Everything you need to know about self assessment tax returns

Rachael Revesz

Guest Blogger and Personal Finance Expert

February 5, 2021

The thought of filling out a tax return can be daunting and a bit intimidating. It's important to get it right, but there are a lot of resources available to help you every step of the way. Our guest blogger, Rachael Revesz is on hand with her top tips for getting through the process with as little stress as possible!

There’s only one time of year when my dad is tempted to start smoking again, and that’s when he has to file his VAT return. Luckily, filing a self-assessment tax return is much less complicated; in fact it’s not bad at all, and as long as you have a cup of tea and a spreadsheet, you should pull through.  

Register with HMRC

If you’re self-employed, you have to let HMRC know, via this link. HMRC will send you your Unique Taxpayer Reference so you can set up your account online. Make sure you know your national insurance number too.

Know your deadlines

If this is the first year you’ve gone freelance or set up a business, you can wait until the tax year ends in April, and then file your first return online by midnight 31 January the following year.

Tip: Don’t wait until the last minute!

Note: HMRC have extended the 2020/2021 deadline to 28th February.

Understand tax brackets

Most people are allowed to earn a certain amount of money and not pay any tax on it. This is called a personal allowance and for 2020/21 it’s £12,500. After that, you pay 20% income tax until you hit £37,500, and then you pay 40% tax on anything above that until you earn £150,000 and so on. These rates can change every year and vary in Scotland, Northern Ireland and Wales – check out the latest information here.

This useful calculator can also help you figure out how much income tax you will have to pay.

National Insurance and Student Loan

It’s important to put aside extra to cover national insurance, which is an additional tax. In fact, there are two types of national insurance you will pay, depending on what you earn. Class two is £3.05 a week if you make more than £6,475 profits per year. Class four is 9% on profits between £9,501 and £50,000. Again, these are liable to change so keep an eye out.  

Also, it’s best to know how much student loan you have to repay, and that depends on the year you graduated – so phone the Student Loans Company or log in online to check!

Top tip: Put as much as you possibly can aside because whatever does not go towards paying your tax can be plopped into an ISA, savings account or your personal pension.

Record your expenses

Expenses can reduce your tax and they can include stationery, printing, petrol, some travel, and even a proportion of your rent or mortgage and utility bills if you work from home. If you happen to be audited – think of it like jury duty – then as long as you have records, and can prove how you calculated your expenses, then you should be alright. Here’s a government overview of what counts as an expense.

Here’s an example. Say I earned £25,0000 in the last tax year. This is called my turnover. Now I minus my personal allowance which is £12,500. Then I take off £4,000 worth of expenses. That means my profit, what I pay tax on, is £8,500. It makes a big difference.

Top tip: Keep your receipts!

PAYE versus non PAYE

Many freelancers work a mix of jobs, and some are Pay As You Earn (PAYE) where you are on that company’s payroll and are taxed before you receive the money. Non-PAYE is a job where the gross payment lands in your account.

When it comes to the end of the tax year, make sure you ask for your P60 form from the employers who put you on their payroll. That form will tell you how much you earnt with that employer, and how much tax / student loan you’ve paid. When it comes to filling out your self-assessment form, it will ask you to enter this information separately.  

And as for the other jobs where you are not on their payroll, you can simply enter one total figure that you earned for all of them on the tax form.

Payment on account

This bit sounds confusing but it isn’t.  

After you’ve paid off your first year’s worth of tax, you will have to stump up roughly half of the bill again by 31 January, and the remaining half by the end of July the following year. This is called making a ‘payment on account’. It’s a way for the government to ensure you keep paying tax, in advance, and is merely estimating what you will likely owe. HMRC will automatically minus those two payments on account from your final bill when you fill in your next self-assessment, and you can claim a refund if you overpay.

Get help if you need it

Accountants usually charge between £100 and £300 to calculate and file your return for you, but you will still have to record your income and expenses, and pay the actual HMRC bill yourself.

Unlike most call centres, I find HMRC’s to be rather helpful and patient. Phone them if you have a query on 0300 200 3310 or you can webchat them here

Rachael Revesz is a freelance financial journalist and host of An Honest Account, a podcast about how money affects our lives.