How to prepare for the self-assessment tax deadline

Here's all you need to know about the self-assessment tax deadline, and what you need to do and when.

What is a self-assessment tax return?

As all small business owners, self-employed and sole traders know, self-assessment is the system devised by HMRC (Her Majesty's Revenue and Customs) to collect income tax from you. As income tax is automatically taken from wages when you are employed by someone else, there's no need to do a self-assessment tax return if you have an employer.

However, if you work for yourself or earn an additional income through self-employed or freelance work, you will need to perform a self-assessment so HMRC can identify your total income, and tax you accordingly.

Who needs to do a self-assessment tax return?

Various groups of earners will need to perform a self-assessment. If you are self-employed, a sole trader who earns more than £1,000 a year, employed but earning an extra income through freelancing or a partner/part of a business partnership, you need to do a self-assessment. You may also need to complete a tax return if you have an extra income through renting out a buy-to-let property. 

If you have earned more than £1,000 via a self-employed revenue stream in the last tax year (6th April 2018 - 5th April 2019) then you will be required to file a tax return.

This is to enable HMRC to find out what your total or combined income is, then work out how much income tax you therefore need to contribute. 

How to register for self-assessment

Before you can complete your own tax return, you'll need to register for self-assessment if you haven't already done so. This is quick and easy to do via the Government website here.

It shouldn't take you longer than 10 minutes to register as self-employed and therefore in need of self-assessment, so make sure you've done this first, before you go any further.

Once you have set up an account on gov.co.uk, you will have your own Government Gateway user ID. These 12 digits and your password will enable you to access a range of services on the Government website, including the HMRC portal to file your self-assessment and pay tax online.

Top tip - the Government Gateway can be tricky to access if you lose your user ID and password, so store your information safely or note it down somewhere you can find it easily next time, to avoid a major meltdown when next year's tax return rolls around. 

How do I do a self-assessment tax return?

You can file your tax return directly on the HMRC section of the gov.co.uk website, or through accounting software. 

It's fairly straightforward to do as long as you have kept hold of all receipts and paperwork relating to your business. Before you sit down to file your self-assessment, make sure you have all the information regarding your income, expenses, charitable donations and PAYE, as well as any other relevant documents.

If you are already using accounting software like Quickbooks or Sage, this should all be logged there and your self-assessment will therefore be simple and stress-free. 

When do I need to submit my tax return?

Get your skates on, as you need to file your tax return by midnight on 31 January 2020 in order for HMRC to assess your income and calculate the amount of tax you owe. 

But if you haven't already completed your self-assessment, don't panic - you can still do it quickly and easily here.

While you have until midnight on the 31 January 2020 to file your tax return online, it's important to be aware that the paper tax returns deadline is on the same date, so if you plan to submit this by post, you will need to do so prior to the date itself for it to be received on time.

What happens after I have filed my tax return?

Once your tax return has been filed, HMRC will assess your total income, taking into account any tax-deductible expenses relating to your business, and inform you of the amount of tax you need to pay.

Self-assessment - how to pay

Once you have registered for self-assessment, completed your tax return and received a bill, there's just the small matter of actually paying it.

The amount of tax you owe to HMRC will be sent to you, and will also be available to view on your HMRC account, and can be paid online. Simply go to your HMRC account on the Government Gateway website, log in and view your outstanding balance, then click to settle it.

If you don't file your self-assessment tax return on time, you will be fined and liable to pay a late payment penalty. A penalty of £100 will be payable if you are up to three months late in filing your tax return, and there will be even more to pay if you submit it any later than three months after the deadline.

This can be appealed if you have a valid excuse for missing the deadline, but it's advised to complete your tax return ahead of the deadline to avoid late fees and penalties.

Late payments will also incur interest, so it's wise to pay in full as soon as you can.

How can I prepare for my tax return?

It's a little too late to do much in the way of preparation for this year's self-assessment deadline - so simply log on and get it done!

However, it's smart to plan for next year now you are aware of what you need to do.

If you are self-employed or earn extra income through freelancing, make sure you keep all receipts relating to your freelance work, as well as making a note of all travel expenses for work trips - mileage, petrol receipts, taxi receipts, train and bus tickets are all extremely valuable when it comes to carrying out your self-assessment.

If you haven't already, signing up to accounting software like Quickbooks, Sage, Xero or FreshBooks is a handy way to make your life easier. While there is a cost involved, it's a small price to pay to keep on top of all of your earnings and expenses, making next year's tax return a breeze. Plus, tools like this will also help you to invoice clients more easily, as well as offering a host of other benefits.

How much of my income should I save for tax?

Making plans for the future of your business is always a smart move, and setting aside a percentage of your income is a manageable way to prepare for the next tax bill lurking on the horizon. If you aim to save 30% of your income for tax, this should provide you with sufficient funds to cover your tax bill comfortably. However, if you're only earning around £1000 a month through self-employed income streams, you won't need quite this much, so 10-15% of your income should cover your tax bill. Of course, saving more could lead to a pleasant surprise when you receive your tax bill, but not if it has caused financial hardship in the process - so it's best to work out the best savings plan for you, your income and your probable tax bill.

And of course, if your tax bill is sorted and your income is increasing every month, you may soon need a new workspace to cope with your growing business demands - luckily, you can find a modern, serviced office with a host of additional business facilities right here.