What is a Self Assessment?
Are you one of the millions of people that have never heard of the words “Self Assessment” or do you need a quick refresher course?
We’ve got you covered. We’ve written this guide to help you stay informed of all the important parts of the Self Assessment process.
What is a Self Assessment?
A Self Assessment is the UK version of a tax return. It’s a collection of forms outlining all the information needed to calculate your tax for the year. This includes any income you earned, expenses you incurred, and deductions you can be apply.
HMRC uses your Self Assessment to check whether you’ve paid enough tax in the year and make sure you are not avoiding any tax payment.
Who needs to do a self assessment?
Only one in five adults have to complete a self assessment each year. There is no simple way to check if you need to do a Self Assessment due to the complexity of the UK tax system.
In general, anyone that earns a portion of their income outside of employment needs to do a tax return. This could include money you make from a side hustle, as a landlord, or being self-employed.
What do I need for my Self Assessment?
You need your Unique Tax Reference (UTR) number, your personal details, an overview of your earnings, and an overview of the costs you incurred that can impact your tax bill.
- UTR - This is your Unique Tax Reference. You need to register for a UTR before you can submit a Self Assessment.
- Personal details - This includes your National Insurance number and your address
- Earnings - Depending on your situation, this can be quite a long list. Commonly this includes your salary, dividends, interest, rental income or capital gains.
- Costs - A lot of costs you incur through the year can lower your tax bill. It’s again a long list but can include your student loan, expenses for your business, and gift aid contributions.
What expenses can I include in my Self Assessment?
You can only expense things that you need to run your business. In the words of HMRC, anything expensed needs to be 'wholly and exclusively’ for the business.
Rather than keeping an itemised list of all your expenses, the Trading Allowance is a great benefit to take advantage of. The £1,000 trading allowance allows you to assume you've incurred £1,000 in expenses (even if your expenses are less than £1,000).
Using the trading allowance will likely save you hours of work preparing your tax return and relieve you of the stress of doing something wrong - HMRC doesn't always make things easy after all)!
When do I need to submit my Self Assessment?
Your tax return is due each year by the 31st January, and covers all your earnings from April to April (the tax year). This means that you normally have over 9 months to prepare your tax return each year.
Do I need to pay tax when I submit a Self Assessment?
Not necessarily. If you earn less than the tax threshold in the UK, then you don't need to pay any income tax or National Insurance.
If you do earn above this threshold, then you will be taxed over your income. For the last tax year (2020/21), the thresholds you want to keep in mind are:
- You don't pay income tax if you earned less than £12,500
- You don't pay National Insurance if you earned less than £9,500
You may still want to voluntarily pay National Insurance to start saving up for your state pension and state benefits like maternity leave and statutory sick pay.
How can I make this whole process easier?
HMRC doesn't make things very easy to understand, especially if you're busy enough with work and a social life! Using an app like Earnr can make it easier to stay on top of your income and tax return before the deadline.
Most importantly, if you’ve earned less than £3,000 in self employed income in the last tax year, we'll help you do you tax return for free! To get started, just download the Earnr app from the IOS app store.