The Beginner’s Guide to paying Self-Assessment Tax
The road to self-employment can be a tricky path, especially since you no longer have your employer's company to handle your taxes' logistics. This is why freelancers and people engaging in side businesses need to worry about handling Self Assessment.
HMRC notes that anyone who receives income that isn't taxed needs to file a return, whether to a sole trader, company director or business partnership. It's a legal obligation that you need to learn to process, especially if you're working full-time as a self-employed individual.
The importance of Self Assessment for self-employed individuals
Millions of UK citizens in the UK need to complete Form SA100, or Self Assessment, by the 31st of January yearly. The importance of a Self Assessment is necessary, so taxpayers will understand how much National Insurance and Income Tax they have to pay back.
For employees of registered businesses, their employer manages the deduction on their staff's income through the PAYE system. In contrast, self-employed individuals have to handle this on their own. Since these taxations laws can be complicated, you need to ensure that you're not unintentionally making violations on your Self Assessment tax payments.
In this article, we will answer three questions you may have about completing your Self Assessment form.
1. How do I file a Self Assessment form?
If you're freelancing as a side business, you need to register with the HMRC so that you can submit a Self Assessment tax return. It's necessary to register by the 5th of October to account for your 2019/20 tax year. You will need to pay the penalty if you already missed this deadline.
Although you can fill it out through a physical form, you can also do it online. You'll need to present your National Insurance number, along with personal and business details, to get your Unique Taxpayer Reference (UTR) number. Using your UTR, you can now register for HMRC's online services, where you'll get a PIN to access the submission of your Self Assessment.
2. How do I compute for the income tax I need to pay?
A self-employed taxpayer’s income tax depends on your profits and other incomes. For this reason, you must pay for earnings beyond the personal allowance of your total income. You need to be transparent about all the inflows and outflows of your business if you're working a full-time job together with freelance projects. You can check here for all the tax rates and thresholds that you can use as a guide when estimating your income tax.
3. How much should I save for my Self Assessment tax bill?
If you want to prepare ahead of the taxman, it's best to save over 30% of all your self-employed earnings. It's a good margin to observe if you're only earning below £60,000. However, you may need to save more just in case. Although you won't have to pay the full 30% or more, it's a decent benchmark to ensure that you don't misplace your savings by allocating your tax responsibilities.
Handling a side business or setting up entrepreneurship are among the more popular trends for many employees. For those who want to earn extra income without violating the HMRC's taxation rules, hiring an accountant for Self Assessment to handle your extra bookkeeping is ideal. Doing so will help you keep track of all your earnings and keep you a responsible tax-paying citizen.
It's best to look for accountants who are familiar with your needs. 1 to 1 Accountants is an accountancy practice in Hillingdon, Uxbridge that specialises in servicing small business owners and freelancers. Schedule an online meeting with us today to learn more about how we can optimise your finances.