Self AssessmentWhats required, how and why?
Whether self employed or employed, we all have to pay tax & national insurance contributions on the money we earn. When you are self employed the way this is paid will be different to what you are used to as an employee. Employees pay tax on their earnings as they earn it, this is referred to as “pay as you earn” (PAYE) and you employer is responsible for ensuring these contributions are made.
As either a sole trader or Limited company you are responsible for ensuring your business makes the correct tax and national insurance contributions, this is done each year via a process called “self assessment” (sometimes referred to as completing a tax return).
It is important you keep accurate records of all of the inputs & outputs of your business, you may wish to keep these records yourself or employ the services of a bookkeeper to assist you.
One method to record your your inputs and outputs is to utilise a simple spreadsheet on which you input all of the money your business earns and spends each month. Alternatively, you can utilise one of many commercially available accounting programs to help you do this.
Each year you will be required to provide HMRC with an accurate account of the money your business made and spent in the previous tax year via the completion of an online self-assessment. This self assessment must be completed and any contributions due paid by January the 31st following the end of the previous tax year to avoid a penalty. For example, your self assessment for the tax year 5th April 2017 – 5th April 2018 must be filled with HMRC by the 31st January 2019.
In order to submit an online self-assessment you will require a unique taxpayer reference (UTR). You will be given one of these automatically by HMRC when you register as self employed.
Your business will only pay tax & national insurance contributions on its profits each year, your profits are the amount of money your business made minus the amount your business spent. It is essential that you keep copies of all receipts or invoices for money either spent or earned by your business for a minimum of 5 years. As should HMRC decide to carry out an audit on your business you will be required to produce accurate records and proof of all expenditure and earnings.
All of the above is provided only to assist you in understanding the procedure of self assessment if you are unsure about any aspect of self assessment we would advise you to seek the assistance of a registered accountant to help you in managing your financial records & submitting your self assessment.
Further information on self assessment can be found at the following links: