Every year, almost without fail, we hear about the last-minute panic business owners, freelancers and contractors go through as they rush to complete their self-assessment tax returns.
This year, around 5,542,000 taxpayers left submitting their 2017/18 returns until January – almost half of the total number of people required to complete it. The year before, about 45% of people did the same.
But why? While the deadline for filing online is at the end of January, taxpayers can send a return anytime after the end of the tax year. That gives you around ten months to get it done. I just don’t get why people let it linger.
At Alchemy, we don’t think there’s any reason for self-assessment to be stressful and rushed – and we’re proud to say that the majority of our clients have already completed their returns for the 2018/19 tax year.
With the right processes in place to gather and store information throughout the year, there’s no reason you shouldn’t be able to get your 2019/20 return finished before the end of next summer.
How self-assessment works
Under self-assessment, people who are self-employed or earn other forms of untaxed income have to report and pay any tax they owe, every year.
You do this by filling out a tax return with details about the income you received throughout the tax year, and submitting it to HMRC by the deadline of midnight on 31 January after the end of the relevant tax year.
When this system was introduced in the 1996/97 tax year, it represented one of the biggest changes to the tax system in several decades. Instead of each taxpayer’s liability being assessed and calculated by the Inland Revenue, the responsibility to work this out was given to individuals themselves.
In effect, this meant huge cost savings for the Government, saving around £500 million in administration costs during the first ten years of its implementation, and bringing in several millions more in tax from people who had previously remained outside of the system.
But it wasn’t just about saving money. The other aim of self-assessment was to improve taxpayers’ understanding of their own obligations, and make it easier for them to comply with tax rules.
I know people grumble about it but, today, the system works well for the vast majority of business people. Following a revamp between 2006 and 2008, and with a more gradual move to online reporting, it’s been made simpler and more accessible over the years, and now it’s possible to send it in just a few clicks online.
In most cases, completing the form itself is the easy part. When people do run into problems with self-assessment, it usually comes down to the complexity of their financial setup, their record-keeping habits, and the way they’re storing they information they need for the tax return.
Incomplete records or missing paperwork can cause a lot of stress, especially if they’re only discovered close to the deadline date.
The key is putting effective bookkeeping systems in place and using them over the course of the year, so that the information you need is complete and easy to access – not buried in a box in the loft, or on a forgotten hard drive at the bottom of a filing cabinet.
Accounting software has also developed over the years, with more sophisticated options emerging for anyone managing their tax affairs.
Cloud accounting software is now the best way to keep track of important records and store them in one place.
Unlike more traditional desktop software, cloud software stores information securely on remote servers. It can sync up with your bank accounts, and often with other business apps. This means you can log in from any location and see an up-to-date version of your finances.
This allows you to cut out hours of time that you would have been spending on manual data entry, and make your records more accurate and accessible.
FreeAgent is particularly brilliant for freelancers, contractors and other one-person businesses, with its clean, easy-to-use interface.
On the other hand, if you’re running an SME with slightly more complex needs, we’d recommend Xero as a powerful option with a wide range of features.
As the Government’s Making Tax Digital scheme extends its reach, it’s likely we’ll see even more businesses switch to online accounting software.
MTD for VAT started rolling out from 1 April 2019, and it already applies to most VAT-registered businesses with a turnover above £85,000.
It comes with two main requirements: businesses have to keep their records digitally, and file their returns using compatible software, with the aim of reducing the errors that come with manually copying numbers onto a tax return.
Most cloud accounting software meets both of those conditions as standard, making it an easy option for anyone who needs to comply with the scheme.
Dates and deadlines
Self-assessment returns are sent after the end of the tax year you’re reporting on, so if you’re currently working on a return for the 2018/19 tax year, the following dates apply.
For those who didn’t send a return last year, the deadline to register for self-assessment was 5 October 2019.
Paper returns, which are still completed by around 6% of taxpayers, were due on 31 October 2019.
If you’re filing online, you have until midnight on 31 January 2020 to submit your return as well as paying the tax you owe.
Talk to us about filing your self-assessment tax return.