What is Self Assessment?
Definition of Self Assessment
Self Assessment is a system that HMRC uses to collect Income Tax. Individuals who have earned income that HMRC doesn't yet know about, such as profit from a business, usually have to report that income to HMRC in a Self Assessment tax return.
The tax return shows how much an individual has earned, and from what sources, over the course of a tax year. Most business owners have to prepare a tax return and then send it to HMRC and pay their tax bill by midnight on 31st January every year.
Check out our dedicated guide if you’re unsure about whether you have to file a Self Assessment tax return.
How Self Assessment works
There are a number of steps that an individual must undertake to successfully file their Self Assessment tax return and to pay any tax and National Insurance that’s due:
1. Registering for Self Assessment
If an individual identifies that they need to file a Self Assessment tax return for a particular tax year, they should register with HMRC. The deadline for registering is 5th October of the calendar year in which that tax year ended. For example, individuals who have to file their first Self Assessment tax return for the 2020/21 tax year, which ends on 5th April 2021, need to register with HMRC by 5th October 2021. Once registered, individuals won’t need to register for Self Assessment with HMRC again.
2. Completing and filing a Self Assessment tax return
Taxpayers can complete and file their Self Assessment tax return online via the HMRC website or by using tax return software such as FreeAgent. Individuals who cannot file online may also be able to download and complete paper forms.
In order to complete and file their tax return, sole traders and partners will need various pieces of information, including:
Limited company directors who have to complete and file a tax return will also need various pieces of information, including:
Limited company shareholders may also need to provide proof of any dividends received during the tax year.
FreeAgent’s Self Assessment resource library includes a complete list of all the information a business owner needs in order to complete and file their tax return.
Self Assessment filing deadlines
The deadline for filing a Self Assessment tax return to HMRC online is midnight of the 31st January that follows the end of the relevant tax year. For example, the deadline for online filing for the 2020/21 tax year (which ends on 5th April 2021) is 31st January 2022.
The deadline for filing a paper tax return to HMRC is the 31st October that follows the end of the relevant tax year. For example, the deadline for paper filing for the 2020/21 tax year is 31st October 2021.
Important: HMRC has announced that Self Assessment taxpayers who did not meet the payment deadline of 31st January will not be charged a 5% late-payment penalty if they pay their tax or set up a payment plan by 1st April 2021. HMRC will still charge interest on any payments made after 1st February 2021.
Self Assessment taxpayers who cannot afford to pay immediately can set up a monthly payment plan. Taxpayers must do this before midnight on 1st April 2021 in order to avoid a late-payment penalty.
3. Paying any tax and National Insurance owed
Individuals who file their Self Assessment tax return online can view their tax bill in the following places:
- In the ‘View your calculation’ section of the completed return on the HMRC website. This is visible when the individual has completed their return but before they have submitted it.
- In the individual’s personal tax account or business tax account (it can take up to 72 hours after they have submitted their return for this to be available).
If you use FreeAgent you can also view your tax liability in the software. Choose ‘Self Assessment’ from the ‘Taxes’ menu at the top of the screen in FreeAgent and then select the relevant tax year from the list. Choose ‘Tax Breakdown’ from the list of options on the right to see how much you owe.
HMRC will expect individuals to pay any tax and National Insurance that they owe, as well as their first payment on account for the following year, by the payment deadline.
The payment deadline is the same day as the deadline for filing a Self Assessment tax return online: the 31st January that follows the end of the relevant tax year. This means that if you’re filing online, your payment is due on the same day as the tax return itself. Filing your tax return online in advance of the deadline is therefore recommended in order to avoid missing the payment deadline and incurring a penalty. If you have payments on account to make, the second of these will be due by 31st July.
Individuals who complete a paper tax return will receive their tax bill from HMRC by post after filing.
Information about how to pay a Self Assessment tax bill is available on the HMRC website.
Self Assessment software for business owners
If you're a sole trader or director of a limited company, FreeAgent's Self Assessment software auto-populates some of your tax return based on the information you enter throughout the year. For sole traders, FreeAgent completes up to 90% of the sole trader Self Employment form. When it's time to file, you can submit your Self Assessment tax return online directly to HMRC from within FreeAgent.