Christmas holidays end and quickly approaches the time to think about taxes for you have a deadline only until 31 January to save yourself from getting fined by the HMRC. Filling the return can trigger a bit of a panic especially for the ones who are first time self assessment taxpayer. However, provided you have the necessary information, it should not cast hell upon you.
You need to fill in self-assessment form to declare your income and expenses when you are self-employed or are renting out a property or simply put, if your income is not taxed at source. Here is how you can complete your first self-assessment without getting intimidated of committing any mistake.
Step 1: Register with HMRC
Before you can start out on self-assessment, you ought to register your business with the HMRC. Upon doing so, HMRC will send you an activation code, Unique Taxpayer Reference (UTR) and then a PIN number by post for online service access which you will require to file your return. The benefit is that you will get reminders from the HMRC every year until you exclusively inform that you no longer have the necessity to file which is generally if you are moving out of the country or getting into full-time employment.
Step 2: Determine your account dates
You must decide on your “year end date”. An honest advice is to stick to the tax year end as it is much simpler.
Step 3: Get your accounts in order
You need to sort out the various incomes and benefits in order to file the self-assessment correctly. If at any point you feel the lack of information or as if you are missing some important detail then taking expert advice is always the best way to go about ensuring that things are on the right track. These are some of the details you might need to establish:
- Employment Earnings
- Invoices and expenses of your business
- Earnings from partnership
- Income in form of Rent
- Any foreign aid or income
- Capital Profits
- Unemployment benefit
Step 4: Calculate the amount of income tax you are liable to pay
There are tax thresholds according to which you need to pay your tax rates. Therefore, when you have a side income or are working more than one job then you will need to declare your earnings from self-employment profits. And the income tax will be calculated on those profits. That being said, if your profits from self-employment can land you in a higher tax band.
Again, you can show your business expenses against your income which can reduce the tax amount. For the people who are employed and are having self-employment income, the taxes you are accountable for while you work as an employee will be taken care of by your employer through their PAYE system which leaves you to handle the tax you owe through your self-employment earnings.
Importantly, you must be aware about the National Insurance which in case of employee is handled to by the employer through the PAYE calculations. For self-employment income, the National Insurance has to be paid on your profits every year, of course, before 31 January.
Step 5: Plan to manage your self-assessment tax bill
Conventionally, the experts’ advice is to save at least nearly 30% of your self-employment income per month. Depending upon the profits you are making, it may be more. Not necessary that all of that 30% will be paid as tax, but you definitely want to be on the better planning side. Find out what can work best in favour of you, that is, should you be a sole trader or set up your business as a limited company. The last thing you want is to run-out of cash when it comes to paying the tax bill.
Always remember that you will need to pay half of the tax bill for the next year as well. You might want to mark a prior reminder for 31 July.
Step 6: Filling out your tax return
Each step right from registration to getting your credentials, calculation of tax and saving for paying the taxes will prepare you for the final step which is filling your income tax return. You can visit the government website www.gov.uk and fill up an online form where the amount of tax you need to pay owing to your profits will be calculated using an annual Self Assessment tax return.
It is highly recommended to file your tax return as early as possible by which you can avoid last minute hassles and also late fines. If you still feel it is a daunting task and you do not want any mistakes then you can always rely on our professional assistance. You can write to us at email@example.com. The task of your self-assessment tax return will be in hands of our trust-worthy experts having significant experience.