Post by Zeinab Lenton, Marketing Manager, Sage One
A few years ago, I did some freelance work for a local advertising agency. I thought it would be a fun way to do something a bit different from my day-to-day work and earn some extra money along the way.
Shortly after I’d accepted the contract, I realised, to my horror, that I had no idea how to go about declaring my extra earnings to HMRC and paying the tax due. Sure, I’d heard about Self-Assessment and seen the TV ads, but what does it all mean?
This blog post is intended as a brief introduction to Self-Assessment, to get you started in the right direction. I’m not a taxation specialist, just a regular person who had to figure this out on my own. If you need specific advice and guidance on individual circumstances, I recommend you either speak to your accountant or directly to HMRC.
What is Self-Assessment?
The best place to start when trying to get your head around Self-Assessment is the HMRC website. Self-Assessment can apply to people in a number of different circumstances, but broadly speaking, if you started your own business, became a company director or started doing freelance work before April 6th 2012, you’ll need to register for self-assessment with HRMC.
HMRC’s deadline for registering for self-assessment is 5 October 2012, so if you haven’t done so already, put some time aside in your diary to get registered.
HMRC uses the information you provide to set up the correct records for you, to help ensure that you complete the correct submissions, at the right times, and pay the correct amount of tax and National Insurance.
If you’re unsure about whether or not you need to register for Self-Assessment, check with your accountant or contact HMRC. Additionally, the HMRC website provides a good guide: “Do you need to complete a tax return?”
How do I register for Self-Assessment?
You’ll need the following information to hand when you register:
- Your National Insurance (NI) number
- Your contact details, and the contact details of your business if applicable
- The date your circumstances changed – i.e. the date you started your business, or became a freelancer, for example.
- If you’ve completed a Self-Assessment before, you’ll also need your UTR number (more on this later),
HMRC provides up-to-date guidance on how to register for Self-Assessment on their website. You’ll also find links there to the specific forms you need to complete, depending on your circumstances. For example, if you’re registering as self-employed, you’ll need to complete a different form than if you are starting or joining a new business partnership.
Unique Taxpayer Reference
Once you’ve finished, HMRC will send you a Unique Taxpayer Reference (UTR) – it’s a ten digit code usually made up of a combination of letters and numbers. You’ll need to hang onto this, as you’ll use it when you actually complete and submit your Self-Assessment. If you’ve lost your UTR, contact your local tax office and they’ll be able to help.
I’ve registered. Does that mean I’ve finished?
So far, all you’ve done is inform HMRC that you need to complete a Self-Assessment for the previous tax year (in this case, the 2011-2012 tax year). The next step is actually preparing and submitting a Self-Assessment.
If you work with an accountant, this is something that they may be able to help you with. However, if you do all your business finances yourself, completing a Self-Assessment is relatively pain-free if you’re organised and give yourself plenty of time to get things done.
Completing a Self-Assessment
There are two ways of completing and submitting your Self-Assessment:
- Fill in a form and send it to HRMC (deadline 31 October)
- Using HMRC’s Online Self-Assessment Service (deadline 31 January)
HMRC will send you a Self-Assessment form in the post, with clear and comprehensive instructions on what you need to do to complete it. If you’d prefer to file your Self-Assessment tax return online, you’ll also need to register for HMRC Online Services.
To do this, you’ll need your UTR and your NI number or postcode. Make sure you select the “Self-Assessment” service when you register. HMRC will send you an activation code in the post to your home address– this usually takes around 7 days. You’ll then need to use this activation code to activate your account, and you must do this within 28 days.
Because of the time it takes to register for the online service and then receive your activation code, I’d really recommend you register for HMRC Online Services as soon as possible once you receive your UTR.
Make sure that your business records are up to date
As part of submitting your Self-Assessment tax return, you’ll need to keep your business records up-to-date and provide accurate information on your income and expenditure. If you’re already using Sage One Cashbook or Sage One Accounts, you’ll be able to reference this information easily.
Whatever method you choose, whether via the online service or using the good old fashioned paper form, just make sure you provide accurate information and make your submission on time. You could be liable for financial penalties if you are late or fail to make a submission.