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Self Assessment Tax Return: A Definitive Guide for Sole Traders

December 8, 2021

When it comes to the paperwork, operating as a sole trader business instead of a limited company is far preferable. While limited companies need to make submissions for Corporation Tax, confirmation statements and year-end accounts as well as a company director Self Assessment, sole traders only have to worry about getting their Self Assessment in on time.

However, if you're new to the sole trading game, the prospect of doing your Self Assessment for the first time might be a little daunting. From getting yourself registered, to collecting the information needed for your tax return, to filing before the deadline, the possibilities for getting it wrong seem endless.

If you're not sure where to start when sorting your Self Assessment, we've got you covered. We'll be taking a deep dive into everything you need to know about submitting your first Self Assessment tax return, from getting started to good practices to keep up for Self Assessment submissions in the future.

What is a Self Assessment?

Otherwise known as a SA100, a Self Assessment is HM Revenue and Customs (HMRC)'s way of collecting Income Tax and National Insurance contributions (NICs) from sole traders.

If you've worked for a different company prior to starting your own business, your taxes would have been deducted from your earnings through PAYE (Pay As You Earn) by your employer, with the amount left over being your take home amount.

Sole traders, on the other hand, must submit a Self Assessment tax return by 31st January, outlining their gross earnings, taxable profit and business expenses for the previous tax year (between 6th April and 5th April) to work out how much tax they owe. This would mean that sole traders submitting their Self Assessment on 31st January 2022 will be accounting for the tax year 2020/21.

Do I have to register Self Assessment?

While the majority of sole traders will need to file for Self Assessment at some point in their sole trading career, the good news is that you don't have to until you're earning more than £1000 before taking business expenses into account. This amount represents HMRC's Trading Allowance and, being tax-free, gives you the space you need to get your business up and running before you need to worry about filing a tax return.

You can also file for Self Assessment if in the last tax year:

  • You need to prove you're self-employed, for example to claim tax-free childcare
  • You want to make voluntary Class 2 National Insurance contributions to help you qualify for state benefits
  • You were a partner in a business partnership

If any of the above is applicable to you, be sure to register for Self Assessment no later than 5th October after the end of the tax year you're looking to file for. Failure to do so could see you faced with a hefty fine, so be sure to register early to stay on the safe side.

How do I register for Self Assessment?

If you need to register for Self Assessment, you can do so either by post or online, although we strongly recommend doing this online. If you're looking to file by post, you'll need to fill out this form on-screen before printing it off and posting it to HMRC. However, if you want to avoid the stress of having your application lost in the post, or need to get registered as soon as possible, you might find it more beneficial to set up your own online account and register online.

To register for Self Assessment online, you'll need to follow these steps:
  • Sign into your business tax account using your Government Gateway ID and password and add Self Assessment.
  • A few days after doing this, you'll receive a Unique Taxpayer Reference (UTR) number in the post within 10 days (or 21 if you're abroad) which you can use to register for HMRC's online service.
  • You'll then be sent an activation code in the post to access HMRC's online services where you can start the process of filing your Self Assessment. If lost or never received, you can request a new activation code to use instead.

You can find our complete breakdown to registering for Self Assessment in our piece on getting started as a sole trader, including what to do if you need re-register for Self Assessment and need to submit a CFW1 form.

How do I file my Self Assessment tax return?

On 6th April 2024 Making Tax Digital for Income Tax becomes law, making it mandatory for business owners without a reasonable excuse to file their Self Assessments online. As for now, business owners have the option to file their Self Assessment either online or by post.

Should I file my Self Assessment online?

It doesn't matter how you choose to file your Self Assessment, as long as you get it in before the deadline. However, you might find it more beneficial to file online for the following reasons:

  • Different deadlines —The Self Assessment deadline by post is on the 5th October, whereas the deadline for filing online is January 31st, giving you almost an extra four months to get everything you need in order.
  • Automatic calculations — Your Income Tax and National Insurance contributions are worked out automatically based on the figures on your return, so you know exactly how much you'll need to pay from the moment you submit.
  • Transparency — You can check the amount of tax you owe and view all previous tax payments you've made at any given point on your account.
  • Extra paperwork — If you opt to file by post you'll need to file a self-employment supplement form (SA103) alongside your SA100.
  • Immediacy — HMRC acknowledges your submission as soon as you press send, giving you the reassurance you need to know it's done. You also can't lose an online submission in the post.

What information do I need for my Self Assessment?

Regardless of whether you decide to file your Self Assessment online or by post, you'll need to make sure you have all the information you need at your fingertips to make the submission process as painless as possible. You'll need to keep records of the following:

  • Self-employed income (including invoice details)
  • Unique Taxpayer Reference
  • National Insurance number
  • Business expenses

You'll also need to keep records of the following, if applicable:

  • Employment income (P60, or a P45 if you've left a previous employer in the past year)
  • Dividends
  • Partnership income
  • Interest
  • Rental income
  • Foreign income
  • Pensions contributions
  • Gift Aid (paid personally)
  • Pension income
  • Payment on account
  • Redundancy lump payment or unemployment benefit
  • P11D
  • Capital gains

It's important to keep in mind that you'll need to hang onto this information for five years after the 31st January deadline. HMRC can conduct reviews at any time within this frame and may ask for documents to support the information you've submitted. Failure to provide accurate, complete or readable records could result in a penalty fine.

If you're not sure how exactly you're going to store and keep this information for the next five years, you're in luck. With Ember, you can record your expenses, snap and capture your receipts, track your cash inflows and more with our all-in-one app.

How do I fill out my Self Assessment?

When completing your Self Assessment, you'll need to provide the following information:

  • Personal details, such as your name and business address.
  • Reports on your earnings. This is your total income from self-employment before expenses, so be sure to hang onto your invoices.
  • Any additional income, such as gains on investments or property income.
  • Tax-deductible expenses, such as allowable expenses and capital allowances.

Once you've filled out the information outlined above, HMRC will calculate your taxable income by subtracting your business expenses from your total income from self-employment. The more business expenses you claim against your income, the lower your taxable income, and subsequently the lower you Income Tax bill — so make sure you claim those expenses at every opportunity you get.

For more on what you can claim tax relief against, brush up on our tax-saving tips for self-employed sole traders, or check out our Tax Tips series on YouTube, starting with what you can deduct as a sole trader.

When do I need to file my Self Assessment?

As outlined above, the date that you file your Self Assessment is determined by whether or not you file your Self Assessment by post or online. For postal filing, your submission will need to be with HMRC by 5th October, whereas online you'll need to submit your tax return by midnight on 31st January.

When do I need to pay my Self Assessment tax bill?

As for paying your Self Assessment tax bill, you'll need to mark two key dates in your calendar. Not only will you be filing your Self Assessment on 31st January, but you'll also be paying your first payment on account on this day too, with the second payment due on 31st July. For a complete breakdown of how to pay your Self Assessment, visit our guide on how to complete a Self Assessment tax return.

Payments on account are advanced payments towards your Income Tax bill for the next year, which HMRC estimates to be the same as the bill for the present tax year. Each payment is half of your previous year's tax bill and is paid in two instalments — the first on 31st January and the second on 31st July — unless:

  • Your last Self Assessment tax bill was less than £1,000
  • You've already paid more than 80% of the tax you owe, for example through your tax code or through the bank deducting interest on savings

Business owners in their first year of trading will need to pay the first instalment alongside the entirety of their tax bill from their first year of trading — equivalent to paying 150% of their tax bill — by 31st January. This will eventually balance out over time, as although you'll still be making payments on account, your tax for the current year will be reduced by the payments on account paid towards that tax year. However, this will have the biggest impact on your cash flow in the first year of trading, so it's good to be prepared.

How can I avoid Self Assessment penalties?

The best way to avoid Self Assessment penalties is to be organised. Remembering your key filing dates and keeping secure and organised records can help you avoid making mistakes and missing deadlines that could see you faced with hefty fines. If you have missed the deadline, don't panic — we've pieced together a guide on what to do next.

To take the stress out of filing your Self Assessment, Ember has everything you need to keep you in HMRC's good books right from the start. From super-smart receipt-capture technology to automated reminders for important deadlines, we've pulled out all the stops to make sure your files are neatly organised for when those important deadlines roll around.

As the Self Assessment deadline for the tax year 2020/21 approaches, let Ember take the stress out of filing your Self Assessment by doing it for you. With the information you've added to the Ember app, you can have your Self Assessment tax return drafted by our in-house qualified accountants, and submitted on your behalf if you're happy with what you see.

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Daniel Hogan

Daniel is a Deloitte-trained, fully qualified Chartered Accountant with experience in the finance software space. It was during his tenure managing a finance system in the UK that he grew dissatisfied with the lack of synergy and automation in the space, compelling him to co-found Ember.