Quick Guide to …. Completing a Self-Assessment (Tax Return)

If you earned any money on a self-employed basis between April 2014 and March 2015 and haven’t yet completed your tax return, you have until 31st January 2016 to do this, and to pay any tax due on your freelance earnings for 2014-15. A tax return for the self-employed is called a ‘self-assessment’ – because you declare your earnings, expenses and profit to HMRC (the tax office) and they work out how much tax and national insurance (NI) you should pay. Filing your self-assessment and paying your tax & NI late incurs a fine, so don’t leave it until the last minute - especially if this is the first time you’ve had to go through this process.

You can be either or both employed (where your employer deducts tax and NI at source) and self-employed, but if you are even partially self-employed you need to complete a tax return. The good news is that when you’re self-employed you can deduct the costs of running your business from your total earnings, and then tax and NI is paid just on the remaining amount (‘profit’) at the prevailing rate. Any expenses – known as ‘allowable expenses’ – incurred directly in running your business can be deducted. Examples might be: a proportion of your rent, heating, lighting, phone etc. if you work from home (or office costs if you rent space elsewhere); travel costs; dance classes & gym membership. If your earnings are below a certain threshold you can declare your expenses as a lump sum, and in most cases HMRC takes your word for it. However, they can – and sometimes do –inspect your record keeping, and they have the right to do this going back six years and demand you pay any tax you’ve underpaid, so you must keep detailed records of your calculations and any paperwork (receipts, invoices, bank statements, bills etc) as evidence.

Some individuals pay an accountant to complete their tax return, which can cost anything from a few hundred pounds upwards. However, completing the self-assessment on the HMRC website is fairly straightforward if your earnings are low, and it does the calculations for you. Whichever route you choose, the more organised you can be in advance, the less time, stress and money it will cost you later on. So as you go through the year file all relevant receipts, tickets, invoices, bank statements, bills, etc. in separate envelopes or folders, or better still add them all up at the end of each month and put those totals into a spreadsheet. 

Top Tips for stress-free self-assessment:

There’s only really one tip worth remembering - plan ahead and don’t leave your tax return until the last minute. There are many reasons for this:

·         There is a financial penalty (iro £100) for missing the 31st January deadline.

·         To file your tax return online you need a PIN and password, and it can take a couple of weeks for these to arrive in the post from the time you request them.  You won’t be cut any slack for requesting these the day before the deadline.

·         Take some time to read the relevant sections of the HMRC website to see what allowable expenses you can and can’t claim.

·         It’s good to know as early as possible how much you might owe so you avoid any nasty shocks in the cold days of January! You might need to be paying extra national insurance as well as tax, and this can really bump up your liability.

·         The nearer to the deadline you leave it the harder it will be to get through to an HMRC advisor on the phone if you have any queries or technical problems.

·         If you’ve set aside regular amounts into a fund to cover your tax when it falls due – 25% of your earnings is reasonable -  it might even leave you with a little bit left over when you’ve completed your tax return. A much nicer surprise for a cold January day!

·         If you are employed with a regular salary and tax deducted at source and you complete your self-employed tax return within a certain date (usually this is a month or so before the final deadline) there is the option to have any tax due taken through your PAYE code which can make life a whole lot easier.

Useful links:

There’s a really easy to follow overview of self-assessment here
https://www.gov.uk/self-assessment-tax-returns

A guide to self-assessment for actors
http://www.actorhub.co.uk/359/actors-self-assessment-tax

Troop News goes out every month to Troop members. Send your ideas for articles and opportunities, and your production photos for inclusion, to Catherine Willmore by the third Wednesday of the month. (No issue Jan 2016)