A guide to Self Assessment tax returns ​

There are some grey areas surrounding self-employment, but generally HMRC might consider you self-employed if you:

• Have more than one client or customer at the same time.
• Are personally responsible for the success or failure of your business.
• Can choose to have someone else do the work for you.
• Provide your own equipment or tools.
  
  

If you're still not 100% sure where you stand, then you need to get advice straight away. The taxman gets really touchy when fully employed workers are passed off as self-employed. Companies sometimes try this to avoid paying PAYE on employees' wages. HMRC doesn't like it, so always check if you're unclear.

The “self-employed” category also includes people like freelancers and contractors. Since you don’t have a single employer taking tax and National Insurance Contributions out of your wages, you’ll need to file a yearly Self Assessment tax return to account for your income and expenses.

When you set up a Limited Company, you have to submit annual accounts to Companies House and a company tax return to HMRC. The period covered by your tax return can’t be longer than 12 months, so if you’ve been trading for longer than that you may have to file two tax returns to cover the period of your first accounts. If you do, you’ll also have two payment deadlines. In the following years, you’ll usually only file one tax return.

There's a lot of paperwork involved in being a company director. You should obviously keep all your P45, P60 and P11D documents, but that's not all. Taxed award schemes, redundancy payments and a whole range of benefits all come with records to hold onto. You should also remember to keep track of any essential expenses you've had. You might be able to use them to bring down the tax you owe.

HMRC will expect you to tell them about any benefits you've received, whether that's Jobseeker's Allowance, Sick Pay or Statutory Maternity Pay. You should also record any income or other benefits you've had from things like employee share schemes. It's all part of the big-picture overview of your finances that the taxman wants to see.

A Limited Company has to file a few different kinds of paperwork to stay in business. One of the most obvious is your Company Tax Return. This is how your Corporation Tax is worked out, and mostly has to do with the profits or losses you made. One thing to keep in mind is that this is separate from your annual return or "confirmation statement".  An annual statement is a yearly check that all the conformation Companies House holds about your company is correct.

Finally, you'll need to file your personal Self Assessment tax return as a director of the company. Self Assessment returns work out how much tax you owe personally, and again are separate from your company's return.

When you're in a partnership, you've got two Self Assessment registrations to make – one for you and one for the business itself. One of the partners has to be in charge of the business' tax records (the “nominated partner”). If that's you, it means you have to register the partnership for Self Assessment and deal with all its tax paperwork. Like a person, the partnership will get a Unique Taxpayer Reference number to use when filing its tax returns.

As a partner, you'll also have to register for the system yourself. Again, though, the basic rules and deadlines are the same. If your business is a Limited Liability Partnership, of if the “partner” you're registering is itself a company, then special rules apply.

When you let out a property, HMRC wants to hear about the money you're making. To declare what you've got coming in, you need to register for Self Assessment Tax Returns. Even if you don't think of yourself as being a self-employed landlord, the taxman will still come sniffing around your rental income.

Under the Self Assessment system, you fill in a form (usually online) to tell HMRC what money you've made. However, the taxman's only really interested in your profits. Because of that, you also show him what you've spent on renting the property out. These necessary costs bring down the amount of profit you're paying tax on.

Getting set up for Self Assessment can take a while, so it's best to do it early. You'll have to give some basic information, and hit strict deadlines for submitting returns and paying what you owe. It can be hectic, if you're not used to the system, but keeping good records and getting professional help make all the difference.

The way you pay tax on your rental income depends on how much you've got coming in. If it's between £2,500 and £9,999 a year after expenses, you'll need to file a Self Assessment tax return. You'll also need to file a return if you're making over £10,000 before expenses.

If you're below these limits, you probably won't need to register for Self Assessment, meaning you'll be taxed via PAYE instead. You'll need a P810 form from HMRC to declare the money you're making.

All your income is taxed at your normal rate, regardless of where it comes from. However, there are ways to bring down the amount of tax you owe. The government's Rent a Room scheme is a good example. Under this scheme, landlords letting out a furnished room in their own home can earn up to £7,500 per year tax-free. You don't need to do anything to claim this tax relief, other than opt into the scheme. However, you'll still need to file a Self Assessment return to pay tax on anything you make over the £7,500 threshold.

HMRC can sometimes collect your tax through your tax code if you're employed as well as self-employed. It depends on how much you owe and how much you earn through employment. If you want to do it this way, you'll need to get your paper tax return filed by the 31st of October. If you're filing online instead, you'll have until the end of December. Either way, you'll have to specifically tell HMRC that you want to do it.

As for what counts as “additional income”, it all depends on what you’re doing, how often you’re doing it and how much you’re making from it. Let's say you started out with a hobby - something in the arts-and-crafts field, for instance. You post pictures of a few of your creations on social media, and get a surprising number of positive comments. A couple of people ask if you'd consider making something for them (paying your costs, of course), and are delighted when you do.

They're so delighted, in fact, that they post pictures of your stuff on their own pages. Soon enough, people you don't even know are asking you to make things. By now, they're actually offering you some pretty decent cash for your work. Before you know it, you've got an Etsy shop and with regular orders. You're buying materials to pursue your hobby, and you're getting more than your costs back. The thing is, the taxman has a word for this kind of hobby. He calls it “running a business” - and he wants his cut of your profits.

HMRC don't care if you sell a few possessions online or make a few quid out of your hobby on Etsy. You can make up to £1,000 a year this way and he'll usually give you no grief over it. However, if you sell things regularly, or make enough doing it, he'll want you to do some paperwork. This is where the Self Assessment tax return system comes in.

 So, is your hobby a “business”? This isn't as simple a question as it might seem. Here are a few things to consider:

• Is your main goal to make money?
• Are you selling regularly or often?
• Are you buying stock or materials just to continue selling your products?

If you're answering yes to any of these, then HMRC might decide that what you do counts as a business. It's not always so cut-and-dried, though.

As mentioned above, there's a particular wrinkle in the rules for people who sell stuff casually online. If your income from things like online sales comes to under £1,000, you can use the new “trading allowance” system. Basically, this just means that you don't need to declare the income. However, there are a couple of twists and turns to be aware of here:

• If you're already on Self Assessment, you have to “make an election” to use your trading allowance. It doesn't just apply automatically, and you still have to declare the income.
• You can't use the allowance to claim you've made a loss. The most you can do is reduce your taxable income by £1,000, to a minimum of £0.
• If you claim the trading allowance, you can't also claim your normal expenses against your profits. It's one or the other. Similarly, if you've got 2 or more sources of income, you can't use normal expenses for one and a trading allowance for the other.

Just as there's a difference between selling the occasional unwanted possession on eBay and running a retail business through it, there's a difference between running a blog or podcast and being a professional journalist. You may not know exactly when you've crossed that very blurred line, but you can be sure HMRC's going to have an opinion on the matter.

Success stories about people making money from sites like YouTube and Patreon are encouraging more and more people to dive into some of the murkiest waters in the UK tax law swamp. There are worse things than alligators down there. If you're careless with the rules, you could find yourself dragged down to the bottom by an investigation from the taxman.

Some internet sites allow you to post videos or other original content on them. That's fair enough. In some cases, you can let those sites slap some paid advertising around your videos and split the money with them. That's still great - but you have to understand how HMRC thinks. You may very well consider that advertising revenue to be a little extra pocket money, but the taxman will quickly start to call it taxable income - and that means he'll be expecting it to show up on a Self Assessment tax return.

If you're using something like Patreon, you're actually taking money directly from people, not just getting your cut from an advertising network, to supply them with whatever your content or product is. They might be paying monthly or only whenever you put something out, but you're still making an income from it. It doesn't matter if you don't think of it as your "job". The point is there's money coming in and that means you have to declare it to HMRC. If your income is already over the personal allowance threshold then they're going to want a bite of it.

A lot of people simply assume that no one's ever going to catch them, or bother chasing them. They may even be right, but "I didn't think I'd get caught" is a weak defence against an HMRC tax-dodging accusation and it won't get you out of any of the nasty penalties that will be stacking up if you miss the deadlines for not filing your Self Assessment.

Of course, if you've got income you've probably got expenses, too. Again, there are rules you've got to get to grips with. If you're a photographer, buying a camera might count as a business expense now, rather than just something you bought for yourself. Taking a photo of your house and then claiming for the bricks would be a bad move, though.

The bottom line is you have to think about what you're doing. More specifically, think about how it looks to HMRC. When in doubt, get professional advice. Technology is moving faster than the law in many online areas and you don't want to end up on the wrong side of it as a test case.

Depending on who you listen to, the new “gig economy” is either the pinnacle of self-employment freedom or a massive scam at the expense of workers and HMRC. Employment law and tax regulations have been tying themselves up in knots trying to keep pace with it. With potentially billions of pounds in the balance, it's not hard to see why. The way the UK works is changing rapidly, and the taxman's old tools are looking blunter every day.

In the gig economy, companies hire staff as independent contractors for what are usually short-term jobs. Those workers are paid by the “gig”, rather than on a regular schedule. On the one hand, it's a flexible way to work that suits a lot of people. On the other, you really don't have any guarantees to fall back on. Many gig economy workers end up putting in the equivalent of full-time hours. However, since they aren't employees, they get no job security and miss out on some important rights.

In the UK, employees of a business can generally expect sick pay, parental leave and a guaranteed minimum wage. These are all basic cornerstones of employment law. By treating everyone as an independent contractor, gig economy jobs tend to dodge all those fundamental rights. Given that we're talking about somewhere approaching 16% of the total UK workforce, that's a lot of people working without the security and safeguards that protect more traditional workers.

When you work from gig to gig, you're responsible for paying your own tax and National Insurance. That means registering for HMRC's Self Assessment system and filing yearly tax returns. There's been a lot of fuss kicked up by the taxman over the gig economy in recent years. Basically, HMRC believes that there's significant “bogus self-employment” going on in the UK. Billions of pounds' worth, in fact - and they're cracking down hard to put a stop to it. False self employment essentially means that a company is avoiding its responsibilities to its workforce and HMRC by declaring employees to be contractors. This can be a pretty complicated legal knot to untangle, particularly with agencies, umbrella companies and Personal Service Companies to consider.

The legislation is badly out of date when it comes to dealing with the gig economy, and HMRC employment status challenges can be a nightmare for everyone. There are new rules apparently on the way to shift the balance more in favour of workers and generally tidy up the system. For now, though, the taxman's definitely paying attention.

If you’re making over £100,000 a year, you have to file an annual Self Assessment tax return with HMRC. If you don’t usually send a tax return, you need to register by 5th October following the tax year you had the income. We can help you avoid any tax return penalties and handle everything for you.

Basically, when you're a "high earner", HMRC wants to take a closer look at your money. You may well be in a more complex position than most, with more than one source of income to consider. Getting it all properly accounted for means filing a yearly Self Assessment tax return.

Another reason the taxman will ask high earners for a tax return is because it can affect your tax-free Personal Allowance. It comes down what HMRC calls to your "adjusted net income". This figure doesn't take your Personal Allowance into account, but does include a few kinds of tax relief. The basic idea is that you lose £1 of your tax-free Personal Allowance for every £2 over £100,000 your adjusted net income goes. This can get complicated quickly, of course - which is why HMRC needs a tax return to sort it all out.

When you dispose of (usually meaning sell) certain things you own, you might get charged "capital gains" tax. Basically, it's a tax on the profit you make when you sell it - not its actual value. When you sell something that counts for capital gains tax, you file a Self Assessment tax return to declare the profit.

You generally don't need to worry about selling your personal possessions, unless they're worth £6,000 or more. We're mostly talking about things like jewellery, antiques, valuable artworks and so on here. If you sell something like that for £6,000 or over, you need to work out what profit you made on the sale. Property is obviously big capital gains area. This doesn't usually include your main home, unless you use it for business or let it out. You'll also need to tell the taxman about things like sales or shares and business assets.

ISAs, PEPs and things like Premium Bonds and lottery wins are exempt. Also, if you inherit something, you'll probably only have to worry about capital gains tax if you sell it later. If you don't use your car for business, selling that won't count either.

Another odd exemption is for items with a lifespan of under 50 years - although again, that changes if it's something used for business. Of course, your tax-free Personal Allowance still counts, so if your profits stay under that, you don't have to pay anything.

For every asset you're disposing of, add up the profit you've made on it. If you've actually made a loss on some of them, include that in your calculations. Those losses count against your “total taxable gains”, bringing your tax bill down. In fact, you can even claim losses on things you still own, if they've become essentially worthless for some reason. You can make claims against losses for up to 4 years. However, there are strict rules about what qualifies as a loss. HMRC won't usually let you claim losses when you give or sell something to a family member or “connected person”, for instance.

You don't normally have to pay capital gains tax on gifts to your spouse or to a charity. Other than that, though, swapping or giving things away still counts as "disposing" of them. Also, getting "compensation" for something, like an insurance claim if it's destroyed, still counts.

Capital gains tax can still apply if your assets are overseas. If you're abroad yourself, you'll pay tax on gains from residential property in the UK, even if you're “non-domiciled” for tax purposes. You'll probably be off the hook for capital gains tax on other kinds of UK assets though, as long as you're not returning to the UK for over 5 years.

There are a couple of situations where you'll still get stung for Capital Gains Tax when dealing with spouses or civil partners. If you're giving them goods to sell on in their own business, for instance, capitals gains rules apply. Also, if you've been separated and didn't live together for that entire tax year, you'll still have to pay the tax. Either way, if your partner then disposes of the asset, they'll have to pay tax on it. Generally, that'll be based on its value when they got it from you.

HMRC does have a “real time” Capital Gains Tax service you can use at any time. It's only worth doing this if you don't already have to send in a tax return, though. If you're using Self Assessment at all, you'll have to report the gains again in your return anyway.

If you've got money coming in from abroad, you'll usually have to pay UK tax on it. You'll generally do this by filing a Self Assessment tax return. There are rules on the types of income that count, and a lot depends on your status as a UK resident.

Your foreign income might include wages from working abroad, or things like overseas rental money or foreign investments and savings. In most cases, your foreign income will be taxed in the same way as your UK money. However, there are special rules for pensions, property rental and jobs like working on a ship or for the government.

You generally only pay UK tax on foreign income if HMRC considers you a UK resident. That basically means you either:

• Spent 183 days or more in the UK during the year you're being taxed on.
• Owned or rented your sole home for 90 days or more in the UK, and spent at least 30 days there.

If your residence status changes during the tax year, you might be able to get "split-year treatment". This means you'll only pay tax on the money you made as a UK resident. There are a few conditions to meet, though. If you come back after living abroad for under a tax year, you won't get split-year treatment.

Confusing as it sounds, it's possible to be a UK resident whose permanent home is abroad. This is called being "non-domiciled." Non-domiciled UK residents with under £2,000 of foreign income won't pay UK tax on it if they keep it abroad.

If you're living or working abroad, you may still have to pay UK tax on some or all of your income.  It all depends on where the money's coming from and what your tax residence status is. This can be a tricky issue, so it's definitely worth getting professional advice about it.

Even expats living permanently overseas sometimes find themselves in HMRC's sights. For example, you might have to pay UK tax if:

• You're a director of a UK company.
• You're getting rental income in the UK.
• Some or all of your work is done in the UK.