Tax Rebate vs Tax Return
What is a tax return?
If you’re self-employed, an HMRC Self Assessment tax return is the form you use to tell the taxman all about your income, expenses and other important information to do with your business. HMRC uses that information to work out how much tax you owe.
Even self-employed people using the UK Self Assessment system to sort out their tax can end up paying too much. Builders working under the Construction Industry Scheme, for example, lose a 20% chunk of their pay before they even get it. That sometimes means they don't get the full benefit of their tax-free Personal allowance, and are owed some tax back.
Because of the way the UK Self Assessment rules work, many of the day-to-day costs of running your business can bring down the amount of tax you pay. For that to happen, you need to include them in your tax return, where they’ll count against the profits you’re being taxed on. If you’re self-employed, instead of claiming back what you’re owed through a PAYE tax refund, you tell HMRC all about your essential work expenses in your Self Assessment tax return. HMRC then takes those expenses into account when calculating your overall tax bill.
It’s important to understand that Self Assessment returns aren't just for the self-employed, either. There are lots of reasons you might need to file one each year. Even if you’re employed and pay your tax via PAYE, you might have additional sources of income to declare (like rent) or be the director of a company, for example. Even claiming any PAYE tax refunds you're owed often means sending a tax return to HMRC – which is partly why people sometimes get confused.
Knowing how the Self Assessment system works is crucial if you want to get the best out of it. A lot of people end up paying too much tax, simply because they don’t understand the rules, or don’t know how to fill in their tax returns properly.
File a tax return