6 ways to take your first Self Assessment in your stride
If the thought of filing your first ever tax return makes your blood run cold, we’ve got good news.
Smarta’s accountancy partner Crunch has opened up their Self Assessment service to any entrepreneur or small business owner.
You don’t have to be a Crunch client and there is no commitment to use their services once you’ve filed your return.
Shelley Thomas has worked for Crunch for 3.5 years. She also runs her own businesses (shout out to the side hustlers!) and is a Crunch client herself, so we’re pretty sure she knows her stuff.
We sent a member of Team Smarta to chat with Shelley and get the low down on Self Assessment.
It’s actually not as daunting as you might think.
Here's how to reduce the fear factor if you’re a first-timer.
1.Understand what “Self Assessment” means
When you’re employed you get paid through PAYE (Pay As You Earn), so National Insurance and Income Tax are automatically taken out of your monthly wages. When you're self-employed, it’s different.
Self Assessment is the name commonly given to a personal tax return. It’s a way of recording tax owed on any profit that your small business has made. It’s a way of tracking what your business is making and paying the right amount of tax so that you don’t end up owing anything to HMRC.
You have to declare how much income you’ve made in a “trading period”, which runs from the fifth of April to the sixth of April the following year. If you’ve made a profit within that time, you’ll then have to pay Income Tax and National Insurance on the profit of your business.
2.Get your expenses sorted
You only have to pay tax on profit, not your total income, and there is an allowance of £1000 self-employed income before you are required to declare it. If you’re over the threshold, you’ll need to register for Self Assessment in order to tell HMRC your income and expenditure.
Profit is your total income minus any expenses, so you need to work out what you’ve spent on running your business and deduct it from what you’ve earned.
Find out more about what business expenses can you claim as a self employed Sole Trader?
3.Put the deadline date in your diary - like, now!
You've got until the 31st of January 2023 to pay your tax for the previous trading period or “tax year” - that's the 6th of April 2021 to the 5th of April 2022.
By doing your Self Assessment early, you can see what tax you'll need to pay and put that money aside.
If you made more than £1000 profit in the tax year April 2021 - April 2022 and you don't pay tax on it by 31st of January 2023, there's an instant £100 penalty. There may be additional penalties depending on how much tax you owe. If you plan for it now, you won’t have to worry about a nasty surprise.
Crunch recommends you set time aside between now and January to do the prep (with or with the help of an accountant) and get it paid on time.
4.Ask for help (from an accountant!)
The team at Crunch unfortunately has to advise people facing tax penalties regularly. It’s very common to feel overwhelmed when you start a business, and for paperwork like bills and receipts to get shoved in a drawer and then forgotten about.
Being chased by HMRC because you are overdue on your filings is NOT a fun position to be in, so seek help and advice from an accountant sooner rather than later - they’ll be in your corner.
Good news: whilst you can’t claim support with your Self Assessment as an expense, all other accountancy fees are tax deductible.
Whether you're a sole trader, self-employed freelancer, or even a limited company, accountancy fees are allowable - a lot of people don't realise that.
5.Pick up the phone to HMRC
If you've already missed a deadline and owe tax, it's often best to have a chat directly with HMRC and explain the situation. They’re human too, and like us they genuinely want to help. But, they may expect you to pay the outstanding tax the following year.
6.Start saving for next year’s tax bill
We’re potentially facing a recession and small businesses are being hit hard by the cost of living crisis.
With lots of unknowns in the future, budgeting is vitally important for everybody, but especially if you're starting out.
If you missed a tax return last year, you'll need to be putting more of your profit aside this year to cover what you previously failed to pay.
Once you’ve checked out all the help and tools available from Crunch, you’ll have a much better understanding of what you can and can’t claim as expenses, which will help you estimate the tax you’ll need to pay in January.
If you’ve had a good trading year, you could put some money aside now for 2024. That way, whatever happens over the next 12 months, it won’t be a tax bill keeping you up at night!
HANDY GLOSSARY OF TAX TERMS
Trading Period: runs from the 5th of April to the 6th of April the following year, so any earnings within that time, you then have to pay income tax national insurance on the profit of your business. Often called ‘the tax year’.
Profit is your total income minus any expenses.
Self Assessment is the name commonly given to a personal tax return.
Threshold: The limit of how much income you can earn before you’re required to declare it to HMRC. The current threshold is £1000.
Late filing is when you submit your tax return (Self Assessment) AFTER the 31st of January. It’s better late than never but be aware, missing the deadline incurs a £100 penalty.
If something is Tax Deductible, you can subtract it from your total income, reducing the amount of tax you pay. Accountancy fees are usually tax deductible, but because Self Assessment is your personal tax return, you do have to cover the cost yourself of any help you receive to file it. All the more reason to look for discounts and offers from Smarta's partners!
