Seven ways you can make filing your Self Assessment tax return less painful

January can be a pretty grim month for many people in the UK. It’s cold, the days are short and we’re on a comedown from the Christmas festivities. 

It’s also, if you work for yourself, the dreaded tax month, when Self Assessment submissions and payments are due. And let’s face it, no one likes completing tax returns or paying tax!

So how can you make this January more cheery? While we can’t do anything about the weather or short days, we can share ways you can make filing your Self Assessment tax return less painful.

But first, to start, let’s identify whether or not you need to complete a Self Assessment tax return.

Who needs to complete a Self Assessment tax return?

If you are self-employed and earn more than £1,000 before deducting anything you can claim tax relief on in a tax year, then you need to complete a tax return. (Tax years run from 6 April to 5 April.)

You may also need to complete a tax return if: 

  • You are a partner in a business partnership
  • You have a total taxable income of over £100,000
  • You earn money from renting out a property
  • You earn tips and commission
  • You earn income from savings, investments and dividends
  • You have foreign income

If you need to register for Self Assessment you can do so here

What happens if you submit your tax return late?

It can be tempting to put off filling in your tax return, or handing the money over. But, as you probably imagine, there are consequences for missing HMRC’s deadlines. 

And here are their deadlines:

  • All paper tax returns must be submitted by midnight on 31 October
  • Online tax returns need to be completed by midnight on 31 January
  • Any tax owed needs to be paid by midnight on 31 January

It’s also worth noting that you might have a second tax payment deadline of 31 July for advance payments towards your tax bill. These are called ‘payments on account’.

So what happens if you miss your tax return or payment deadline? If you are less than three months late you’ll need to pay a late filing penalty of £100 plus interest on any late payments. And if your tax return or payment is more than three months late, you’ll need to pay more.

Can you appeal against a late filing penalty?

Sometimes you may miss a Self Assessment tax return deadline through circumstances out of your control. If you have a reasonable excuse, you can appeal against your penalty. Some reasons why you might appeal include:

  • Someone close to you died just before the tax return or payment deadline
  • You had a serious illness or were hospitalised and unable to deal with your taxes
  • Your computer or software failed as you were preparing your online return
  • You were relying on someone else to send your return and they failed to do so
  • HMRC had online issues that prevented you from submitting your return 

You can find out more about appealing against a late tax return or late payment penalty here

Seven ways you can make filing your tax return less painful

While there’s no way of avoiding completing returns and paying tax, there are ways you can make tax time less painful. Here are seven suggestions we’ve put together for things to consider and/or do. 

1) Make sure you have the right company set up

It’s common for people to start out as sole traders when they first work for themselves. But there often comes a point where it’s more beneficial, tax-wise, to switch to a limited company

You can read about the tax differences between the two here. But as a rough guide, you might be better off setting up a limited company once your profits reach £30,000 a year. 

One big tax benefit of changing to a limited company is your pension. Pension contributions are an allowable expense for limited companies, which means they reduce your corporation tax bill. Here are some other quick benefits of moving to a limited company:

  • You can pay yourself a salary and dividends
  • You have the security of limited liability 
  • It’s easier to transfer company shares when selling your business

The downside to running a limited company is that there are more complex accounting and tax requirements, however if you are organised and have an accountant, this won’t impact you too much.

While switching to a limited company might not help you this tax year, it could make less January a bit less expensive. 

woman calculating her expenses for tax return and typing them into a laptop

2) Know what expenses you can claim for 

You’re probably already very aware that you can claim for business expenses and reduce your taxable profit. But are you checking that you are including ALL the expenses you are entitled to claim for? 

Here’s a quick run-down of some of the expenses you can claim against tax, and examples of each: 

  • Office costs: Postage, stationery and phone bills
  • Travel costs: Fuel, parking, and public transport 
  • Clothing expenses: Uniforms, costumes and protective clothing
  • Staff costs: Salaries and subcontractors
  • Saleable products: Stock and raw materials
  • Financial costs: Accountants, insurance and bank charges
  • Office costs: Rent, utilities, WiFi, business rates
  • Advertising: Website, directory listings and ads
  • Training: Courses and coaching

To make sure you are claiming for all the expenses you are entitled to, keep a record of anything you spend money on, including receipts. 

It can also be advisable to hire an accountant for your business accounts. Not only will they save you time, but they’ll make sure you don’t miss any allowable expenses. 

3) Claim for expenses you missed in previous years

If you’re now kicking yourself for expenses you could have claimed for in previous years but didn’t, we’ve got good news for you: you can claim a refund for any overpayments you’ve made in the last four tax years. 

To claim your refund you will need to write to HMRC and let them know you are making a claim for ‘overpayment relief’. Here’s what you need to include in your letter:

  • Your personal details: name, address, National Insurance number and UTR number 
  • The tax year the repayment relates to
  • Details of why you think you have paid too much tax
  • Evidence of the tax that you have paid, such as copies of P60s and P45s if you have them 
  • How you’d like to receive any repayment: transferred to your bank account, sent as a cheque or deducted from your next Self Assessment tax payment

Make sure your letter is signed and dated, and check the details carefully before sending. Use the HMRC address on their most recent correspondence to you, or from their website. Make sure you keep a copy of the letter, and proof of posting from the Post Office. 

4) Put money into a pension 

Did you know that paying into a pension when you are self-employed isn’t just wise financial planning for your future, but can help with tax relief? That’s because, for most UK taxpayers, when you pay into your pension, you’ll get a 25% tax top up from the government.

Most basic rate taxpayers get a 25% tax top up, so if you paid £100 into your pension, HMRC would effectively add another £25 which would bring the total contribution up to £125. Higher and additional rate taxpayers can claim additional tax relief through their Self Assessment tax returns. 

For 2023/24, you could contribute up to the £60,000 annual allowance and benefit from tax relief. To calculate how much tax relief you could get on your pension contributions, use the PensionBee tax relief calculator.

If you are self-employed and haven’t yet set up a private pension, this is definitely something worth looking into. You can find out more about starting a self-employed pension here. Want a deep dive into how to keep your self-employed pension on track? Listen to PensionBee’s podcast episode on the topic.

5) Keep on top of your bookkeeping

This tip won’t just possibly save you money on tax, but it will also save you time and significantly reduce your stress! 

So many small business owners and freelancers leave their bookkeeping until their accounts are due. This means they spend a few days every year in accounting hell, trying to gather all the documents and numbers they need for their tax return, and attempting to account for every payment coming in and leaving their bank account over the space of a year.

Not only is this time-consuming and not much fun, but there is a risk you will miss some expenses, and fail to claim them against tax. 

There’s a much better solution: make the time to update your business books every week. Get into the habit of allocating time to reconcile your bank account and record any details (including travel mileage), and you’ll find it takes only a few minutes to keep on top of your accounts. It also feels pretty good being organised. 

Then, at the end of the year when you are preparing your accounts, everything will be ready for you. And not only will this save you considerable time and stress, but you’ll be able to submit your accounts much earlier as you won’t keep putting the dreaded task off.

Think how much more fun next Christmas and New Year will be without the annual January dash to make the tax deadline and avoid penalties ahead of you. 

6) Donate to charity before the tax deadline 

If you donate to charities through your business, and your income in the current tax year has dipped, this is a quick tip that can help to reduce your tax bill. And the tip is to donate money to charity before 31 January to maximise your tax relief for the previous year.

How does this help? You can choose to claim charitable donations in either the current or previous tax year. So, if you make a donation now, you can claim it against your previous tax year and secure the higher rate of tax relief on it. 

7) Get an accountant 

Our final tip is a simple one, but important. It’s understandable to want to reduce outgoings when you work for yourself, but there are some business expenses that can help to save you money. And a good accountant could be a wise investment. 

As you can see from this article alone, there are plenty of ways you can help to reduce your tax bill when you are self-employed – many of which most people aren’t aware of. When you hire an accountant, they won’t just make submitting your Self Assessment tax return much easier, they might also find ways to reduce your tax bill. 

So if you don’t already have an accountant, ask around for recommendations and find someone you like, and who has a good reputation. 

Make tax time less painful

We hope you have found these seven tips helpful. Make sure to action anything that’s new to you, and make tax time less painful. There are plenty of ways you can save yourself time and stress, and minimise the amount of tax you may need to pay. It’s also important to make sure you are saving for your future now (and saving on tax while you are doing so). 

Risk warning: As always with investments, your capital is at risk. The value of your investment can rise or fall, and you could receive back less than you invest. This information should not be considered as financial advice.

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PensionBee can help you combine your old pension pots into one online plan that lets you keep track of your balance, make flexible contributions, invest in line with your values and make withdrawals from the age of 55. For more information, visit PensionBee.

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