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Filing Self Assessment tax returns for startups
Starting a new business is an exciting journey, but it also comes with its fair share of responsibilities, including managing your taxes. One crucial aspect of this is filing your Self Assessment tax return. This comprehensive guide will walk you through the process, ensuring you understand who needs to file a Self Assessment tax return and how to file a Self Assessment tax return.
Who needs to file a Self Assessment tax return?
Whether you need to complete a tax return or not will depend on your specific circumstances. The onus is on you as the taxpayer to notify HMRC if you are required to file a Self Assessment tax return.
You must file a Self Assessment tax return if, in the last tax year (6 April to 5 April), any of the following applied:
- You were self-employed as a sole trader and earned more than £1,000. The £1,000 threshold is a measure of gross income, not profit.
- You were a partner in a business partnership.
- You had total taxable income of more than £150,000. Even if you earn less than the £150,000 threshold, you are still required to file a return if you fall into another category e.g. if you are a sole trader and earned more than £1,000.
- You had to pay Capital Gains Tax on the sale of assets.
- You had any untaxed income, such as:
- rental income
- dividends
- interest on savings and investments
- income from overseas sources that are liable to UK tax
- income of £60,000 or more (from 2024/2025 onwards) where you or your partner receives child benefit
- You want to claim tax relief for employment expenses.
- You want to claim tax relief such as the Enterprise Investment Scheme.
- You need to prove you are self-employed e.g. to claim tax-free childcare or the maternity allowance.
- You want to pay voluntary National Insurance contributions.
There may be other scenarios which require you to file a Self Assessment tax return but the above circumstances are the most common for those working in the tech sector.
If you are in any doubt as to whether you need to file a Self Assessment tax return please get in touch and we would be happy to advise you.
How to file a Self Assessment tax return
Filing a Self Assessment tax return involves several steps:
- Register for Self Assessment: If you haven’t filed a Self Assessment tax return before, you need to register with HMRC by 5 October following the end of the tax year. You can do this online on the GOV.UK website. More details on how to register can be found here.
- Get your Unique Taxpayer Reference (UTR): Once registered, HMRC will send you a UTR number. This is essential for filing your return.
- Set Up a Government Gateway account: You’ll need this account to file your return online. It’s a secure way to manage your tax affairs. HMRC should send you instructions once you have registered for Self Assessment.
- Gather necessary information: Collect all relevant documents, such as your income details, expenses, and any other financial records that relate to the tax year.
- Choose an accounting method: You’ll need to choose cash basis accounting or traditional accounting to calculate any profits you have made. More details on accounting methods can be found here.
- Complete the Self Assessment tax return: If you are self-employed you can file your Self Assessment tax return online. Log in to your Government Gateway account and fill in the sections that apply to you. Make sure to double-check all entries to avoid errors. Using HMRC’s online filing service is not an option for partnerships, non-UK residents and taxpayers needing to report multiple chargeable gains. If you can’t use HMRC’s online service you will need to purchase tax return software or hire an Accountant.
- Submit your Self Assessment tax return: Once completed, submit your return online. You can save your progress and return to it if needed. The filing deadline for online filing is 31 January following the end of the tax year.
- Keep Records: After submission, keep a copy of your tax return and all related documents for future reference. They can be kept on paper, digitally or in software (such as bookkeeping software). Records must be kept for at least 22 months after the end of the tax year the tax return is for.
- Pay tax: The deadline for paying your tax bill is usually:
- 31 January for any tax you owe for the previous tax year and your first payment on account.
- 31 July for your second payment on account.
Payments on account are advanced payments towards your tax bill and apply if your last Self Assessment tax bill was more than £1,000. Each instalment is half of your previous year’s tax bill.
If you prefer, you can pay the amount you owe in instalments before the deadline. If you don’t pay by the deadline you will be charged interest and penalties.
If the outstanding tax is less than £3,000 you can request that HMRC collect this amount via an adjustment to the PAYE tax code (where applicable) but you will need to file your tax return by 30 December.
You should be able to claim a tax refund if you have paid too much tax. An Accountant can help reduce your tax bill and claim any refunds on your behalf.
Do I need to file a Self Assessment tax return?
To determine if you need to file a Self Assessment tax return, consider the following for the previous tax year:
- Were you self-employed and earned more than £1,000?
- Did you have multiple sources of income?
- Did you receive any untaxed income, such as from renting out property or from investments?
- Do you earn more than £150,000 a year?
- Are you a high earner claiming Child Benefit?
- Do you need to pay Capital Gains Tax?
- Do I want to claim tax relief on expenses?
- Do you want to pay voluntary National Insurance contributions?
If any of these apply to you, then you need to file a Self Assessment tax return.
Even if you are not required to file a tax return, there could be a benefit of doing so if you want to claim tax relief for expenses that you have incurred. An Accountant can help you assess the tax savings available if you were to file a Self Assessment tax return.
There are two types of self-employment supplementary pages: short pages (SA103S) and full pages (SA103F).
The short pages contain sufficient entry boxes for the typical small business, whereas, the full pages have boxes covering the more unusual types of income or deductions.
If you need support in filing your Self Assessment tax return an Accountant can do this for you.
What happens if I don’t file a Self Assessment tax return?
If a Self Assessment tax return is not filed by the due date and the taxpayer does not have a reasonable excuse for late filing, penalties will be charged. The amount of the penalty depends on:
- the tax year in question
- the length of time the return is outstanding, and
- the behaviour of the taxpayer (higher penalties are charged if the failure to file is deliberate)
The penalties for late filing are:
- fixed penalty £100 ― automatically issued if the return is filed late. This applies even if there is no tax to pay, the tax due has been paid on time or the taxpayer is due a refund.
- daily penalties £10 per day ― can apply once the return is three months late. The daily penalties run from the date specified in the HMRC notice until either the return is filed or for a period of 90 days (whichever is shorter).
- tax-geared penalties:
- six months late ― a penalty of 5% of the liability to tax or £300 if higher.
- 12 months late ― tax-geared penalty depends on the behaviour of the taxpayer and whether the return includes foreign income or gains. If the failure to file is not deliberate then the penalty is 5% of the liability to tax or £300 if higher. Where the failure is deliberate (whether or not it is also concealed), the amount of the penalty can be as much as 200% of the liability to tax or £300 if higher.
Summary
This article has explained who needs to file a Self Assessment tax return and provides guidance on how to file Self Assessment tax returns with HMRC.
Filing your Self Assessment tax return might seem daunting at first, but with the right preparation and understanding, it becomes a manageable task. Remember, keeping accurate records throughout the year will make this process much smoother.
Please get in touch if you would like to discuss how Tech Relief can help you manage your Self Assessment tax obligations for you. It can help to speak with a professional who can advise you on your specific circumstances.
Good luck with your startup, and happy filing!
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