A self-employed guide to self assessment tax

Self employment provides thousands with the freedom to structure their own schedule, work on their passions and be their own boss. But, that freedom comes with responsibilities, one of which is paying your taxes.

It’s always worth checking your employment status. If you contract out your services your employment status will fall inside or outside IR35 tax regulations.

Usually, HMRC will collect income tax directly from an employee’s paycheck through the PAYE system. If you’re self-employed, however, you’ll need to keep track of your income and expenses throughout the year and submit a self assessment tax return every January. This will determine how much tax you owe and will need to pay by the end of the month.

  1. Do I need to do a self assessment?
  2. What if I don’t pay?
  3. How do I register my employment status?
  4. What self assessment tax forms do I need to submit?
  5. How do I pay my self assessment tax bill?

Do I need to do a self assessment?

Whether you need to fill out a self assessment tax return depends on your employment status.

If you’re a sole trader or a self-employed professional who earned over £1,000 in the last tax year, you’ll need to be registered as a sole trader with HMRC and fill out a self assessment tax return. You’ll also need to fill out a self assessment tax return if you’re a partner in a business partnership.

Additionally, if you have any untaxed income coming from the following, you might also need to file a tax return:

  • Renting out a property
  • Tips and commission
  • Savings, investment and dividends
  • Foreign income

To help you figure out if you need to send a self assessment tax return, you can use the Government’s Check Employment Status for Tax (CEST) tool here.

What if I don’t pay?

Not paying tax is a serious offence and is treated accordingly. If you file a self assessment tax return and don’t pay, you’ll be charged an interest of 2.75% on the tax you owe until it’s paid. You’ll also be required to pay a 5% late tax charge.

If you don’t file your self assessment tax return on time, you’ll face a late filing penalty of £100 if your tax return is up to 3 months late, and this could rise much higher if it’s submitted any later.

It’s also worth noting that the Government is moving to a points-based system for late penalties starting from 6th April 2024 for Self Assessment taxpayers.

How do I register my employment status?

To register your employment status as a sole trader or a self-employed professional with HMRC, visit the Government’s online registration portal. Make sure you have the following information to hand to make the application process as quick as possible:

  • The date you started your business
  • Your personal details, including National Insurance number and your home address
  • Information related to the work you do

After registering, HMRC will send you a letter containing your 10-digit Unique Taxpayer Reference (UTR). An online HMRC account will be set up so you can access the full range of digital services offered by the Government. It can take anywhere between 7 to 10 days to receive your UTR, but if it’s taking longer than that, you can call HMRC to check on the status of your application.

Once you have your Government Gateway user ID, you can use this to set up your personal tax account.

You need to register for self assessment tax returns by 5th October in your business’ second tax year.

What self assessment tax forms do I need to submit?

If you fill out a paper return, you’ll likely need to fill out a SA100 form, as well as the self-employed supplement form SA103. However, filing online provides you with an extra 3 months to submit your tax return, so it’s worth looking into. If you haven’t filed online before, you’ll need to register to do so and HMRC will send you your activation code in the post. This can take up to 10 days, so you’ll want to leave some time to sign up and fill out all the necessary information.

If you have a turnover of under £85,000, you may be able to submit a simplified SA200 form, which is much shorter and quicker to complete. Unfortunately, you can’t choose which to fill out — HMRC will send you the correct form that corresponds with the details you’ve submitted.

How do I pay my self assessment tax bill?

Once you’ve submitted your self assessment tax return, you’ll receive a confirmation message and a reference number. HMRC will then use this to calculate the tax you owe, in addition to any National Insurance contributions you’re required to pay. You’ll need to pay your tax return by 31st January.

You can pay your tax bill by either:

Payments by Bacs, cheque or direct debit can also be made, but these may take longer.

More Business Advice Articles

Our Reviews