Do you have to a file a Self Assessment tax return?

Unsure whether you need to file Self Assessment 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
  • 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)

It's the first of these cases where some people slip up, as they may not realise or understand whether they are actually “trading”. If you only sell items occasionally through eBay or via the classified ads in your local paper, for example, then HMRC doesn't class this as trading, which means you wouldn't have to pay any tax on the money you receive from what you sell using these methods.

However, if you sold goods more frequently than this it will probably count as trading. This means 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've made. As a self-employed trader you would also have to pay class 2 National Insurance.

Badges of trade

HMRC has produced a list of nine “badges of trade” that they look for 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 - HMRC is looking for “systematic and repeated” transactions, which could indicate a trade.
  • Nature of what you're selling - if you're selling something that in itself gave personal enjoyment either to you or to someone else (e.g. a relative's railway collection), then that's a pointer away from trade. 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), then you could be trading.
  • Existence of a similar trade - if what you're selling closely relates to a trade you already have, this sale will be treated as part of the existing trade. A pot plant sold on eBay by an established florist, for example, would be treated as part of the florist's existing trade.
  • 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?
  • Where the money came from to buy the item - if you had to borrow money to buy the asset, and you could only repay that money by selling the item, then this could point to 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 if it was a personal gift, then selling it is unlikely to mean you're trading.

If you traded in the last 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 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.

Got questions?