Income tax self assessment for self-employed people
Introduction
Every self-employed person must complete a self-assessment tax return. It's used to work out how much tax and Class 4 National Insurance contributions you must pay.
Instead of paying tax on your income, you pay tax on your business profits. Like a company, you can deduct business expenses from your business income to work out how much taxable profit you have made.
It's your responsibility to return the correct details of income and expenditure. It's easier to do this if you have kept good, up-to-date records. And you are responsible for completing an accurate self-assessment return on time and for paying any tax and National Insurance contributions you owe.
This guide helps you to work out whether you're self-employed, what income tax and National Insurance you should be paying and how to pay it.
Are you self-employed?
Your employment status affects the tax and National Insurance you have to pay, so it's important you are sure that you are classed as self-employed.
If you can answer " Yes" to the following questions, it will usually mean you are self-employed.
- Do you have the final say in how the business is run?
- Do you risk your own money in the business?
- Are you responsible for meeting the losses as well as taking the profits?
- Do you provide the main items of equipment you need to do your job, not just the small tools many employees provide for themselves?
- Are you free to hire other people on your own terms to do the work you have taken on? Do you pay them out of your own pocket?
- Do you have to correct unsatisfactory work in your own time and at your own expense?
It's possible to be self-employed for some of your work, but an employee of another business as well.
There are special rules if you work through an agency or are a company director. These may apply to certain jobs or positions. For instance:
- if your work is arranged through an agency
- you are a company director or the secretary of a club or the holder of any other office
Under these circumstances you will normally have to pay tax and National Insurance contributions as if you are an employee.
For more information, see the guidance leaflet on the HM Revenue & Customs website. If you're still not sure, contact your local HM Revenue & Customs Enquiry Office or the HM Revenue & Customs Newly Self-employed Helpline on Tel 0845 915 4515.
If you're self-employed you must register with HM Revenue & Customs.You must register by the end of your third month of self-employment - if you don't, you could be liable for a penalty.
What you have to pay tax on
You have to pay tax on business profits and other income. If you have more than one business you have to complete separate self-employment pages in the tax return for each one.
Business profits
If you're self-employed, which includes sole traders and partners in a partnership, you pay tax on your business's profits or share of them.
- The first step is to add up all your business income.
- Then deduct all the ordinary business expenses that you are allowed to set against tax. For example:
- the cost of supplies
- rent on business premises
- business travel costs
- administrative expenses such as postage
- the cost of any employees you have
- Take into account purchases of equipment and vehicles. These are treated differently. Instead of deducting the whole cost straight away, the cost is usually spread over several years.
For further information download the self-employment pages of the tax return from the HM Revenue & Customs website (PDF).
You can also download guidance notes on self-employment from the HM Revenue & Customs website (PDF).
Other income
As well as your business income, you will be taxed on any other income. For example:
- any salary or wages you are paid as an employee of another business
- interest and dividends from any savings and investments
- rental income from property
- gains on disposals of assets
For more information, see the guidance notes and helpsheets at the HM Revenue & Customs website.
Tax rates and allowances
Your total business profit plus any other income is taxable. However the amount of income and profits chargeable to tax will be reduced by any allowances you can claim. You can find the current rates and allowances on the HM Revenue & Customs website.
Keeping the right records
As you are taxed on your business profits, it's essential to keep accurate records. By law, you must keep business records for at least five years and ten months after the end of the tax year the records relate to. A penalty of up to £3,000 can be charged for each failure to maintain or retain adequate records to back up a tax return.
You need to keep your business records and personal records separate. Most businesses find that it helps to have a separate business bank account.
Your basic records will normally include:
- a record of all your sales, with copies of any invoices you have issued
- a record of all your business purchases and expenses
- invoices for all your business purchases and expenses, unless they are for very small amounts
- details of any amounts you personally pay into or take from the business
- copies of business bank statements
You use these records to create a profit and loss account - which shows the sales revenue you have received and the costs you have paid, leaving you with a profit or loss figure for the period the records cover.
Your business profits are taxable.
It's helpful to keep a separate record of purchases and sales of assets that you use in the business, such as equipment. These need to be treated differently in your tax return. You can claim capital allowances for what you spend on assets, which means that rather than claiming the whole cost at the time you buy, you reclaim the cost over time
The forms you need
If you're registered as self-employed, you should automatically be sent a tax return soon after the end of the tax year (5 April). The return comes in several sections. It's your responsibility to check that you have all the pages you need.
The core tax return
Every self-assessment return includes HM Revenue & Customs core tax return (SA100). Download the core tax return from the HM Revenue & Customs website (PDF). This is where you give details of any income from savings, investments and pensions. It also allows you to claim any reliefs - for example, for pension contributions - and any special allowances.
Self-employment
If you have registered as self-employed, you will be sent and must fill in HM Revenue & Customs self-employment pages (SA103) to give details of your business income and expenses. These figures are used to work out what your taxable profit is. You can download the self-employment pages from the HM Revenue & Customs website (PDF).
Additional pages
Depending on your circumstances, you may have to complete additional pages. For example, if you are an employee or a company director you have to download and complete the employment pages (SA101) from the HM Revenue & Customs website.
You may not be automatically sent all the additional pages you need to complete. Check the list of forms inside the front cover of the main tax return to see if you need any others. You can download any additonal pages you require from the HM Revenue & Customs website or order them from the HM Revenue & Customs Self Assessment Orderline on Tel 0845 9000 404.
How to fill in the forms
An organised approach makes it much easier to fill in your tax return.
- Decide if you want to fill in a paper return or complete and file your return online. Filing online can be the quickest and easiest way of completing your return.
- Make sure you have the right pages. Page 2 of the core tax return (SA100) provides a useful checklist.
- Collect all the information you need. For example:
- records of your business income and expenses
- details of any purchases or sales of business assets
- details of income from other sources, such as employment
- information on any income from savings and investments
- Complete the self-employment pages of the return. If necessary, refer to HM Revenue & Customs self-employment guidance notes - you can download the guidance notes from the HM Revenue & Customs website (PDF) - or contact the HM Revenue & Customs Self Assessment Helpline on Tel 0845 9000 444.
- Complete any other supplementary pages you need to.
- Complete the core tax return.
- If necessary, calculate how much tax you owe.
- Send your completed form in or complete the online filing process.
It's a good idea to give yourself plenty of time in case you need to track down extra information.
Find downloadable self-assessment forms, notes and helpsheets on the HM Revenue & Customs website.
Essential deadlines for self assessment
The tax year runs from 6 April to 5 April the following year.
Sending in your return
You can complete and file your tax return online or on paper.
If you fill in your return on paper, you need to send it back to HM Revenue & Customs by 30 September if you want HM Revenue & Customs to work out how much tax and National Insurance contributions you owe.
If you send your paper tax return after 30 September and it is processed by 30 December, HM Revenue & Customs will still calculate your tax - but can't guarantee to tell you what to pay before the 31 January payment deadline. You'll need to do your own calculation to make sure you can make a payment before the deadline.
If you choose to fill in and file your return online, the system will work out and immediately show you how much tax you owe or are owed.
In any case, your return must reach HM Revenue & Customs by 31 January. If you miss this deadline, you will be liable to an automatic penalty of £100. You may also be charged additional penalties and interest on any overdue tax payments.
If you need any help, contact your local HM Revenue & Customs office. You can find your local office by using the search facility on the HM Revenue & Customs website. You can also call the HM Revenue & Customs Self Assessment Helpline on Tel 0845 9000 444, or read the guidance leaflets on self assessment at the HM Revenue & Customs website.
Paying tax
If you're self-employed, you normally pay your tax in three stages:
- a first payment on account by 31 January during the tax year. This is normally half your previous year's tax bill
- a second payment on account - which is the same amount as the first instalment - by 31 July after the end of the tax year
- a final balancing payment (or you get a repayment) by the next 31 January - this is the bill calculated on the actual income returned for the tax year less the payments you have made on account
There are automatic penalties if you send in your return after 31 January or fail to pay your tax on time. You'll also be charged interest on overdue tax.
HM Revenue & Customs Self Assessment Helpline
0845 9000 444
HM Revenue & Customs Approved Software Accreditation Scheme
01258 475 117
Related web sites you might find useful
Find tax return forms notes and helpsheets on the HM Revenue & Customs website
http://www.inlandrevenue.gov.uk
See the current tax rates and allowances online at the HM Revenue & Customs website
http://www.inlandrevenue.gov.uk
Download an overview of PAYE and National Insurance from the HM Revenue & Customs website (PDF)
http://www.inlandrevenue.gov.uk
Find your nearest enquiry centre through the HM Revenue & Customs website
http://www.inlandrevenue.gov.uk
Download help sheet IR222 on allowable business expenses from the HM Revenue & Customs website (PDF)
http://www.inlandrevenue.gov.uk
Read the guide to record keeping on the HM Revenue & Customs website
http://www.inlandrevenue.gov.uk
Download the core tax return (SA100) from the HM Revenue & Customs website (PDF)
http://www.inlandrevenue.gov.uk
Download the income tax self assessment return forms from the HM Revenue & Customs website
http://www.inlandrevenue.gov.uk
Download the partnership tax return (SA104) from the HM Revenue & Customs website (PDF)
http://www.inlandrevenue.gov.uk
Read the guide to self-assessment key dates on the HM Revenue & Customs website
http://www.inlandrevenue.gov.uk
Read the seven easy steps to completing your return on the HM Revenue & Customs website
http://www.inlandrevenue.gov.uk
