As a new sole trader, there are many things you need to consider when starting your own business. From creating a business plan to managing finances, there is a lot to learn and navigate. One important aspect that often gets overlooked is the process of self-assessment. This is a vital step for any sole trader in the UK, and it is important to understand what it entails and how to go about it.
What is self-assessment?
Self-assessment is the process of reporting your income and expenses to HM Revenue and Customs (HMRC) through a tax return. This is a requirement for all self-employed individuals in the UK, including sole traders. It is used to calculate the amount of tax and National Insurance contributions you owe for the tax year.
Why is it important?
Self-assessment is not only a legal requirement but also a crucial part of managing your finances as a sole trader. By accurately reporting your income and expenses, you can ensure that you are paying the correct amount of tax and avoid any penalties or fines from HMRC. It also helps you keep track of your business’s financial health and make informed decisions for the future.
Who needs to complete a self-assessment?
If you are self-employed and earn more than £1,000 in a tax year, you are required to complete a self-assessment tax return. This includes sole traders, freelancers, and contractors. Even if you earn below this threshold, it is still recommended to complete a tax return to ensure that you are paying the correct amount of tax and to claim any tax reliefs you may be eligible for.
When is the deadline?
The deadline for submitting your self-assessment tax return is 31st January following the end of the tax year. For example, for the tax year 2021/2022, the deadline would be 31st January 2023. It is important to note that you need to register for self-assessment by 5th October in the tax year you become self-employed, or you may face penalties.
How to register for self-assessment
To register for self-assessment, you will need to visit the HMRC website and complete an online form. You will need to provide personal details, including your National Insurance number, and information about your business. Once registered, HMRC will send you a Unique Taxpayer Reference (UTR) number, which you will need to use when completing your tax return.
Completing your first self-assessment
The thought of completing your first self-assessment tax return may seem daunting, but with the right preparation and guidance, it can be a smooth process. Here are some tips to help you get started:
1. Keep accurate records
As a sole trader, it is essential to keep accurate records of all your business income and expenses. This will make completing your tax return much easier and ensure that you do not miss any deductible expenses.
2. Use accounting software
Investing in accounting software can save you time and make the process of self-assessment less stressful. With features such as automatic categorization of expenses and the ability to generate reports, it can help you stay organized and on top of your finances.
3. Seek professional advice
If you are unsure about any aspect of self-assessment, it is always best to seek professional advice. An accountant or tax advisor can guide you through the process and ensure that you are meeting all the necessary requirements.
4. Don’t leave it until the last minute
It is important to give yourself enough time to complete your tax return accurately. Waiting until the last minute can lead to mistakes and potential penalties from HMRC. Set aside some time each month to keep track of your finances and make the process of self-assessment more manageable.
In partnership with Sage
At Small Business UK, we understand the challenges that come with being a small business owner, which is why we have partnered with Sage to provide you with the best advice and resources for your business. Sage offers a range of accounting software and tools specifically designed for sole traders, making self-assessment easier and more efficient.
In conclusion, self-assessment is a crucial part of being a sole trader in the UK. By understanding the process and staying organized, you can ensure that you are meeting your tax obligations and keeping your business finances in order. With the right tools and guidance, self-assessment can be a manageable and stress-free process. So, if you are a new sole trader, don’t let self-ass