
Wondering why you have to pay self-assessment tax? You're not alone. For freelancers and small business owners, it can feel overwhelming, but ignoring it could mean penalties and financial stress. Let’s break it down and make it simple!
What Is Self Assessment Tax Return?
A Self Assessment Tax Return is a system used by tax authorities, like HM Revenue and Customs (HMRC) in the UK, to collect Income Tax from individuals whose income isn't automatically taxed.
While employers typically deduct tax from wages through systems like PAYE (Pay As You Earn), other income sources, such as self-employment earnings, rental income, or investment profits, aren't taxed at the source.
If you are receiving such income, you must report it by completing a Self Assessment Tax Return.
This process involves declaring all taxable income, calculating any tax owed, and paying it by specified deadlines to ensure compliance and avoid penalties.
You can also read this article where we talk about self assessment tax return in detail.Â
Why Is HMRC Asking Me to Do a Self-Assessment?
HMRC might be asking you to do a Self Assessment because you have income or financial circumstances that aren’t taxed automatically through systems like PAYE (Pay As You Earn).
This might include the following:Â
Self-Employment Income: If you're self-employed and earned more than £1,000 before expenses.Â
Rental Income:Â Earnings from renting out property.Â
High Earnings: Total income over £150,000.Â
Capital Gains:Â Profits from selling assets such as real estate or stocks.Â
Child Benefit Charge: If you or your partner's income exceeds £50,000 and you receive Child Benefit.Â
Why Do I Have to Pay Self Assessment Tax Online?
You don’t need to pay your self-assessment tax online if you don’t want to, as there are other payment methods available like bank transfers or cheques.
However, some may choose to pay their self-assessment tax online for the following reasons:
Convenience:Â Online payments can be made anytime, from anywhere, without the need to visit a bank or post office.
Speed:Â Electronic payments are processed faster than traditional methods like cheques, ensuring HMRC receives your payment promptly.
Confirmation:Â Online transactions provide immediate confirmation, giving you peace of mind that your payment has been received.
Reduced Errors:Â Digital forms often have built-in checks, minimising mistakes that can occur with manual entries.
What to Do If I Can’t Afford Payment on Account?
If you can’t afford your Payment on Account, which is a prepayment towards your next tax bill, you can consider the following steps:
Contact HMRC Promptly
Reach out to HM Revenue and Customs (HMRC) as soon as possible to discuss your situation. They can provide support customised to suit your unique needs.Â
Set Up a Payment Plan
You may be eligible to arrange a 'Time to Pay' agreement, allowing you to spread the cost over manageable instalments. This can often be set up online if you owe less than £30,000 and are within 60 days of the payment deadline.Â
Adjust Payments on Account
If you anticipate that your income for the current tax year will be lower than the previous year, you can apply to reduce your Payments on Account to better reflect your expected tax liability.Â
How to Reduce Your Tax Bill in the UK as Self-Employed?
Here are some tips for you to reduce your tax bill as a self-employed individual in the UK:
Claim Business Expenses:Â Deduct costs like travel, office supplies, and utilities.
Contribute to a Pension:Â Benefit from tax deductions on contributions to your personal pension plan.
Use Allowances:Â Claim the Annual Investment Allowance for business equipment.
Work From Home:Â Deduct home office expenses proportionally.
Adjust Payments:Â Reduce your Payment on Account if income is lower this year.
Use Accounting Software: Help track expenses, income, and ensure accurate tax filings, potentially identifying additional deductible expenses. At JAFA, we use AI technology to help you automate your bookkeeping, so you can get real financial insights into your business for effective tax planning and maximum deductions.
What We Think
The self-assessment tax system, while functional, often feels overly complicated and outdated for freelancers and small business owners. The lack of clear guidance and the challenge of navigating HMRC’s resources can leave many feeling lost and unsupported.Â
However, let us emphasise how much easier life becomes when you keep detailed records throughout the year - it’s a game-changer when tax deadlines roll around.
The penalties for non-compliance can be harsh, and while they serve as a wake-up call, they also highlight the need for a system that focuses more on education and accessibility.Â
How JAFA Can Help
At JAFA Accountancy, we simplify the self-assessment process by providing clear, tailored guidance to freelancers and small business owners. Our proactive approach ensures you stay on top of your records throughout the year, making tax deadlines stress-free. We focus on educating our clients to avoid penalties and empowering them with the knowledge to navigate HMRC with confidence. With us, compliance becomes seamless, giving you peace of mind to focus on your business.
Need help? Our expert accountants, based in Birmingham, are here for you. Book a FREE discovery call or reach us at +44 121 227 6277.Â
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