Self Emplyed Income Tax Return
When an individual is not employed with any company and is self employed, he needs to declare his income and capital gains correctly along with calculation of taxes. This process of declaring income, filing taxes and claiming tax returns by self employed individuals is known as Self Assessment.
There are a few guidelines that one can follow to understand whether one is self employed:
- When one runs his own business and takes ownership for its profits and losses
- Has more than one customers who give work
- When a person himself can decide the specifications of working like when and how to work.
- When one can hire other people do the work who would in turn be paid by you
- When the infrastructure is provided by the individual or the infrastructure cost is born by the individual himself
One needs to be aware that a person employed with an organisation and already paying taxes via PAYE (as discussed in the earlier section) does not need to do self assessment since the company is filing taxes on behalf of an employee. In case if an employee has any other sources of income, like income on investment, rents or pension, these also need to be included via PAYE itself instead of filing taxes via Self Assessment.
Hence, one needs to do Self assessment under the following circumstances:
- If one is self employed
- If one is the company director
- If one is a trustee
- If one has foreign income
One point to note is that one can be employed and self-employed at the same time. In this case the taxes for self employment need to be filed separately.
A self employed individual is responsible to file his own taxes and national insurance contributions to HM Revenue & Customs within three months of being self employed. In case if one does not register, then might have pay a penalty. To register, one can download a registration form from HMRC website or one can register by phoning the Newly Self-employed helpline on 0845 915 4515. After registration, the HMRC would send across a self assessment tax return form to file on paper or a notice to file to file online. The deadline for paper return to reach HMRC is 31 October following the end of the tax year while for online returns; they must be filed with HMRC by 31 January following the end of the tax year.
Online returns have many advantages over paper returns:
- In online filing system, the tax will be worked out instantaneously and automatically during the filing of returns which is not so in paper returns. In paper returns, one needs to calculate it manually.
- Also, one gets to know what is the tax amount owed or due immediately unlike in case of manual returns
- One will get an automatic and immediate affirmation of the receipt of returns.
- And as we have already seen, the deadlines to file online returns are more relaxed than filing paper returns.
Forms to fill in a self assessment tax return:
The two main Self Assessment tax return forms for SA100 and SA101.
The core pages need to be filled in all self employed people which consists of personal details about name, address and contact details along with other declarations like:
- Savings done
- Investments
- Pensions
The subsequent pages have to be filled in with specific declarations about various heads of income like income from land and property, self employment and or income from employments. This form can also be used to claim any relief and allowances like pension contributions.
After the first few pages, the following pages are used for two different purposes:
SA103S- when the individual's turnover is below £67000 or
SA 103F- When the individual's turnover is equal to or above £67000
Both these forms are sent automatically to an individual by HRMC once he has registered as Self employment. These two forms will require specific details of income and expenses via which one can work out the profit. If one is performing online Self Assessment, he can immediately find out what is his taxable profit.
SA800- In case if the business is in partnership with someone else, SA800 needs to be filled in with partnership supplementary pages- SA104S or SA104F - instead of the SA103. This is because of the fact that the profit out of the business is then shared by partnership and hence the taxable profit is also shared. By these forms, one can only declare the share of partnership profits and its taxes.
SA102- This form is used by a company director who is as well self employed in his own company.
If you've registered as self-employed, we'll automatically send you the self-employment pages - SA103S if your turnover was below £67,000, or SA103F if the turnover was £67,000 or more - as well as the core pages. You must fill these in to give us details of your business income and expenses. These figures tell us what your taxable profit is. If your business is a partnership, you'll have to fill in a partnership Tax Return SA800 and the Partnership supplementary page - SA104S or SA104F - instead of the SA103, showing your share of the partnership profits.
Apart from Self assessment, a self employed individual also needs to pay for National Insurance contributions. In addition to these two, one would also need to pay for Value Added Taxes if the individual's business's turnover is more than Value Added Tax threshold which is currently at £68,000. Registering for VAT should always be done whether or not one is eligible to pay for VAT.
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