank statements and receipts to help you or your accountant to fill out the tax returns.
Aside from reporting a company's trade history over the tax year, there are other transactions and matters that require a Self Assessment. For example, you would also need to fill out a tax return if you own or run an estate or trust, as well as the chargeable gains that you made from selling assets.
All Self Assessment tax returns have a set filing deadline that you must abide by, even if you have no tax liability. This means that you will have to fill out the form to show why you don't have to pay tax.
You can decide to send in your Self Assessment online or by paper form, although you should be aware that these two methods have different submission deadlines because it takes longer for paper forms to be processed.
Below is a table showing the deadlines for the various formats that you can send your Self Assessment in for the last tax year (which ran from 6 April 2020 to 5 April 2021).
|Register for Self Assessment||5 October 2021|
|Paper tax returns||Midnight 31 October 2021|
|Online tax returns||Midnight 31 January 2022|
|Pay the tax you owe||Midnight 31 January 2022|
You are able to update your tax return if you realise you have made a mistake. The deadline to amend your Self Assessment for the tax year 2021/2022 is 31 January 2023. HMRC must be notified of any changes that you make.
To change your tax return, you will need to log on to your online account and select the 'Tax Return Options' button to edit the details. Alternatively, you can download a new paper copy of the tax return form and write 'amendment' on each page, so that HMRC can clearly see that it is a new copy.
Following the new information, you may have to pay more tax or be issued a refund. You can request a refund online through your account with HMRC. Your new bill will state any additional tax that you need to pay following the amended Self Assessment.
As mentioned in one of our other blog posts, there has been an extension granted, giving millions of people financial breathing space if they need more time to complete a tax Self Assessment.
HM Revenue and Customs have extended the tax Self Assessment deadline by one calendar month, until 28 February. This means that late filing and late payment penalties for taxpayers are being waived, giving some relief to complete your 2020 to 2021 tax return and pay any tax that might be due.
The HMRC has said it is offering this deadline extension because it “recognises the pressure” that individuals, businesses, and agencies are facing because of Covid-19.
Please be aware that the deadline to file and pay STILL remains 31 January 2022. The penalty waivers merely mean that:
- Those who do not file their return by the 31 January deadline will not receive late filing penalties if they file online by 28 February at the latest.
- Anyone who cannot pay their Self Assessment tax by the 31 January deadline will not receive a late payment penalty if they set up a Time to Pay arrangement - letting people spread their payments, or if they pay their tax in full and on time.
- Any late payment from 1 February 2022 will still accrue late payment interest of 2.75%. Thus, it is advised to pay by the original deadline.
There are occasions that HMRC makes mistakes in issuing their tax penalties. You can appeal this if you feel that the penalty notice doesn't apply to you. There is detailed guidance on the government website on how to do this.
In some instances, you may want to appeal the late penalty notice because you feel that you have a reasonable excuse for not meeting your tax obligation. This includes reasons such as a recent bereavement, a severe illness or issues with the HMRC website. The late payment penalty may be waived if your appeal is upheld.
HMRC does not accept certain excuses. This includes making a mistake on your Self Assessment form, finding the system too difficult to understand or relying on someone else to file the tax return and realising that they failed to do so. It is your responsibility to make sure the Self Assessment is filed on time, otherwise, you will face consequential penalties.
A late filing penalty will be issued to anyone that is due to return a Self Assessment but fails to do so. The penalty notice will vary depending on how much you owe. The base rate is a £100 penalty after a late payment of three months, followed by 2.6% interest on the outstanding tax amount.
HMRC will place you in a tax band, depending on the information that you give them on your Self Assessment. It will be based on the incoming and outgoing expenses of your company, as well as the company assets.
The deadline for submitting a Self Assessment via post is 31 October, whilst the online deadline is a few months later on 31 January. You will be required to pay the full tax amount on 31 January no matter how you submitted your tax return.