With the 31 January online submission deadline to file your self-assessment tax return just days away, now is the time to brush up on how best to do yours with our top tips.
A self-assessment tax return is an online or paper form that must be submitted to HMRC each year by anyone who owes tax on their income.
If you’re self-employed, it ensures you pay income tax and National Insurance on your profits, but there are other reasons why you may need to file a self-assessment tax return, such as receiving rental income, or owing capital gains tax.
Whether or not it’s your first time going through the process, our list of expert advice for self-employed workers filing tax return can help ensure you get it right.
1. Don’t forget about expenses
If you had to make certain work-related payments during the 2021-22 tax year, you can deduct the value of them from your profits.
Eligible outgoings range from costs related to running your business premises or home (if you work from home on a self-employed basis), to buying stationery, travel and accommodation on business trips, and running costs of a car or other vehicle for business purposes (including petrol, car tax, insurance, repairs and servicing).
When your work expenses are deducted from your profits, it reduces the amount of income HMRC will tax you on, therefore reducing your overall tax bill.
2. Understand your tax allowances
When you’re trying to work out how much tax you need to pay, you’ll need to know the 2021-22 tax allowances that apply to your income.
Most people aren’t taxed on everything they earn, so to ensure that’s not the case for you, here’s how the allowances work:
The personal allowance was £12,570 in 2021-22, unless you earned more than £100,000, in which case you will lose £1 of personal allowance for every £2 you earned.
If your profits were more than £12,570, you’d pay the following rates of income tax:
Income tax rates and thresholds are different in Scotland; see our guide to income tax in Scotland.
Capital gains tax allowance
If you have capital gains to declare, the allowance for 2021-22 was £12,300. For anything above this, what you pay in tax depends on your income tax band, and what kind of asset you made a gain on.
Basic-rate taxpayers are charged 10% capital gains tax on assets and 18% on property, whereas higher or additional-rate taxpayers have to pay 20% on assets and 28% on property.
Dividend tax allowance
The tax-free dividend allowance was £2,000 in 2021-22 and will remain the same in 2022-23, but it will reduce to £1,000 on 6 April 2023.
The tax you pay above this threshold depends on your income tax band.
The 2021-22 tax rates were:
Find out more: tax-free income and allowances
3. Gather your paperwork beforehand
Getting organised with all the paperwork and information you might need before you make a start on your tax return will mean you won’t have to keep interrupting the process to find a bill or bank statement. This may also reduce the chances of your missing out any information, or making a mistake.
The information you’ll need will depend on your circumstances, but this list is a good place to start:
Note that you may also need to declare any self-employed income support scheme (SEISS) payments received during 2021-22. This was the government scheme supporting self-employed workers during the pandemic. The fourth and fifth government grants were paid during 2021-22 and are counted as taxable income.
It’s important to make sure all the information you’ve included in your tax return is kept in an ordered way in case HMRC asks for any evidence, so keeping your records safe is vital.
Self-employed people must retain their records for at least five years after the 31 January submission deadline, so, anything related to your 2021-22 tax return must be kept until at least 31 January 2028.
Find out more: how to file a self-employed tax return
4. Check how long your payments will take
With the online deadline for self-employed tax returns being so close, it’s vital to be aware of how long it can take for a bank to transfer money.
It’s best to pay your tax bill before the 31 January cut-off point, as some payment methods might not be fast enough to avoid accruing interest if you leave it to the last minute.
For instance, it takes five working days to set up a new direct debit and three working days for Bacs, an existing direct debit and a cheque in the post (though this could take much longer if there are postal delays).
5. Stick to the deadline
Midnight on 31 January 2023 is the deadline when HMRC must have received your 2021-22 tax return, and it’s also the cut-off point to pay the tax you owe for 2021-22, whether you’re paying in full, or need to make a balancing payment after already making two payments on account.
It’s also the deadline for you to make your first payment on account for the 2022-23 tax year, what you owe will be based on your 2021-22 earnings.
If you’re late paying your bill, you’ll incur interest from HMRC. This is currently set at 6%, and the interest and additional penalties build up the later your payment is.
Separately, if your tax return is submitted late, even by just one day, you may have to fork out £100. After three months, you’ll be fined £10 for each additional day (capped at 90 days), alongside the £100 initial fine up to a maximum of £1,000.
6. Watch out for scams
HMRC is one of the country’s most impersonated organisations. Even if you’ve never filed a tax return in your life, you could find your inbox full of emails that claim to be from HMRC.
The tax authority said it responded to 180,000 referrals of suspicious contact in the 12 months to August 2022, and of these bogus communications, 81,000 were fake offers of tax rebates, and some even threatened victims with arrest for tax evasion.
HMRC even issued a warning last year to tell taxpayers to keep on the lookout for fraudsters.
However, the tax authority is sending out lots of genuine texts and emails at the moment, reminding people to file their tax return, so it can be hard to tell what’s real and what’s not.
Some of the most common tax related scams include fake phone calls and text messages, phishing emails, misleading websites and social media scams. To help spot them, read our guide on how to spot and protect yourself from scams.
File your 2021-22 tax return with Which?
If you still need to file your self-assessment tax return, the Which? tax calculator can help you work out what you owe, and also suggests some expenses and allowances you that may have slipped your mind.
Our online tool is free, easy to use, and allows you to submit your return directly to HMRC when you’re done.