Have you just got into self-employment? Or do you have a formal job and a side hustle?
If either of these two scenarios applies to you, then it’s time that you began to learn everything that there’s to know pertaining to Self-Assessment. For a person who hasn’t had the opportunity to do so in the past, you will soon find that the process of completing a self-assessment can be a bit hectic. But with the right tips and information, you should have it completely handled in no time.
The one rule of thumb that applies to this process is that any individual who receives an income that isn’t taxed at the source has no option but to complete the self-assessment.
I Am Just a Freelancer, Should I Also Complete It?
Many people turn to freelance jobs to help them supplement the money they earn from their formal jobs. And in many cases, their employers are not aware of what their employees are doing. But as much as you don’t want your boss to learn about your side hustle, you will have to report it to the taxman.
What happens here is that you have to register yourself as a self-employed individual. This includes completing your self-assessment to enable the taxman to know just how much you get to earn from your job. It will also enable the taxman to establish how much more you will be required to pay on top of what you are paying as a monthly PAYE tax.
How to Register with HMRC
You are required to formally register with HMRC as a way of informing the government that you need to submit your Self-Assessment tax returns. Traditionally, registration occurs after fifth October each year when the tax year has officially come to an end. During registration, you will, for instance, be required to file your tax returns for the tax year 2019/2020.
You have to ensure that the returns are received by 5th October 2020. Be prepared to pay a penalty if you are unable to file your returns by this date. Registration can be done by post, phone, or online. It’s advisable to give yourself enough time to submit your registration. For you to register, you will require your:
• National Insurance Number
• Personal and business information
After registration, you will receive a UTR (Unique Taxpayer Reference) from HMRC via the postal address provided. This is the number you will use when signing up for HMRC Online Services. A PIN number will then be sent to you by HMRC which you are to use when accessing the Online portal.
You will then be able to submit the Self-Assessment online. It’s expected that this process will become much simpler once her HMRC has officially rolled out the online tax services. But as things stand, you have to rely on the Royal Mail and HMRC for you to complete registration.
Maintaining Your Records
The only way to ensure that you will file an accurate Self-Assessment is to maintain accurate and up-to-date records. You have to keep comprehensive records of items such as:
• Your self-employed/freelancer income (data and details of your business expenses and invoices)
• Capital gains
• Income from self-employment
• Unemployment benefit or redundancy lump payment
• Partnership income
• Payment on account
• Pension income
• Rental income
• Gift Aid
• Pensions contributions
• Foreign income
It may be confusing for those filing for the first time, but it’s always best to maintain as many records as possible. However, you can get a clearer perspective of what’s expected of you by speaking to a tax specialist.
How Much Do I Have to Pay as Income Tax?
Your income tax will always be calculated on your profits. This means that you are expected to make payments for any and all earnings that surpass the personal allowance placed on your overall income. For those that have side jobs or are working on multiple jobs, then the HMRC will want to know how much profit you make from these jobs.
The profit is calculated by taking the total amount earned and then deducting the business expenses. You have to keep in mind that the self-employment profits also have the potential to push your overall earnings into a whole new tax bracket. This translates to higher taxes.
Also, keep in mind that if you happen to have some business expenses, they can easily help reduce your tax bill by having your income from the side jobs offset them.
What Happens to National Insurance?
Your PAYE calculations made by the employer will normally take care of your National Insurance payments. But if you are self-employed or are both self-employed and employed, then be prepared to start making self-employed National Insurance on your profits. How much to pay will be determined by HMRC after going through your Self-Assessment.
The amount settled upon has to be paid by the 31st day of January each year.
Filling Out Your Tax Returns
Once you have completed registration and have received the logins and the passwords, and have determined how much you ought to pay, ensure that you have enough money to make payments. You can use the annual Self-Assessment tax return at online at Gov.uk to determine just how much you need to pay.
It’s always advisable to make sure that you file the returns early. Filing can start at any time after the new tax year has started, provided that you have the UTR and the login details. Once you are in the portal, the process should proceed smoothly. You will, however, need to ensure that you have all the necessary details with you, including the expense receipts and the sales invoices.
What Comes Next?
Go through all the details that you have entered and compare it with your documents. If everything is okay, press enter and relax. HMRC will calculate exactly how much you need to pay, and then ask you to hand over that amount. Often, this can be done via bank transfer.
If you require help and advice regarding your self-assessment tax return, local UK tax accoutnants such as Total Bookscan help you.