Self-Assessment

A Self-Assessment is one of the most important tax documents you’ll be dealing with when you’re self-employed, and if you’re not careful, it could be the one that causes you the most headaches.

Self-Assessment is a system HM Revenue and Customs (HMRC) uses to collect Income Tax.

You will need to complete a self-assessment if you are a limited company director, employed and earning over £100,000, earning over £50,000 and receiving child benefit, receiving property income or earning income that hasn’t been taxed.

To prepare and file your HMRC self-assessment tax return, you need to give us all your income records. These could include: employment, self-employment, partnership, property, dividends, interest, pension and also let us know of capital gains and losses, gifts and donations made, etc.

HMRC will often not tax you on the money you need to spend to keep your business running. For this reason, you can deduct many of the costs directly related to the work you do (such as travel between clients) from your gross income when calculating how much tax you need to pay. Such expenses are therefore known as ‘tax deductible’.

The different expenses you can include if you’re self-employed are:

• cost of stock bought for resale
• cost of equipment used at work
• wages, salaries and other staff costs
• payments to subcontractors (if you work in the construction industry)
• vehicle and travel expenses
• work building costs (including rent, power and insurance)
• repairs and maintenance for work buildings and vehicles
• office costs (including internet access, phones and stationery)
• advertising and business entertainment costs
• interest on loans
• bank, credit card and other financial charges
• accountancy, legal and other professional costs.

You don’t need to send in proof of your expenses, such as receipts, when you submit your Self Assessment tax return. You’ll need to keep records of expenses for five years after submitting your tax year return in case HMRC asks you to produce them.

If you fail to notify HMRC, you may face a fine or penalty and will have to submit Self Assessments for prior tax years where applicable.