Clarion Futures Self Assessment Guide for HMRC

HMRC Self Assessment Guide

What is Self Assessment? Any individual who has earned any income that HMRC doesn’t know about has to complete a self assessment. This helps HMRC work out what tax and National Insurance is due on these earnings. If you are paid by an employer then you are already deducted tax and National Insurance from your wages as part of the PAYE scheme (Pay As You Earn). For everyone else, a self assessment must be done. If you are setting up even a small business, you are most likely going to need to register for self assessment. Why is it called Self Assessment? The basic rule is that HMRC expects you to tell them what your income has been for the tax year. It’s your responsibility to do this and to make that declaration as accurate and true reflection of your circumstances. Most people do this online

and the process is relatively straight forward, so you could do this yourself. There are businesses that will offer to support you if you would rather not do this yourself. Who has to register? If you have set up a business as a sole trader or partnership, you will need to register for Self Assessment unless you don’t expect sales over £1000. We will cover that later. If you are going to be a subcontractor and working under the Construction Industry Scheme (CIS) you will also need to register with HMRC and notify them that you are working as a subcontractor under the scheme. If you don’t do this then your contractor can deduct 30% tax from your income at source (rather than then 20% or 0%). If you have a business or an individual that obtains dividends or receives income from other sources, you will also need to register.

How do I know if I need to register? There is a simple exercise you can do on the HMRC website that asks a series of questions that can help you determine if you need to register. Have a go at this link below. www.gov.uk/check-if-you-need-tax-return What are the ways to get registered? There are three ways to register with HMRC. You can complete an online form CWF1 but you will need to complete this in one go. Once you have done this you will need to print it off and post it to HMRC. The second way is to create a government gateway account to complete the CWF1. Finally, you can phone the self assessment enquiry desk on 0300 200 3310. HMRC also has webchat and other social media accounts where you can ask general questions.

Creating a Gateway Account The government’s gateway account gives you access to a range of services and is the best way to get started. By registering you will get immediate access to your personal tax account. This service gives you information about your tax code, child benefit, state pension, tax credits, manage your address, income tax and refunds and your self assessment. You can also view this on their new HMRC App. More details can be found here www.gov.uk/personal- tax-account How do I create a gateway account? To create the government gateway account, you will need an email address and will be asked to create a password and a recovery password. You then need to select the individual account option so you can get access to your personal account

and your self-assessment. If you are running a company or other organisation, you would need to choose a business account. For security you will need to enter an access code which will either be a text, voicemail or authentication app. The access code must be used every time you log in. Once you have done this you will need to prove your identity when you first register. (You only need to do this once.) ID Required You need your National Insurance number or postcode and two of the following: • a valid UK passport. • a UK photocard driving licence issued by the DVLA (or DVA in Northern Ireland). • a payslip from the last 3 months or a P60 from your employer for the last tax year. • details of a tax credit claim if you made one. A summary video can be found here of the registration process: https://youtu.be/40B5aVW56aM

Selecting the services you need Once you are logged in you can add the services you need from HMRC. If you are self-employed you need to select the self assessment for individuals/sole traders option. If you are a subcontractor under the CIS scheme you can also register for this at the same time when you chose this option. Once you have completed the process HMRC will send your UTR (Unique Tax Reference) in the post. You will need the UTR when you contact HMRC and when you complete your tax returns. The basic Information they want to know about you and your business. • Gender • Current address (and when you moved in) • Phone number • Information about your business – • Email address name, nature of business, when you started trading. • National Insurance number • Date of birth • Full name (and any previous names)

Completing Your Tax Return HMRC gives you ample time to complete your tax return. The deadlines will depend on how you want to file the return. The majority of people do this online and this also extends the deadline. • Paper returns 31st October after the tax year has ended. • Online Tax returns – Midnight 31st January of the following year. • Pay tax deadline – Midnight 31st January of the following year. • Penalties – £100 for late filing and interest on monies owed. The key date then is the 31st January after your tax year has ended if you are filing digitally. That’s almost 9 months to sort out your accounts and pay your taxes. Remember the deadline is not a goal, it’s an end date! You can file at any time after the tax year has ended but don’t leave it to the last minute!

Helpful Links https://www.gov.uk/log-in-register-hmrc-online-services https://www.gov.uk/what-you-must-do-as-a-cis subcontractor/how-to-register https://www.gov.uk/appoint-tax-agent HMRC Deadlines You must register for self assessment by 5th October after the tax year has ended. This is a legal deadline. However, HMRC requests that you register as self employed as soon as you can. If you started trading on the 5th July 2023 you will need to have registered by 5th October 2024 after your tax year has ended. But remember you still have to keep records of your accounts for that entire period. HMRC Tax Years Filing your returns follows the HMRC tax year. This starts on the 6th April (any year) and ends on 5th April (of the following year). All your return information must relate to this tax period.

www.gov.uk/government/publications/self-assessment self-employment-short-sa103s www.gov.uk/pay-self-assessment-tax-bill www.gov.uk/understand-self-assessment-bill/payments- on-account www.1stformations.co.uk/blog/self-assessment-payments on-account/ How much tax and National Insurance will I pay? If you can estimate your business profits then you can work out how much tax and National Insurance (Class 2 and Class 4)* you will have to pay using the self-assessment ready reckoner. This is a helpful tool as you will need to calculate the amount to keep aside to pay your bill in January but also what you may have to pay as an advance in July. https://www.gov.uk/self-assessment-ready-reckoner https://www.gov.uk/self-employed-national-insurance-rates

Doing Your Tax Return HMRC wants to know what your profit was from your business to determine any taxes. This is a simply a matter of deducting your allowable expenses from your business income. This is done on form SA103(S) (S for Short). HMRC will also want to know if you had income from anywhere else e.g. interest on capital, dividends, rent income and also if you paid out into a pension or gave to charity. If you have had a job they will also want to know the information on your P60. (Even though they have this already!) Once you have completed the self assessment online HMRC will confirm what taxes you may be liable for. You can then pay those immediately. There are also options to pay in instalments. If your tax is going to be over £1000 and you didn’t pay 80% of your tax through a tax code (i.e. you didn’t have a job as well you will have to make advance payments to HMRC. These advance payments are based on your future tax burden and ensure you meet your tax obligations.

* In the autumn 2023 statement Class 2 is likely to be abolished with the self employed paying a reduced Class 4 rate on their profits.

What Can I claim as a business expense?

What You Can’t Claim for

You can’t claim for the following: • Personal items (e.g., using your business account to buy personal clothing) • Products used for personal use (e.g., you are a cleaner and use some for your own house) • Subsistence meals unless its outside of your normal routine. (e.g., you work from home but go to a conference and buy lunch. This would be allowable.) • Travel expenses not connected to your work (e.g., taking kids to school then going on to a job. You can’t claim for that fuel or full mileage.) • Personal phone contract unless you use it for work. You must work out a percentage that is work related.

HMRC has a list of what it considers are allowable expenses. These are: • Office, property and equipment, water, utilities, phone etc. • Car, Van and travel expenses • Clothing expenses • Staff Expenses • Goods – raw materials, production costs, shipping

• Legal and financial costs • Marketing and training • Working from home • Gifts to staff • Donations to charities

www.gov.uk/expenses-if-youre-self-employed

www.gov.uk/guidance/tax-free-allowances-on-property and-trading-income Keeping records for HMRC You need to keep records of your sales and expenses for HMRC purposes. You need to keep these records for 5 years after the tax deadline of the 31st January for the relevant tax year. This can include bank statements, receipts, invoices or till rolls, both digital and printed documents. You will also need to decide the accounting method you are going to use. Most small businesses use the cash basis. That is, recording income and expenses as it enters and leaves your account from which you can calculate your profit and taxes for the tax period. www.gov.uk/keeping-your-pay-tax-records

Simplified Business Expenses HMRC allows you to standardise certain expenses to make your return easier. So rather than keep receipts for your fuel that were explicitly used for your business you can use a mileage allowance. Rather than work out your exact room size in your home and the associated energy costs, you can use the flat rate for working from home. https://www.gov.uk/simpler-income-tax-simplified-expenses Self Employed Trading Allowance The trading allowance is a tax exemption for anyone who has a small trading business that generates less than £1000 of gross sales. This could be casual services such as babysitting, gardening, hiring equipment or occasional decorating etc. You don’t need to register with HMRC or complete a self assessment. If you trading sales are over this amount, you will have to register but could claim the trading allowance relief. For example, if you had sales of £2600 with expenses of £400 you would have £2200 profit that would be taxable. By claiming the trading allowance relief. You would only pay tax on £1600 (£2600 - £1000 = £1600).

What happens if I stop trading? You should let HMRC know that you are no longer self employed. You will still need to complete a self assessment after the tax year has ended as you may have had profit. HMRC will want to know what your trading income was and your allowable expenses which can include costs for closing your business. If you sell equipment, you may pay capital gains unless its within your capital allowance, so HMRC will also want to know these figures.

https://www.gov.uk/stop-being-self-employed https://www.gov.uk/capital-gains-tax/allowances

Need More Advice? Contact Clarion Business Support Unit for more advice: bsu@clarionhg.com

Copyright © CGC 2023

Copyright © CGC 2023