A small business guide to self-assessment tax returns: everything you need to know

Tax season can feel daunting, especially for small business owners and sole traders managing everything themselves. 

In the 2022/23 tax year, a record-breaking 11.5 million taxpayers submitted their Self Assessment tax returns by the 31 January deadline. But understanding how to navigate this isn’t as simple as filling in a form and hoping for the best. 

We’ll walk you through everything you need to know about self-assessments, including who needs to file, how to complete the process, and the top tips for making it stress-free. 

What is a self-assessment tax return?

A self-assessment tax return is a system used by HMRC for individuals and businesses to report income and calculate the tax they owe. Unlike PAYE employees, who have taxes deducted automatically, self-employed workers need to declare their income and expenses annually to HMRC. 

When you file your tax return, you provide detailed information about your earnings, claim allowable expenses such as office supplies and travel costs, and calculate your total tax liability. This means you pay the correct amount of tax while still benefiting from any deductions you’re entitled to. 

Who needs to pay self-assessment tax?

You’ll need to complete a self-assessment tax return if you:

• Are self-employed or a sole trader earning over £1,000 annually
• Are a partner in a business partnership
• Have a total taxable income of more than £150,000
• You had to pay Capital Gains Tax when you sold or ‘disposed’ of something that increased in value

You’ll also need to send a tax return if you have any untaxed income, such as:

• Tips, freelance work or side hustle profits
• Foreign income
• Money from renting out a property
• Income from savings, investments, and dividends 

If you’re unsure whether you need to pay self-assessment tax, HMRC’s handy online tool can help clarify your obligations based on your circumstances. 

When are the self-assessment tax return deadlines?

Knowing when you need to submit your tax return can be confusing, but mark these important dates in your calendars to avoid any penalties:

• Register for self-assessment — By 5 October, following the end of the tax year you became self-employed. You can tell HMRC by registering for self-assessment.
• Paper tax returns — If you’re filing a paper return, this must be submitted by midnight 31 October.
• Online tax returns — For online tax returns, you’ll have until midnight 31 January to submit. 

If you fail to submit your return on time, you’ll usually have to pay a late penalty fee of up to £100 if it is up to three months late. You’ll also be charged interest on any late payments. 

If you’re later than three months, you’ll have to pay more, but HMRC will estimate the penalty. It’s important to remember that you’ll still be charged £100 for missing the initial three-month deadline. 

How much is self-assessment tax?

The amount of tax you owe depends on your income and allowable expenses. Income Tax is progressive, so higher earners pay a larger percentage of their income. You’ll also need to account for:

• National Insurance Contributions (NICs) — These include Class 2 contributions, which are a flat weekly rate, and Class 4 contributions, which are based on your profits. For example, if your annual profits exceed a certain threshold (£12,569 for the 2024/25 tax year), Class 4 contributions will apply instead of the Class 2 weekly rate for lower earners.
• Payment on account — If you’re self-employed and your tax bill exceeds £1,000, you’ll also be required to make an advance payment towards the next year’s tax bill. This is split into two instalments, due on 31 January and 31 July. Each instalment is 50% of your previous year’s tax liability. 

For example, if your tax bill for the current year is £2,000, you’ll need to pay £1,000 in January and another £1,000 in July as a Payment on Account for the following year. If your actual income decreases the next year, you can apply to reduce these payments.

It’s important to plan ahead for those payments to avoid cash flow issues in the future. Using our Sole Trader Tax Calculator tool can help you estimate your tax bill by factoring in things like your income, expenses, and tax bracket. Don’t forget that allowable expenses, such as travel costs, office overheads, and business insurance, can reduce your taxable income. 

How to register for self-assessment

If this is your first time submitting a tax return, you’ll first have to register for Self-Assessment.

To use HMRC government services, you’ll need a Government Gateway Account. If you already have one, you’ll need to have your user ID and password ready to log in. If not, you’ll just need to create your sign-in details. 

Once you’re registered for Self-Assessment, you can file your tax return online or with a paper form. Remember, if you don’t register your business by the 5 October deadline, HMRC might fine you. 

What information is needed to fill in a self-assessment tax return?

If you’ve never filled out a self-assessment tax return before, the thought of tackling it can be a bit intimidating. But there’s no need to fear; to complete your tax return, you’ll need the following:

• Your National Insurance (NI) number
• Your ten-digit Unique Taxpayer Reference (UTR)
• P60 or other records showing how much income you’ve received that you’ve already paid tax on
• Records of income, including invoices, receipts, or bank statements
• Any contributions to charity or pensions that might be eligible for tax relief

How to fill in a self-assessment tax return

There are two main sections of the self-assessment tax return that you’ll need to fill in — one of the most important sections is the SA1000 which deals with:

• Pension contributions
• Charitable donations
• Taxed and untaxed income like dividends and interest
• Benefits including State Pension and Child Benefit Allowance

In the SA100 form, you’ll be asked to provide information about:

• Personal details — You need to provide your name, address, date of birth, National Insurance (NI) number, and contact details.
• Income — This section covers your different sources of income, including salary, self-employment earnings, pensions and rental income. 
• Tax relief and dedications — Here, you can claim tax reliefs, e.g. for pension contributions and charitable donations, and deductions for expenses related to your work or business. 
• Capital gains — If applicable, you’ll need to declare any capital gains from selling assets like property or stocks. 
• Payment of tax — Include details of how to pay any tax due. 

How to fill in a self-employed tax return

If you have extra income from self-employment that you need to declare, you’ll need to complete a supplementary page — this is an SA103. 

There are two different versions of the form depending on the complexity of your business.

• SA103 (Short) — This version is used for simpler self-employment cases. Essentially, it’s used for individuals with relatively straightforward business finances who meet certain criteria, such as lower income levels or fewer expenses. 
• SA103 (Full) — This is for more complex cases, where there are additional income sources or more detailed expense claims to be reported. Typically, it’s used whenever a business’s turnover is higher or there are more capital allowances or complex deductions.  

In the SA103 form, you’ll be asked to submit information about your:

• Income — The business income you’ve earned from self-employment. 
• Allowable expenses — Any expenses directly related to your business that can reduce your taxable profit, such as office costs, wages, and travel expenses. 
• Taxable profit — This section calculates your profit, which is used to determine the amount of tax you owe.

You won’t need to send in proof of your expenses, like receipts, when you submit your return. However, you’ll need to keep a record of expenses for five years after you submit your return in case HMRC asks you to produce them. 

What does a tax return look like?

Here’s a snapshot of what to expect on the online HMRC Self Assessment Tax return:

(Information about what to include on your Self Assessment tax return form. Source: HMRC)

(The first page of the SA103 Self-employment Return Form. Source: HMRC).

Top tips for getting your self-assessment tax return right

Here at takepayments, we know a thing or two about helping self-employed and sole traders keep their business rolling in the right direction. Here are our top tips for getting your self-assessment tax return right the first time. 

1. Get into the habit of keeping records 

Organised record-keeping is the foundation of a smooth return process. 

Make it a habit to store all your invoices, receipts, and important financial documents in one place — whether that’s in a physical folder or digitally. This means you can quickly and accurately input your income and expenses when it comes time to file.

Specialist accounting software or apps can streamline this process as they’re designed to track expenses and automatically generate reports and insights. These can give you a big helping hand when it comes time to submit your tax return.

2. Complete monthly reconciliations

Reconciling your accounts monthly is a proactive way to make sure your finances stay up to date. It involves matching your income and expense records with bank statements, identifying any discrepancies and resolving them promptly. 

Consider setting aside some time each month to reconcile your accounts. This means you’re not only reducing that last-minute panic at the end of the year but also making your financial picture a lot clearer, meaning you can budget effectively.

3. Fill in your tax returns as soon as possible

Waiting until January to complete your tax return might seem tempting, but it’s risky. 

Filling it in early gives you time to double-check your figures, gather any missing information, and address any queries from HMRC without the stress of looming deadlines. 

Early filing also has cash flow benefits — you’ll know your tax liability sooner and can budget for it more effectively. For first-time filers, this extra time can be invaluable for understanding the process and avoiding any costly errors.

4. Claim all expenses you’re entitled to

Every expense directly related to running your business — such as office supplies, travel costs, and professional fees like accountant services — can reduce your taxable income, so it’s important to claim all allowable expenses.

To ensure you don’t miss anything, keep detailed receipts and records throughout the year. If you’re unsure whether an expense qualifies, consult an accountant or refer to HMRC guidance. 

FAQs

Can I pay a tax bill in installments?

Yes, HMRC offers a Budget Payment plan to make weekly or monthly Direct Debit payments towards your self-assessment tax bill. These payments will be used against your next tax bill, so this means you’ll have less to pay at the payment deadline. 

For more information, head to the GOV.UK ways to pay. 

What happens if I miss the deadline?

If you miss the deadline for submitting or paying your tax return, you’ll be fined a late payment penalty of £100 if your tax return is up to three months late.

You’ll also be charged interest on any late payments, including any payments that are later than three months. 

Find out more about missed deadlines and penalties.

What if I fill in the tax return wrong?

If you realise that you’ve made an error on your tax return, there is a time limit for correcting this. 

Tax returns can be amended within 12 months of the normal January 31 deadline. If you submitted your return online, then the correction should be done online. If you submitted your tax return on paper, this should be completed on paper. 

Get your business set with takepayments

At takepayments, we know that getting set up to accept transactions is the key to successful trading. Whether it’s phone payments, other online payment solutions, or card terminals that we can help you with, get in touch with our team of experts on 08082 393254.

Jodie Wilkinson

Head of Strategic Partnerships