Self-Assessment Tax Returns: A Step-by-Step Guide for UK Entrepreneurs

The yearly process of submitting a Self-Assessment tax return can be intimidating for business owners in the UK. Nonetheless, keeping your organisation operating smoothly and adhering to financial regulations depends on your ability to comprehend the procedure. For UK business owners, we will unmask the process of filing your self-assessment tax return by taking you step-by-step in this comprehensive guide.

What is Self-Assessment?

Self-assessment is a useful tool used by HMRC (HM Revenue and Customs) to collect income tax in the UK tax system. This self-assessment method makes the individual taxpayers reveal their annual income during the tax year, instead of HMRC. Essentially, the taxpayer owns the responsibility to calculate their tax liability.

Under this system, you must report your income, capital gains, or the claim allowances and reliefs on your tax return. With this technique, HMRC will be able to collect taxes directly from people, entrepreneurs, and companies who have a variety of intricate income streams that are not covered by the PAYE (Pay As You Earn) system.

Who is Required to File a Self-Assessment Tax Return in the UK?

In the UK, Entrepreneurs and Individuals with specific income sources are required to file a self-assessment tax return. If you are an entrepreneur or self-employed individual/sole trader and your earnings (turnover)  for a tax year exceed £1,000 before any tax relief or deductions, then you’ll need to complete a self-assessment tax return.

Other Circumstances That Call for Filing a Self-Assessment Tax Return Include:

• Earning more than £2,500 from rentals or property income, getting taxable income from overseas, or having a taxable income exceeding £100,000, currently, within a tax year.

• Entrepreneurs or individuals receiving more than £2,500 through untaxed income, such as tips or commissions.

• Making more than £10,000 before taxes from assets or savings.

• Having to pay capital gains tax on earnings from the sale of assets such as stocks, shares, or second residence/home.

• Acting as a director of the firm for a profitable organisation. 

• Earning more than £50,000 and claiming Child Benefit, either you or your spouse, civil partner, or 2 people living together as a couple.. 

• Living abroad and earning money in the UK, or generating income abroad that is taxable in the UK. 

• To be eligible for tax relief, you may need to self-assess your pension contributions and earn more than £50,000 for the respective tax year.

• Serving as a registered pension plan trustee or for a trust.

• Being solely dependent on your state pension for income above your allowance.

• Obtaining a P800 from HMRC proving that taxes were underpaid the previous tax year. 

Steps to Register for Self-Assessment?

Self-assessment registration is a simple process that can be completed online on the HMRC website. It is advised to register for self-assessment as soon as you can, after commencing your business operations, To ensure that no penalties are suffered, the proprietor/owner must be registered by October 5, following the end of the tax year in which trading started.

Follow the steps mentioned below to register for self-assessment tax returns for UK entrepreneurs.

Step 1: Visit the website for HMRC, and click on “create sign-in details”.

Step 2: You must fill in the required information to sign into your Personal Tax Account.

Step 3: After signing in, select the “get online access to a tax, duty or scheme” link.

Step 4: Select the self-assessment option from the provided list.

Step 5: Choose the ‘Individual or sole trader’ option for the employment status.

Step 6: Under HMRC tax registration, choose self-assessment, and provide the type of business details as self-employed.

Step 7: You will have to provide all the essential information such as the National Insurance Number, full name, DOB and other business-related details.

Step 8: After providing the required details, you can review the entered details before submitting your registration. 

Step 9: The self-assessment registration process will be completed once you receive the confirmation page.

After Registration

After registering, HMRC will create your tax records and send you a letter containing your Unique Taxpayer Reference (UTR). It is advised to keep the UTR details safe since it is required to get in touch with HMRC. In addition, an activation code for your online account will be sent. This will then  facilitate you filing your tax return online, through your personal tax account. 

Claim Allowable Expenses

An entrepreneur or a self-employed individual can claim various expenses that can potentially reduce your taxable income. Following is the list of expenses you can claim. 

• Office Costs

• Travel and Accommodation Expenses

• Legal Costs/Professional Fees

• Business Premises Expenses

• Certain General Expenses

• Available Tax Reliefs

• Annual Investment Allowance & other capital allowances

Penalties for Delayed Self-Assessment Filing

The tax year in the UK begins on April 6  and concludes on April 5 of the following year. The last date to file a tax return

The deadline for filing a paper tax return is midnight on October 31, after the end of the tax year. However, the online tax returns have a deadline of midnight on January 31 after the tax year concludes.

Entrepreneurs and self-employed individuals must fill out their self-assessments before the deadlines. Failing to do so, might result in a penalty and other legal complications. HMRC will automatically levy a penalty of £100 on 1st February for any late filings.

In addition, HMRC will start accruing additional daily penalties of £10 per day, up to a maximum of 90 days, leading up to a total of £900. Furthermore, you will be charged an extra penalty of £300 or 5% of the pending tax owed, considering whichever is larger, if your self-assessment tax return is six months late.

HMRC will charge an added penalty of £300 or 5%  of the total tax owed, if you are overdue for more than 12 months. In extreme cases, you will be asked to pay a penalty equivalent to 100% of the total tax owed.

Filing your self-assessment tax return can be daunting. But necessary for your business operations. Fill out your tax returns as soon as possible to avoid any penalties and legal consequences. Also, it is advised to properly prepare in advance and consider all the claims to reduce your tax liability.

Contact Barnstone Accountancy for assistance with filing your self-assessment tax returns as a UK entrepreneur. At Barnstone Accountancy, we are committed to supporting and helping our clients fill their tax returns with accuracy and make the most out of any tax reliefs that can be claimed through returns. Contact us on 01572 811497, or book a phone consultation by visiting our contact page.