Do you have to file a Self Assessment tax return?

Unsure whether you need to file a Self Assessment tax return to HMRC this year? Here's some information that should help.

Are you trading?

HMRC expects you to file a Self Assessment tax return if you are one of the following:

  • a self-employed sole trader and you earned more than £1,000 (before taking off anything you can claim tax relief on)
  • a partner in a business partnership
  • a company director (unless the company is a non-profit organisation and you don't get any pay or benefits, like travel expenses or a company car)

There may be other reasons why you need to submit a tax return which depend on your own circumstances. You can check if you need to send a Self Assessment tax return on HMRC’s website.

It's the first of the above cases where some people slip up, as they may not realise or understand whether they are actually trading (see 'badges of trade' below). 

If you are trading, you will need to file a Self Assessment tax return by 31st January and pay Income Tax and Class 4 National Insurance on the profits you make. As a self-employed trader, you will also have to pay Class 2 National Insurance. You can check if you need to tell HMRC about additional income here.

Badges of trade

HMRC has produced a list of nine badges of trade that they look for in order to determine whether or not an individual is trading. HMRC will look at the whole picture and consider each badge as part of the whole.

The badges of trade are:

  • Aim to make a profit - if you're aiming to make more money by selling the goods than you spent on buying them, this is a strong indication that you could be trading - but it's not conclusive on its own.
  • Number of transactions - systematic and repeated transactions could indicate that you are trading.
  • Nature of what you're selling - if you're selling something that in itself gives personal enjoyment either to you or to someone else (e.g. a relative's railway collection), this could suggest that you are not trading. If you're selling something that is only likely to make you happy once it's converted to cash (e.g. a set of dishcloths), this could suggest that you are trading.
  • Existence of a similar trade - if what you're selling closely relates to a trade you already have, these transactions may themselves be trading.
  • Changes to the item - if you've repaired, modified or improved the item to make it either more easily saleable or saleable for a greater profit, this could point to trading.
  • How you made the sale - did you make the sale to raise cash for an emergency, or in a way that's typical of a trading business? The latter could indicate that you are trading.
  • Where the money used to buy the item came from - if you had to borrow money to buy the item, and you would only be able to repay that money by selling the item, then this could indicate that you are trading.
  • How much time passed between buying and selling the item - the quicker you sold the item after buying it, the more likely you are to be trading.
  • How you acquired the item - if you inherited the item or received it as a personal gift, then selling it is unlikely to count as trading.

If you traded in the most recent tax year, then you'll need to file a tax return by the 31st January deadline. To find out more about how to do that, take a look at our Self Assessment resources page. It contains lots of helpful articles and guides, including a step-by-step checklist for completing and filing your Self Assessment tax return.

The simple way to take the stress out of your Self Assessment tax return

If you’ve just discovered that you need to file a tax return but are unsure where to begin, our accounting software offers a simple solution.

FreeAgent lets you know how much tax you owe, based on your accounting data. If you’re a sole trader or limited company director you can file your tax return directly to HMRC from the software.

If you’re a sole trader, up to 90% of the Self Employment form is automatically filled in from the data you enter throughout the year. All that’s left for you to do is to check the information, add a few missing details and click the button to file.

Find out more about FreeAgent’s simple Self Assessment software to see just how easy filing your tax return can be.

Disclaimer: The content included in this guide is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this guide. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.