How to calculate your business income for Self Assessment

Are you self-employed and preparing your tax return? Do you keep accounts to 5th April each year to coincide with the end of the tax year? Are you unsure about what figure you should put in the box for ‘business income’ in the Self Employment pages of your Self Assessment tax return? If so, here are some useful tips to help you make sure you include the right amount of income on your tax return.

1. Check the dates

Most self-employed business owners prepare accounts each year to match the date of the tax year. That means that for the tax year you're filing for you need to include all your business’s income that was earned between 6th April and 5th April.

2. Declare income earned (not received) in the tax year

If you’re not using the cash basis to prepare your accounts, you must include income in the tax year you earned it, not the tax year you received it.

So, if you issued an invoice for work done in the 2021/2022 tax year and your customer paid you in the 2022/23 tax year, that invoice has to be included in your income for the tax year to 5th April 2022 - because that was the tax year in which you did the work.

3. Declare income earned (not invoiced) in the tax year

If you’re not using the cash basis to prepare your accounts you’ll need to include income in the year that you earned it, not the year that you invoiced it.

If you’re selling services rather than goods, you need to work out your income on the basis of when you did the work. So, if you completed a piece of work in the 2021/22 but you didn’t invoice your customer for it until the 2022/23 tax year, you have to include that income in your tax return for the 2021/22 tax year.

If you had partly finished a project before the tax year ended but there was still some work to do, then you need to include the income that would have been due on the work completed before 5th April.

This is a bit complicated, so if you are in any doubt you should seek further advice from an accountant.

4. Include business income only

When you’re filling in the Self Employment pages of your tax return, make sure you only include trading income from your business.

This means you that you shouldn’t include the following sources of income on the Self Employment Page:

  • Employment - this refers to employment from any job you have in addition to running your business (remember your own business does not count as employment), and should be declared on the Employment page of your Self Assessment tax return
  • Rent of a personal property - this should be declared on the Property page of your tax return
  • Transfers into the business bank account from a personal account
  • Bank interest (even if it’s earned on a business account) - this should be declared on the Main Return page of your tax return
  • Money that you put into the business
  • Inheritance

This list is not exhaustive, so do seek advice from an accountant if you are still unsure about what qualifies as business income.

5. Exclude VAT

If your business is registered for VAT, remember that the figure for trading income will be your sales exclusive of VAT. If your business is on the Flat Rate Scheme, however, then this figure would be your sales net of flat rate VAT.

Using FreeAgent to file Self Assessment online

If you're a sole trader or the director of a limited company you can use FreeAgent to calculate your business income for Self Assessment, work out how much tax you owe and even file your tax return directly to HMRC.

Find out more about FreeAgent's easy-to-use Self Assessment software.

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.