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Reviewed by Ryan Carman ATT, Head of Operations at RIFT Refunds.
Over 11 million people in the UK are filing Self Assessment tax returns each year. It’s a tricky business at the best of times, and the taxman isn’t going to hold your hand while you muddle through it. In fact, the whole system can be minefield of hidden traps and painful penalties if you aren’t used to it.
The good news is that we’ve put together a simple guide to the Self Assessment system.
HMRC Self Assessment Tax Returns are one of the ways the taxman works out how much UK taxpayers owe. Even if your income's already taxed by PAYE, you might still have to file a UK tax return to declare any other income or claim a tax rebate. When you file a Self Assessment tax return online, you're telling HMRC what income you have and how much you're spending to stay in business. Self Assessment returns are designed to be as simple as possible, but it's very easy (and often expensive) to get them wrong. Most people choose to handle their Self Assessment online, but it's possible to do it on paper if necessary.
HMRC Self Assessment tax returns are very different from the Pay As You Earn (PAYE) system most people use. Under PAYE, tax is deducted automatically from wages, pensions and savings. People and businesses with other income must report it in a Self Assessment tax return, even if you already pay tax on any income you get from an employer under PAYE.
Self-employed tax returns mean keeping business records if you're self-employed, so be sure to keep them handy when the time to file comes. You'll also need to consider things like payments on account each year. These involve paying 6 months' worth of tax in advance on the 31st of January and 31st of July each year. It's also worth understanding what you can claim on your expenses when you do your tax return. HMRC will use the information you give them to calculate how much you owe. If you're self-employed, a Self Assessment tax return is the main way to sort out your allowances.
Tax returns aren't just for the self-employed. There are lots of reasons why you might need to file one each year. You might have additional sources of income outside of your main job, for instance, or be the director of a company. Here are a few of the main examples:
There are some grey areas surrounding self-employment, but generally HMRC might consider you self-employed if you:
If you're still not 100% sure where you stand, then you need to get advice straight away. The taxman gets really touchy when fully employed workers are passed off as self-employed. Companies sometimes try this to avoid paying PAYE on employees' wages. HMRC doesn't like it, so always check if you're unclear.
The “self-employed” category also includes people like freelancers and contractors. Since you don’t have a single employer taking tax and National Insurance Contributions out of your wages, you’ll need to file a yearly Self Assessment tax return to account for your income and expenses.
When you set up a Limited Company, you have to submit annual accounts to Companies House and a company tax return to HMRC. The period covered by your tax return can’t be longer than 12 months, so if you’ve been trading for longer than that you may have to file two tax returns to cover the period of your first accounts. If you do, you’ll also have two payment deadlines. In the following years, you’ll usually only file one tax return.
There's a lot of paperwork involved in being a company director. You should obviously keep all your P45, P60 and P11D documents, but that's not all. Taxed award schemes, redundancy payments and a whole range of benefits all come with records to hold onto. You should also remember to keep track of any essential expenses you've had. You might be able to use them to bring down the tax you owe.
HMRC will expect you to tell them about any benefits you've received, whether that's Jobseeker's Allowance, Sick Pay or Statutory Maternity Pay. You should also record any income or other benefits you've had from things like employee share schemes. It's all part of the big-picture overview of your finances that the taxman wants to see.
A Limited Company has to file a few different kinds of paperwork to stay in business. One of the most obvious is your Company Tax Return. This is how your Corporation Tax is worked out, and mostly has to do with the profits or losses you made. One thing to keep in mind is that this is separate from your annual return or "confirmation statement". An annual statement is a yearly check that all the conformation Companies House holds about your company is correct.
Finally, you'll need to file your personal Self Assessment tax return as a director of the company. Self Assessment returns work out how much tax you owe personally, and again are separate from your company's return.
When you're in a partnership, you've got two Self Assessment registrations to make – one for you and one for the business itself. One of the partners has to be in charge of the business' tax records (the “nominated partner”). If that's you, it means you have to register the partnership for Self Assessment and deal with all its tax paperwork. Like a person, the partnership will get a Unique Taxpayer Reference number to use when filing its tax returns.
As a partner, you'll also have to register for the system yourself. Again, though, the basic rules and deadlines are the same. If your business is a Limited Liability Partnership, of if the “partner” you're registering is itself a company, then special rules apply.
When you let out a property, HMRC wants to hear about the money you're making. To declare what you've got coming in, you need to register for Self Assessment Tax Returns. Even if you don't think of yourself as being a self-employed landlord, the taxman will still come sniffing around your rental income.
Under the Self Assessment system, you fill in a form (usually online) to tell HMRC what money you've made. However, the taxman's only really interested in your profits. Because of that, you also show him what you've spent on renting the property out. These necessary costs bring down the amount of profit you're paying tax on.
Getting set up for Self Assessment can take a while, so it's best to do it early. You'll have to give some basic information, and hit strict deadlines for submitting returns and paying what you owe. It can be hectic, if you're not used to the system, but keeping good records and getting professional help make all the difference.
The way you pay tax on your rental income depends on how much you've got coming in. If it's between £2,500 and £9,999 a year after expenses, you'll need to file a Self Assessment tax return. You'll also need to file a return if you're making over £10,000 before expenses.
If you're below these limits, you probably won't need to register for Self Assessment, meaning you'll be taxed via PAYE instead. You'll need a P810 form from HMRC to declare the money you're making.
All your income is taxed at your normal rate, regardless of where it comes from. However, there are ways to bring down the amount of tax you owe. The government's Rent a Room scheme is a good example. Under this scheme, landlords letting out a furnished room in their own home can earn up to £7,500 per year tax-free. You don't need to do anything to claim this tax relief, other than opt into the scheme. However, you'll still need to file a Self Assessment return to pay tax on anything you make over the £7,500 threshold.
HMRC can sometimes collect your tax through your tax code if you're employed as well as self-employed. It depends on how much you owe and how much you earn through employment. If you want to do it this way, you'll need to get your paper tax return filed by the 31st of October. If you're filing online instead, you'll have until the end of December. Either way, you'll have to specifically tell HMRC that you want to do it.
As for what counts as “additional income”, it all depends on what you’re doing, how often you’re doing it and how much you’re making from it. Let's say you started out with a hobby - something in the arts-and-crafts field, for instance. You post pictures of a few of your creations on social media, and get a surprising number of positive comments. A couple of people ask if you'd consider making something for them (paying your costs, of course), and are delighted when you do.
They're so delighted, in fact, that they post pictures of your stuff on their own pages. Soon enough, people you don't even know are asking you to make things. By now, they're actually offering you some pretty decent cash for your work. Before you know it, you've got an Etsy shop and with regular orders. You're buying materials to pursue your hobby, and you're getting more than your costs back. The thing is, the taxman has a word for this kind of hobby. He calls it “running a business” - and he wants his cut of your profits.
HMRC don't care if you sell a few possessions online or make a few quid out of your hobby on Etsy. You can make up to £1,000 a year this way and he'll usually give you no grief over it. However, if you sell things regularly, or make enough doing it, he'll want you to do some paperwork. This is where the Self Assessment tax return system comes in.
So, is your hobby a “business”? This isn't as simple a question as it might seem. Here are a few things to consider:
If you're answering yes to any of these, then HMRC might decide that what you do counts as a business. It's not always so cut-and-dried, though.
As mentioned above, there's a particular wrinkle in the rules for people who sell stuff casually online. If your income from things like online sales comes to under £1,000, you can use the new “trading allowance” system. Basically, this just means that you don't need to declare the income. However, there are a couple of twists and turns to be aware of here:
Just as there's a difference between selling the occasional unwanted possession on eBay and running a retail business through it, there's a difference between running a blog or podcast and being a professional journalist. You may not know exactly when you've crossed that very blurred line, but you can be sure HMRC's going to have an opinion on the matter.
Success stories about people making money from sites like YouTube and Patreon are encouraging more and more people to dive into some of the murkiest waters in the UK tax law swamp. There are worse things than alligators down there. If you're careless with the rules, you could find yourself dragged down to the bottom by an investigation from the taxman.
Some internet sites allow you to post videos or other original content on them. That's fair enough. In some cases, you can let those sites slap some paid advertising around your videos and split the money with them. That's still great - but you have to understand how HMRC thinks. You may very well consider that advertising revenue to be a little extra pocket money, but the taxman will quickly start to call it taxable income - and that means he'll be expecting it to show up on a Self Assessment tax return.
If you're using something like Patreon, you're actually taking money directly from people, not just getting your cut from an advertising network, to supply them with whatever your content or product is. They might be paying monthly or only whenever you put something out, but you're still making an income from it. It doesn't matter if you don't think of it as your "job". The point is there's money coming in and that means you have to declare it to HMRC. If your income is already over the personal allowance threshold then they're going to want a bite of it.
A lot of people simply assume that no one's ever going to catch them, or bother chasing them. They may even be right, but "I didn't think I'd get caught" is a weak defence against an HMRC tax-dodging accusation and it won't get you out of any of the nasty penalties that will be stacking up if you miss the deadlines for not filing your Self Assessment.
Of course, if you've got income you've probably got expenses, too. Again, there are rules you've got to get to grips with. If you're a photographer, buying a camera might count as a business expense now, rather than just something you bought for yourself. Taking a photo of your house and then claiming for the bricks would be a bad move, though.
The bottom line is you have to think about what you're doing. More specifically, think about how it looks to HMRC. When in doubt, get professional advice. Technology is moving faster than the law in many online areas and you don't want to end up on the wrong side of it as a test case.
Depending on who you listen to, the new “gig economy” is either the pinnacle of self-employment freedom or a massive scam at the expense of workers and HMRC. Employment law and tax regulations have been tying themselves up in knots trying to keep pace with it. With potentially billions of pounds in the balance, it's not hard to see why. The way the UK works is changing rapidly, and the taxman's old tools are looking blunter every day.
In the gig economy, companies hire staff as independent contractors for what are usually short-term jobs. Those workers are paid by the “gig”, rather than on a regular schedule. On the one hand, it's a flexible way to work that suits a lot of people. On the other, you really don't have any guarantees to fall back on. Many gig economy workers end up putting in the equivalent of full-time hours. However, since they aren't employees, they get no job security and miss out on some important rights.
In the UK, employees of a business can generally expect sick pay, parental leave and a guaranteed minimum wage. These are all basic cornerstones of employment law. By treating everyone as an independent contractor, gig economy jobs tend to dodge all those fundamental rights. Given that we're talking about somewhere approaching 16% of the total UK workforce, that's a lot of people working without the security and safeguards that protect more traditional workers.
When you work from gig to gig, you're responsible for paying your own tax and National Insurance. That means registering for HMRC's Self Assessment system and filing yearly tax returns. There's been a lot of fuss kicked up by the taxman over the gig economy in recent years. Basically, HMRC believes that there's significant “bogus self-employment” going on in the UK. Billions of pounds' worth, in fact - and they're cracking down hard to put a stop to it. False self employment essentially means that a company is avoiding its responsibilities to its workforce and HMRC by declaring employees to be contractors. This can be a pretty complicated legal knot to untangle, particularly with agencies, umbrella companies and Personal Service Companies to consider.
If you’re making over £100,000 a year, you have to file an annual Self Assessment tax return with HMRC. If you don’t usually send a tax return, you need to register by 5th October following the tax year you had the income. We can help you avoid any tax return penalties and handle everything for you.
Basically, when you're a "high earner", HMRC wants to take a closer look at your money. You may well be in a more complex position than most, with more than one source of income to consider. Getting it all properly accounted for means filing a yearly Self Assessment tax return.
Another reason the taxman will ask high earners for a tax return is because it can affect your tax-free Personal Allowance. It comes down what HMRC calls to your "adjusted net income". This figure doesn't take your Personal Allowance into account, but does include a few kinds of tax relief. The basic idea is that you lose £1 of your tax-free Personal Allowance for every £2 over £100,000 your adjusted net income goes. This can get complicated quickly, of course - which is why HMRC needs a tax return to sort it all out.
When you dispose of (usually meaning sell) certain things you own, you might get charged "capital gains" tax. Basically, it's a tax on the profit you make when you sell it - not its actual value. When you sell something that counts for capital gains tax, you file a Self Assessment tax return to declare the profit.
You generally don't need to worry about selling your personal possessions, unless they're worth £6,000 or more. We're mostly talking about things like jewellery, antiques, valuable artworks and so on here. If you sell something like that for £6,000 or over, you need to work out what profit you made on the sale. Property is obviously big capital gains area. This doesn't usually include your main home, unless you use it for business or let it out. You'll also need to tell the taxman about things like sales or shares and business assets.
ISAs, PEPs and things like Premium Bonds and lottery wins are exempt. Also, if you inherit something, you'll probably only have to worry about capital gains tax if you sell it later. If you don't use your car for business, selling that won't count either.
Another odd exemption is for items with a lifespan of under 50 years - although again, that changes if it's something used for business. Of course, your tax-free Personal Allowance still counts, so if your profits stay under that, you don't have to pay anything.
For every asset you're disposing of, add up the profit you've made on it. If you've actually made a loss on some of them, include that in your calculations. Those losses count against your “total taxable gains”, bringing your tax bill down. In fact, you can even claim losses on things you still own, if they've become essentially worthless for some reason. You can make claims against losses for up to 4 years. However, there are strict rules about what qualifies as a loss. HMRC won't usually let you claim losses when you give or sell something to a family member or “connected person”, for instance.
You don't normally have to pay capital gains tax on gifts to your spouse or to a charity. Other than that, though, swapping or giving things away still counts as "disposing" of them. Also, getting "compensation" for something, like an insurance claim if it's destroyed, still counts.
Capital gains tax can still apply if your assets are overseas. If you're abroad yourself, you'll pay tax on gains from residential property in the UK, even if you're “non-domiciled” for tax purposes. You'll probably be off the hook for capital gains tax on other kinds of UK assets though, as long as you're not returning to the UK for over 5 years.
There are a couple of situations where you'll still get stung for Capital Gains Tax when dealing with spouses or civil partners. If you're giving them goods to sell on in their own business, for instance, capitals gains rules apply. Also, if you've been separated and didn't live together for that entire tax year, you'll still have to pay the tax. Either way, if your partner then disposes of the asset, they'll have to pay tax on it. Generally, that'll be based on its value when they got it from you.
HMRC does have a “real time” Capital Gains Tax service you can use at any time. It's only worth doing this if you don't already have to send in a tax return, though. If you're using Self Assessment at all, you'll have to report the gains again in your return anyway.
If you've got money coming in from abroad, you'll usually have to pay UK tax on it. You'll generally do this by filing a Self Assessment tax return. There are rules on the types of income that count, and a lot depends on your status as a UK resident.
Your foreign income might include wages from working abroad, or things like overseas rental money or foreign investments and savings. In most cases, your foreign income will be taxed in the same way as your UK money. However, there are special rules for pensions, property rental and jobs like working on a ship or for the government.
You generally only pay UK tax on foreign income if HMRC considers you a UK resident. That basically means you either:
If your residence status changes during the tax year, you might be able to get "split-year treatment". This means you'll only pay tax on the money you made as a UK resident. There are a few conditions to meet, though. If you come back after living abroad for under a tax year, you won't get split-year treatment.
Confusing as it sounds, it's possible to be a UK resident whose permanent home is abroad. This is called being "non-domiciled." Non-domiciled UK residents with under £2,000 of foreign income won't pay UK tax on it if they keep it abroad.
If you're living or working abroad, you may still have to pay UK tax on some or all of your income. It all depends on where the money's coming from and what your tax residence status is. This can be a tricky issue, so it's definitely worth getting professional advice about it.
Even expats living permanently overseas sometimes find themselves in HMRC's sights. For example, you might have to pay UK tax if:
When you start working for yourself, registering for Self Assessment is Job One. You've got to do it as soon as possible, and you'll get fined if you wait too long. The deadline for registration is the 5th of October in your business' second tax year. Don't miss it!
The easiest way to register for Self Assessment is by doing it online. Here's how:
You can also send your registration form by post, but you've still got to go online to download the form anyway.
To register as self-employed and to get your UTR number, you'll need to have all the following information to hand:
If you’re a self-employed subcontractor in the building trade, you’ve also got to register for the Construction Industry Scheme (CIS). When you're paid through CIS, your contractor has to chisel off a hefty chunk of your pay before you get it. That money goes straight to HMRC. It's supposed to act as "advance payment" toward the tax and National Insurance you'll owe. Your contractor doesn't have any choice about this; it's just how the law works.
A UTR (Unique Taxpayer Reference) number or tax reference is a 10-digit code that's unique to either you or your company. Your UTR number identifies you personally with HMRC for things related to tax.
There are a number of ways of finding your UTR if you already have one. It’s 10 digits in length and is quoted on previous tax returns and other documents from HMRC, including:
If you’ve already registered for the online services area of the HMRC website you can log in and find your UTR number there.
When you're ready to start filing Self Assessment tax returns, you'll be applying for a UTR as part of your registration. It might take a while to get your UTR number from the taxman. Make sure you leave enough time to get it before you have to file your first return. A couple of months should be enough to be sure of it.
You’ll need to pass a series of security checks to allow HMRC to confirm your identity. Once this has been done they’ll post your UTR number to you, which can take up to 7 days. This is the only way HMRC will send your UTR number to you, so get a move on if it’s approaching the tax return deadline!
If you've lost your UTR number, or the above correspondence, your best option is to contact HMRC directly. UTR numbers are unique, so make sure you keep yours safe. A UTR could be used for identity theft if it falls into the wrong hands.
Companies have UTRs as well as individuals. The company Unique Taxpayer Reference (UTR) will have been issued by HMRC when the company was set up and registered. It can be found on documents HMRC have issued, such as the "Notice to deliver a company tax return" (form CT603).
Your company’s UTR will be included in the first letter you receive from HMRC at your registered office. It will be printed next to a heading like “UTR”, “Tax reference”, “Official Use” or “Reference”. HMRC will use the UTR to identify your company whenever you contact them about tax.
Your company’s CRN (company registration number) is not the same as your company Unique Taxpayer Reference (UTR). Your company number is officially known as a Company Registration Number (CRN). It’s issued by Companies House immediately upon incorporation, is unique to your company and is displayed on your certificate of incorporation. You must provide this number whenever you contact Companies House.
You can make your Self Assessment payments by:
Once you've registered for Self Assessment online, you can:
HMRC's Making Tax Digital scheme is aiming to make tax simpler for individuals and businesses in the UK. Part of that process is the new Personal Tax Account System.
Your Personal Tax Account gives you better access to and control over your personal information. You'll also be able to check your tax code and state Pension and do things like track the tax forms you've submitted.
Filing tax returns online is the fastest and safest way of keeping on the right side of HMRC. You don't have to wade through pages of questions that don't apply to you, have looser deadlines and cut out all the postal hassles. Filing online means your tax gets calculated automatically and you'll get any repayments you're owed faster. You'll see instantly what tax you owe, and will be able to correct mistakes before they become problems.
Here are a few things you need to know about Self Assessment tax returns:
There are a few kinds of people who can't use online Self Assessment, and have to file their tax returns on paper. For instance, MOD personnel with certain clearance levels need to use paper returns. It’s more work and stress overall, but with the right preparation you can still get it done this way.
With self-assessment enrolment approved, the next vital step is properly completing your ongoing tax returns each year. This key reporting ensures accurate income, profit and tax liability calculations which saves money and avoids penalties.
The crucial components of each annual self assessment return includes:
Maintaining organised financial records throughout the tax year is the best way to quantify these figures and ensure they’re accurate. Inputting everything meticulously while routinely using available government resources helps limit the risk of mistakes.
Staying on top of deadlines, requesting extensions when needed, making tax payments on time and having an accountant or tax expert to assist can make the process a lot easier. The ultimate goal is to submit fully compliant, accurate returns by the January 31st cut-off to avoid penalties.
Ryan Carman ATT, head of operations at RIFT Refunds says:
Don’t leave doing your self-assessment tax return until January! It can be tempting to put it off if you’re expecting a tax bill but getting it done earlier give you more time to budget for the tax bill. You still won’t have to pay it until 31st January. Another tip, don’t forget to keep hold of all your receipts. Making sure you don’t lose any ensure your tax bill is as low as possible.
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Filing a Self Assessment tax return means showing HMRC a full picture of your finances. Here are a few of the most important documents you need to hold onto:
Other things to keep track of include extra income such as untaxed tips, incentive payments or benefits like meal vouchers. Depending on the kind of work you do, you might need to record your expenses for things like:
Remember, it's not just the self-employed who file Self Assessment tax returns. If you're claiming a tax refund for expenses of over £2,500, you'll need to use the system too.
By the 31st of January, you have to file your online tax return for the previous tax year, and pay any tax you owe. Miss this by just one day and you're already looking at a £100 fine. You should get yourself registered as self-employed as soon as possible after you start trading. The deadline for getting yourself registered is the 5th of October in the year that you started your self-employment. Miss that, and you're risking penalties based on the potential lost tax.
Important Self Assessment deadlines include:
| 31st of January | This is the big one, you have to file your online tax return for the previous tax year and pay any tax due. You'll also have to make the first of any payments on account you need for the following year. |
| 5th of April | The end of the tax year. Soon after this date, you'll be contacted by HMRC to file your Self Assessment tax return. |
| 31st of July | If you're making payments on account, this is when the second one's due. |
| 31st of October | If you're sending in a paper Self Assessment tax return, this is the deadline for it. |
If you miss the deadline for a good reason, you may be able to steer clear of the penalties. HMRC will expect you to be extremely up-front and co-operative, though. You can read more about penalties for failure to notify on the HMRC website. Keep in mind that you may also need to register separately for VAT. Again, check the HMRC website for details.
Technically, you can submit your Self Assessment tax return at any time after the end of the tax year, as long as it's filed by the 31st of January the following year. That said, it's always better to get it done sooner. For one thing, you'll know earlier how much you owe. That means you have time to plan or save up for making the payment.
Missing the tax return deadline lands you in an automatic £100 late-filing penalty. Those fines ratchet up further after 3, 6 and 12 months. A genuine reason might stop the penalty pain, but don't count on it.
There’s almost no acceptable excuse for missing Self Assessment tax return deadlines, even if you don't owe HMRC anything. If you do miss a deadline, interest is charged on both unpaid tax and unpaid penalties, so it's vital you don't get in a position of increasing fines just because it "slipped your mind" or you "didn't have time".
There are very few reasons that HMRC will accept as valid for late filing or payment. If you do need to file late then it is crucial that you let them know as soon as possible to show that you’re doing your best to fix things.
Penalties for missing the filing deadline of 31st Jan:
Things only get worse if the taxman suspects you're deliberately holding back information that would let him work out the tax due.
Penalties for late payment:
Payments on account are payments towards your next year's income tax. The amount you have to pay for each payment on account is half of your previous year's tax bill. So, if your previous year’s tax bill was £2,500 (you only have to make payments on account if your tax bill is over £1,000), then each payment on account would be £1,250.
This is HMRC's way of spreading out the money you'll owe in your next tax bill over the year. They can be quite a shock the first time you're asked to pay them. However, they're really just designed to make paying your tax a little less painful.
When you file your Self Assessment tax return and your tax is calculated, HMRC assumes you'll owe about the same next time.When you settle up your tax bill in time for the normal deadline (31st of January), you also have to make your first payment on account for the following year. The amount will be half of the previous year's tax bill. Six months later, by the 31st of July, you'll have to make your second payment on account. Again, this will be for half of the previous year's total tax bill.
If you paid a total of, say, £2,500 on account for the year, but you find that you're actually due to pay £2,700 when you come to do your tax return, you'd pay a “balancing payment” of £200 to HMRC by 31st January the following year. Your two payments on account for would each be half of £2,700 (the previous year's tax bill). On the other hand, if your payments on account mean you've paid too much tax, you’ll be due a tax refund.
Payments on account are for self-employed people, and apply to both your income tax and class 4 National Insurance contributions. If you need to make them, you'll see the amounts and deadlines when you sign into your HMRC Self Assessment website.
Self-employment tax allowances are a kind of tax relief you can claim when you work for yourself. They're designed to help out with some of the general expenses of your work, and to lighten your load a little in terms of tax. Here are some of the most important ones to know about:
| Mileage Allowance |
Self-employed people usually keep track of their work expenses so they can use them to bring down their tax bills when they file their Self Assessment tax returns. For work travel, that means hoarding fuel receipts, vehicle maintenance bills and more. However, if you want to keep your bookkeeping to a minimum, you can claim a simpler flat-rate instead, based on your yearly work mileage:
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| Trading Allowance | This is a tax-free allowance for the first £1,000 you make from self-employment in a tax year. Depending on the kind of work you do, this may actually cover your whole year's expenses! You can claim this through your Self Assessment paperwork, and it basically means you'll pay no Income Tax on £1,000 of your self-employment total income. |
| Working from Home Allowance |
If you're running your self-employed business from your home, there's an allowance you can claim for the general expenses you're running up. It's another flat-rate allowance, and the amount you can claim depends on how many hours you're working from your home per month:
You work out each month's allowance separately. For instance, if you spend 10 month working 40 hours per month from your home, then 2 more months working there for 60 hours per month, your total allowance would be:
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| Other Allowances |
On top of the specific self-employment tax allowances you qualify for, you should keep in mind the other kinds of allowance you could also be able to claim. For instance:
Depending on your situation, there may be even more allowances you can claim, such as the Blind Person's Allowance or the Rent a Room allowance if you've got a lodger. Make sure you know where you stand to avoid missing out, and talk to RIFT if you're not sure about anything. |
Under the Construction Industry Scheme, you're essentially being taxed right from the first penny you earn, without getting your tax-free Personal Allowance. It's supposed to crack down on tax evasion in the construction industry, but in reality it's the honest subcontractors that are carrying the load.
The news isn't all bad, though. You can claim back the extra tax you've paid in your Self Assessment tax return. That's right: even though you've already had 20% of your money taken by HMRC, you still have to file a return. If you've paid too much tax, you can get a tax refund.
If you’re working via the Construction Industry Scheme (CIS), you’ll be required to file a Self Assessment tax return after your first year of trading and in subsequent years. You’ll complete your tax return at the end of the tax year in April and pay any taxes that are due by the following January.
Yes, you will pay tax “at source” (your tax is taken off your wages before you get them), most likely at the rate of 20% of your income. However, this doesn’t mean you are “employed”. You still count self-employed under CIS – even if it doesn’t feel like it. The big difference is that this means you'll still have to do Self Assessment each year. Not filing those tax returns each year brings three very serious problems your way:
When you’re a subcontractor running a Limited Company of your own, the deductions your contractors make can be used to bring down the Corporation Tax you owe. Alternatively, you might just be able to get it refunded by the taxman.
When you’re a contractor with subbies to pay, you have to send a regular report to HMRC about all the CIS deductions you’ve taken from their earnings. You do this on a monthly schedule. It makes no difference if your subcontractors are individual people or companies themselves. It’s just another way of taking tax out of their pay, the same as you would via PAYE.
If your company’s doing work for a contractor, and you aren’t using subbies, the contractor will handle your CIS deductions. If you’re registered for CIS, you’ll lose 20% of your pay to the taxman. If not, it’ll be 30%. You might be able to apply for gross payment status, where no CIS deductions are made. Things can get sticky there, though, so you need to know what you’re doing.
You’ll report the amount taken out via CIS in your Employment Payment Summaries to HMRC. At the end of the tax year, there’ll be an online form to fill in on the government website. HMRC uses those figures to work out how much to knock your Corporation Tax bill down by. If you end up in credit, you’ll get a tax refund.
If your company’s using subcontractors, but is doing work for another contractor, then your situation’s a little more complex. Your contractor will still make CIS deductions before paying you, as normal. You’ll then take CIS payments out of your subbies’ pay. The amount you end up sending to HMRC depends on which is higher – the amount the contractor took from your pay or what you’ve taken from your subcontractors’. If you end up losing more in your own CIS payments than you’re taking from your subbies’ cash, then your Corporation Tax bill comes down to settle up. If it’s the other way around, you’ll end up owing HMRC money.
Payments toward student loans are handled through your normal Self Assessment paperwork. Anything you owe will be included with your main tax bill. Watch out if you're paying late; the fines will be the same as if you'd missed the tax deadline.
If you're making payments on account (advance payments on your tax bill), your student loan payments won't be part of them. Remember that you can make voluntary payments directly to the Student Loan Company if you want to. Those won't be included on your tax return, though, and won't reduce your actual tax bill.
The best part of registering for self assessment online is the time-saving options that open up once enrolled. You'll get password protected account access on gov.uk for handling forms, uploading docs, payments, guidance and tracking deadlines. You'll also get handy emails and texts to stay on top of to-do items so nothing falls through the cracks. Way easier than paper filing cabinets!
To sum up, self-employed individuals have no choice but to enrol for self-assessment reporting to comply with HMRC regulations once crossing the minimum income threshold. With this guide, you have everything you need to get registered, tackle returns properly, and make the most of online resources.
Need some more guidance? At RIFT Refunds, we know a thing or two about tax preparation. Our specialists can provide assistance with getting you set up, maximising expense/deductions guidance, deadlines, payments and all aspects of being self-employed. Don't tackle taxes alone - we're here to guide you in mastering self-assessment! Contact RIFT today to make self-employed a breeze.