Self-assessment: All You Need To Know About Self-assessment and Registration

Ryan Patrick

• 9 min read
Self-assessment: All You Need To Know About Self-assessment and Registration

As a self-employed individual in the UK, registering for self-assessment is very important in ensuring your tax affairs are in order. Also if you earn an income apart from your regular employment, you need to register for self-assessment.

Freelancers, sole traders, self-employed, and sometimes directors of companies who earn outside their employment earnings, all need to register for self-assessment to out their taxes all in other.

In this article, we'll explain everything you need to know about registration for self-assessment in the UK.

What is Self-assessment?

Employed people who are working under a payroll, their taxes are automatically removed from their salaries even before they get to them via PAYE (pay as you earn).

Unlike people who are under a payroll, self-employed individuals and other individuals who have a side source of income, their taxes are not automatically deducted. Their income is not even recognised by HMRC so they have to register at HMRC and tell them they have a source of income and pay taxes.

Self-assessment is a system that helps self-employed individuals to register and pay their taxes to HMRC. Freelancers, contractors and even small business owners have to register for self-assessment and pay taxes.

If you register for self-assessment, you must pay all taxes on time or else a penalty is attached to late tax payment.

Why You Need to Register for Self-assessment

If you earn income outside your employment, registering for self-employment is very important and mandatory. Registering ensures you're meeting up with your legal roles and obligations and also complying with the tax rules and regulations as a taxpayer.

Once you register, you're providing HMRC with correct information concerning your income and allowing them to calculate the accurate amount of tax you owe as a taxpayer.

Registering for self-assessment also helps the issuance of important documents such as the Unique Taxpayer Reference (UTR) number. The UTR number is essential and must be used when filing tax returns.

Registering for self-assessment also helps you to keep your financial records properly and safely within the HMRC system. Once your financial records are recorded, you can reflect on them at any time without stress at HMRC.

Failure to register for self-assessment as a small business owner, freelancer or self-employed individual will attract some serious penalties from HMRC.

To avoid this sanction, it is advisable to register for self-assessment earlier. Your tax debt will also accumulate if you fail to register for self-assessment early and keep up with your taxes.

Who Registers for Self-assessment?

Registration for self-assessment has some criteria governing it. These criteria also include the people who can apply for self-assessment.

Below are the criteria necessary for the application of self-assessment in the UK

  • If you have an additional source of income
  • If you're self-employed
  • If you own a very small business
  • If you're a freelancer
  • If you're a shareholder of a company

Having an additional source of income like grants, sales of assets, claiming extra tax relief on pension, child support or benefit payment, or having access to trust funds.

Some other incomes that you have to file a tax return for include

  • Income got from renting out a property
  • Foreign Income
  • Your savings
  • Payments from investments
  • Dividends from companies
  • Profits from sales of shares or extra properties such as houses.

All these sources of income are taxable and a tax return must be filed. If you have the following source of income or fall under any of the above criteria, then you need to register for self-assessment and pay your taxes.

If you do not fall under any of these categories, there is no need to register for self-assessment since you do not have a taxable income.

Registering for Self-assessment

Here we will take you through the process of registering for self-assessment in the UK.

Step 1: Check Eligibility

Before trying to go into the process of registering for self-assessment, you need to find out if you are eligible to apply.

This is very essential since not everyone has to register unless you fulfil the criteria. Checking your eligibility will help you save time from applying when you are not supposed to.

These eligibility for applying are being self-employed, being a sole trader, money earned from renting out properties, and any income over £2500 per year without a tax or a foreign income that you received.

Sometimes, HMRC might send you a letter stating that you need to file a tax return, once you receive this letter, it is very important to proceed with your self-assessment registration immediately to avoid penalties.

Step 2: Get Your Documents Ready

Getting all your necessary documents and information ready is important as it shows you're fully prepared to register.

Know the specific document required for self-assessment and if you've not gotten all the documents, get them ready before you begin the self-assessment process.

First of all, you need to have your national insurance number ready, this is very important and if excluded, you cannot continue with the self-assessment process.

The national insurance number is a unique number that is given to only you and is used for the self-assessment registration process.

Any other document that is related to your income should be ready and available. Documents such as payslips or bank statements, these documents help you to report your income and outcome during the tax year.

If there are any other sources of income available such as payment from renting out properties, dividends gotten from investments and all the documents related to this extra income source should be present.

If you're self-employed, you should keep all receipts and invoices related to your business income and outcome. This information will help you go through the registration process easier and faster and also help you monitor and report your income and outcome accurately.

Step 3: Government Gateway Account

To register for self-assessment you must create a government gateway account. The government gateway account is your means of interaction with HMRC. The account set es as an online portal that helps you interact with HMRC efficiently.

To create your government gateway account, you need to follow the steps below

  • Go to the HM Revenue and Customs (HMRC) and click on the "sign in or create account" tab or option.
  • Once you tap on sign-in, select the option "create sign-in details".
  • After you tap on the option, you will be asked to provide your email and create a password. Always make sure to create a strong password so your account will be safe. To create a strong password, you can include uppercase letters, lowercase letters, digits or numbers and special characters.
  • Choose a strong password and tap on the "continue" option.
  • Once you tap on "Continue", your government gateway account has been successfully created.

Step 4: Self-assessment Registration Form

Once your Government Gateway account has been successfully created, all you need to do now is fill out the self-assessment registration form. The form provides HMRC with all the necessary information concerning you, your income, outcome and other important details.

This is the most important step in the registration for self-assessment.

The self-assessment form provides HMRC with the following information about you

  • Your full name
  • Your address
  • National Insurance Number
  • Contact Details

You have to also specify if you're registering as an individual or you're registering for your business entity.

Also, you will be asked to provide some necessary information regarding your employment status, if you gave an additional source of income and necessary information regarding your additional source of income.

Always double-check your information to confirm you have entered the accurate details before you submit your form. If there are errors regarding your details, there might be errors or delays in your registration.

Step 5: Submit

This is the final step in registering for self-assessment. Once you've double-checked your information, if there are any errors you correct them and if there are none, you go ahead to tap the "submit" option.

Once you've successfully submitted all your information through the form, you will receive an email from HMRC to the email you registered indicating your form has been received and your registration has also been received by HMRC.

Always make sure you tap on the "submit" option before leaving the page to avoid waiting for a confirmation email when you never completely registered.

Make sure your information is correct and is your official information relating to the documents on the source of income you're registering with HMRC.

Once you receive the email, you have successfully registered for self-assessment and can start paying your taxes and also pay the taxes you own.

Filing Your Tax Returns

After completing your self-assessment registration, you should be ready to start filling out your tax returns.

Below is the information you need to get ready when filing your tax return at HMRC.

  • Your National Insurance Number
  • Your ten-digit Unique Taxpayer Reference (UTR) number
  • All necessary information about any untaxed income from the previous tax year. The income could be from self-employment, interest from savings, dividends from investing in shares, or income from renting out a property.
  • Your P60 or any other document that shows the tax you have already paid on your income
  • A list containing all the expenses you have made related to your self-employment can be deducted to calculate your taxable profits.
  • Charitable pension contribution notes

What is P60?

A p60 is a document or statement containing all your taxes paid from your salary as an employee. P60 is gotten from your employee regarding your salary and tax while working under the employer.

A tax return is divided into two different categories; the main section and the supplementary pages.

The main section contains all the necessary information regarding your income, pensions and charitable donations and benefits.

The supplementary pages are for individuals whose income is from self-employment, sales or renting of property or properties, role as a company director, profits from investments, dividends from shares, a foreign national (or a dual resident), or income from a foreign account.

If your expenses in a year are below £85,0pp, there is no need to list the items the expenses were for. You can enter the total amount of your annual expenses. However, if your expenses are greater than £85,000, then you must enter an amount for each type of expense and include the total of all expenses at the end.

There is no need to include proof of these expenses but it is important to keep records of your expenses for five previous years as HMRC may ask you to provide them.

What Happens After Registration

After registering for self-assessment, you are mandated to accurately file your tax returns and pay your taxes by the deadlines set by HMRC.

It is very important to always keep documents related to the source of income-you're registering intact in case you might need them in the future.

Always keep your essential documents like receipts, payslips and bank statements all in place and safe to prepare for the next tax return filing.

You can also report to HMRC if you're overtaxed so your tax will be reduced. However, if you report Thai to HMRC to cut taxes when you're not overtaxed, this will attract serious financial sanctions from HMRC.

What Happens When You Lose That Source of Income

If you're willingly trying to let go of that source of income like selling out your shares or stopping running your small business, it is very important to notify HMRC immediately.

You can notify HMRC by submitting a last self-assessment tax return and notifying them it will be your last tax return.

Once you have notified HMRC that your source of income will be stopped, they will update all their records accordingly. If this is successful, you will not receive any request for tax returns again.

If you owe taxes, you need to clear up your debt at HMRC before you can successfully drop receiving requests for tax returns. You can also notify HMRC that your income next year will not be as high as the previous years demanding a reduction in your taxes.

Also when you overpay taxes, you will receive a P800 tax calculation from HMRC to show you the correct amount of taxes to be paid.

You can request your refund back either online or by post. Online refund takes 5 working days to work and post takes 14 days and after that, a cheque will be sent to you by HMRC.

Penalties For Late Tax Returns

When you fail to file your tax returns on time, there are some penalties attached to late filing. Below are some of the penalties for late tax return filing

Late tax returns filing of up to 3 months: Automatic sanction of £100.

Late tax returns filing between 3-6 months: A daily charge of £10 for up to 90 days giving a total penalty of £900.

Late tax returns filing between 6-12 months: ⅝% if the due tax or £300 including the penalty charge above (£900).

Late tax returns filing of up to 12 months: An additional 5% of the due tax or £300 charge is added to the penalty charge listed above. HMRC might also fine you 100% of the due tax.

You will also be charged an interest of up to 2.75% of the late payment of tax you owe.

Both unpaid tax and unpaid penalties will be charged with an interest. The earlier you clear up your tax debt, the cheaper.

Form your company with Incorpuk today

At Incorpuk, we will help you file accurate information when you register your company through us. We will help you with incorporation articles, a registered office address, and all you may need to register your company in the UK. Contact our team if you seek any information; we will gladly assist.

Conclusion

The above explanation and step-by-step process of registration for self-assessment help us to understand how to go about it. It is important to register for self-assessment to avoid sanctions and if you have registered, you should ensure to pay your taxes on time to avoid the penalty charge attached to late tax filing. Before registration, make sure to get the required documents ready and also ensure to enter the correct information about you and your income to avoid delays and errors in the registration process. Do you have any questions on self-assessment questions? kindly reach out to Incorpuk for help today.