Self Assessment - What is Self Assessment?
Self Assessment is the system used by HM Revenue and Customs (HMRC) to collect Income Tax.
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Whilst Income Tax is usually automatically taken 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.
- 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 from shares.
- 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.
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?
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, if you wish.
Paper tax returns must be submitted by midnight on the 31st of October 2017 whilst online tax returns can be submitted up until midnight on January 31st 2018. You must also pay any tax you owe by January 31st 2018.
What information do I need to submit a Self Assessment tax return?
To correctly fill in your tax return, you will need to keep 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 which 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 2018 for the tax year 2016-17, you must keep your records until the end of January 2019.
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 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 2018 for the tax year 2016-17, you must keep your records until the end of January 2023.