Last updated Apr 03, 2024 and written by Tom Richardson

The basics of Self Assessment: what you need to know

What is Self Assessment and how might it affect you as a business owner? Emily Coltman FCA, chief accountant to award-winning online accounting software provider FreeAgent, explains all.

What is Self Assessment?

Self Assessment is how HMRC, the UK body that manages and collects our taxes, measures how much tax certain individuals, including business owners, have to pay.

Or, more accurately, it’s how we work out how much tax HMRC can expect from us. The ‘Self’ part means that we, as individual taxpayers, are responsible for accurately calculating how much tax we should be paying.

That can feel a little daunting, but help is at hand!

Why do I have to do Self Assessment?

If you’re a sole trader, HMRC won’t already know how much tax to expect on your business’s profits, because they don’t know how much profit your business has made. That’s why you need to tell them under Self Assessment.

If you’re the director of a limited company, HMRC will know how much salary the company has paid you, because the company will have been making payroll submissions under RTI. What HMRC won’t know is how much you were due to receive from the company as dividends, or any other income you may have, such as from renting out a property.

How do I work out my tax under Self Assessment?

You need to fill in a Self Assessment Tax Return, more usually just called a tax return, once a year.

Each tax return covers a tax year, which is 6th April one year to 5th April the following year. The tax return then has to be filed by 31st October, after that 5th April if you are sending a paper form to HMRC, or by 31st January if you are filing your tax return online.

Clear as mud? Let’s take an example.

The tax year 2016/17 ran from 6th April 2016 to 5th April 2017. Paper tax returns for 2016/17 should have been in by 31st October 2017. Online tax returns for 2016/17 need to be in by 31st January 2018.

What does a tax return include?

You would include all your income as an individual on your tax return, because HMRC need to see this all together in one place. They may already know how much you have received in salary, or how much interest your bank has paid you, but they will not know about other income you have had, such as profits from work as a sole trader, or income from a trust.

We have a handy Self Assessment checklist to help you pull together all the information you will need in order to prepare and file your tax return.

Filling in your tax return

I’d recommend collecting together all the paperwork you might need before you start to fill in your tax return, to save time and frustration while you are completing it – there is nothing more annoying than being ‘in the zone’ filling in your numbers, and suddenly realising you don’t have a vital piece of paper such as your form P60 from your employer.

Work step by step through each section of the tax return. If you don’t understand what the form is asking for, speak to your accountant or call HMRC’s self assessment helpline.

FreeAgent also have lots of useful resources to help you get your figures right, such as an A-Z guide of what expenses you can claim, and infographics to help you work out how much to claim for business use of home if you are a sole trader or company director.

How can I make it easier next year?

Give FreeAgent a try! You can get a FreeAgent account at a special price through MadeSimple, and on top of that, FreeAgent have just halved their subscription prices for new customers’ first 6 months! FreeAgent will help generate the figures for your tax return if you are a sole trader or company director, and allow you to file your tax return online to HMRC.

I would also recommend having a file to collect any relevant paperwork that may arrive in the post, such as Notices of Coding from HMRC that may show tax over- or underpaid from a previous year, statements of interest from a bank, and forms P60 and P11D from your employer.

Make your record-keeping an ongoing process to avoid having a daunting last-minute rush to fill in your tax return.

The earlier you can prepare and file your tax return after 5th April, the less daunting it will be. You might not be able to file straight away, as there may still be information you need, for example your employer may still need to give you your form P60. But by trying to do your tax return over the summer, rather than leaving it till the run-up to Christmas, this will give you peace of mind for the rest of the year!