Self Assessment
Self Assessments can be confusing. Are you a sole trader, or someone who has an extra source of income on top of a regular job?
We can help take the stress out of filling in a self-assessment and help you do it well before the deadline.
What Is Self Assessment?
Self-assessment, within the context of UK tax laws, refers to a system HM Revenue and Customs (HMRC) uses to collect Income Tax. It involves the completion and submission of a tax return form by taxpayers to inform HMRC about their income and capital gains (profits on the sale of certain assets) or to claim tax allowances or reliefs. Self-assessment primarily applies to business owners, self-employed people, and individuals who have an additional income source not covered by Pay As You Earn (PAYE).
The fundamental aspect of self-assessment is that responsibility for determining the amount of tax that should be paid over to HMRC rests with the taxpayer themselves, hence the term ‘self-assessment’. Essentially, it is a way of paying tax that requires you to calculate and be responsible for the tax you owe rather than relying on your employer to do so.
Need Help With Self Assessment?
Self-assessment involves various aspects of taxation. These may include the need to report self-employment income, tips, commission, income from renting out a property, foreign income, income from savings, dividends and trusts, or other untaxed income. It can also include the requirement to pay Capital Gains Tax on sold properties and shares or the duty to declare if one has earned over £2,500 from untaxed income.
When engaging in self-assessment, a unique taxpayer reference (UTR) and activation code are usually required. These are provided by the HMRC once a taxpayer has registered for self-assessment. A tax return document, also known as a SA100 form, will then have to be filled and filed with HMRC. The deadline for sending this in is typically midnight on 31st January each year if completed online, and 31st October if filing via paper.
One aspect that can make the process of self-assessment complex is understanding which expenses can be used to reduce one’s tax liability legally. Some allowable expenses include office costs, travel costs, clothing expenses, staff costs, things bought to sell on, financial costs, costs of the business premises, and advertising or marketing. Each has specific guidelines on what can and cannot be claimed.
Furthermore, taxpayers have to consider aspects like National Insurance Contributions. Sole traders must pay Class 2 and Class 4 National Insurance depending on the business profits. Class 2 is a fixed weekly amount while Class 4 is a percentage of the profits.
When correctly done, the self-assessment process helps the taxpayer maintain full disclosure of income with the tax authority, thus reducing the risk of penalties and tax investigations. However, it is a meticulous process that requires accurate record-keeping of income and expenditure throughout the tax year. It also involves an understanding of what one is entitled to claim back in terms of tax allowances and reliefs.
What About Partnerships & Trustees?
Self-assessment tax return also extends to partnerships and trustees, and in such scenarios, it will be the responsibility of nominated partners or trustees to make the necessary submissions. Additionally, in instances where an individual’s financial affairs are complex, it is common for accountants or tax advisers to be hired to handle self-assessment on their behalf.
Self-assessment is an important feature of the UK tax system that gives taxpayers the opportunity and responsibility to declare and calculate their taxes. Despite its seemingly complex nature, it is an essential element of income and tax regulation for those not employed under the PAYE system. An accurate and timely approach towards self-assessment can provide peace of mind, financial clarity and ensures taxpayers fulfil their statutory responsibilities to HMRC.
Why Use Us?
Hiring Smart Accountants for your self-assessment offers far-reaching benefits. In addition to providing the necessary skills and knowledge for accurate tax returns, we help to reduce tax liability, provide valuable advice, and manage communication with HMRC, ultimately saving you time, money and peace of mind. Using us is an investment towards a financially sound future. Whether you are self-employed, own a business, or simply have complex financial circumstances, Smart Accountants will be invaluable in guiding you through your self-assessment tasks.