Debitoor Dictionary

Accounting terms explained simply

Over 300 Articles for Founders and Entrepreneurs

  1. Capital Gains Tax
  2. Income Tax
  3. National Insurance
  4. PAYE
  5. VAT
  6. VAT registration

Self Assessment – What is Self Assessment?

Self Assessment is a system used by HM Revenue and Customs (HMRC) to collect Income Tax.

Debitoor invoicing software helps small businesses and sole traders stay on top of their finances and keep financial records. Try Debitoor for free.

Although Income Tax is usually taken automatically from wages, pensions, or savings, certain people must fill in a tax return at the end of each tax year. For example, you will need to complete a tax return if, within the last tax year, you:

  • Were self-employed and earned more than £1,000
  • Received more than £2,500 in untaxed income, such as in tips or from renting out a property
  • Received more than £10,000 from dividends
  • Need to pay Capital Gains Tax on profits from selling things like a second home, shares or other chargeable assets.
  • Had an income of over £100,000
  • Recieved an income of more than £300 from outside of the UK.

If you have been informed by HMRC that you must send a tax return, you must do so even if you don’t have to pay any tax.

How do I submit a Self Assessment tax return?

If you are eligible for Self Assessment, you must first register as self-employed or a sole trader, as ‘not self-employed’, or as a partnership. Once you have registered for Self Assessment, you can send your tax return for free using HMRC’s online Self Assessment service. You can also choose to send your tax return via a paper form.

The deadlines for submitted a Self Assessment tax return are:

  • October 5th: register for Self Assessment
  • October 31st: file a paper tax return
  • January 31st: file an online tax return AND pay any tax you owe.

What information do I need to submit a Self Assessment tax return?

To correctly fill in your tax return, you will need to keep complete and comprehensive financial records. HMRC may check these records, and can charge penalties if records are not accurate, complete, or readable. Your records should include:

  • Any documents that give information about your pay and tax
  • Any documents relating to benefits you may receive
  • Any documents relating to savings, investments, and pensions
  • Details of any rental income
  • Details of overseas income.

These records should be kept for at least 22 months after the end of the tax year. For example, if you submit a tax return in January 2019 for the tax year 2017-18, you must keep your records until the end of January 2020.

Self Assessment for Sole Traders and Partnerships

If you are a self-employed sole trader or partnership, you will also need to keep records or your business’s income and expenses. You must keep records of:

  • All sales and income
  • All expenses
  • Your personal income
  • VAT records (if you are VAT-registered)
  • PAYE records (if you employ other people).

You will need to make sure your records are accurate and provide evidence such as receipts, bank statements, checkbook stubs, and invoices.

You may also need to submit additional information, depending on which accounting method you use.

Most small businesses with an income of under £150,000 can use cash accounting. If you use this method, you do not need to pay Income Tax on any money that hasn’t been received within the accounting period.

If you use accrual accounting, you will also need to keep records on:

  • Any income that you are owed but have not yet been paid
  • Any expenses you have committed to but have not yet paid for
  • The value of your stock and work in process at the end of your accounting period
  • Your year end bank balances.

You will need to keep these records for at least 5 years. For example, if you submit a tax return in January 2019 for the tax year 2017-18, you must keep your records until the end of January 2024.