As we approach the deadline for submitting a Self-Assessment Tax Return (SATR), it’s important for all freelancers to have an understanding of what is required from them. Whether you are working as a freelancer via a Limited Company or sole trader service, this is a requirement.
Here’s all you need to know:
What is a self-assessment tax return?
A Self-Assessment Tax Return or SATR is the system by which HM Revenue and Customs (HMRC) collect tax on your income.
Whereas tax is typically deducted automatically from wages, savings and pensions, if you’re freelancing, it’s your responsibility to declare taxable income and to notify HMRC that you need a tax return form.
What is the difference between a Limited Company and a Sole Trader tax return?
|Limited Company||Sole Trader|
|With a Limited Company, you are likely to pay yourself a salary up to the NI threshold or personal allowance, meaning no income tax is deducted. Then dividends as a director/shareholder on top of this. Therefore, on this basis, you would need to complete a tax return to declare the salary and dividends, plus any other income you received personally, as explained below.||As a sole trader, you would pay tax based on your self-employed income for the tax year. This will be taxed on the net profit earned, regardless of if you didn’t take all of the money from the business account. This would be included on a tax return plus any other income you received personally, as explained below.|
Who needs to complete a self-assessment tax return?
If you can say yes to one or more of the below criteria for the last tax year (6 April 2021 to 5 April 2022), you’ll need to complete a SATR:
- You were self-employed and your income was over £1,000
- You received over £2,500 from renting out a property
- You’re a partner in a partnership. The Partnership will have to file a return, too
- You’re a company director
- Your annual income was £100,000 or more
- Your annual income was £50,000 or more, and you or your partner was in receipt of child benefit
- You received over £2,500 in other untaxed income, such as commission or tips
- You needed to claim expenses or reliefs, or you’re a trustee
- You had Capital Gains Tax to pay, for instance, if you sold shares or a second home
- You had £10,000 or more in dividends or from other investments
- You had income from abroad you needed to pay tax on
If HMRC send you a return to complete but you find none of the above applies to you, you should get in contact with HMRC as it may be an error.
What administration is required?
All Intouch customers will be provided with a tailored questionnaire that allows us to get the relevant information to complete your self-assessment.
What are the deadlines this year?
You have to submit returns for tax years, not calendar years. Meaning, this return will be to declare tax on income and gains from 6 April 2021 to 5 April 2022. The deadlines for submitting the returns are as follows.
- 5 October 2022 for registering for self-assessment if you have never submitted a return before
- 31 October 2022 for submitting a paper tax return
- 31 January 2023 for submitting an online tax return (you need to submit your online return by 30 December 2022 if you want HMRC to automatically collect tax owed from your wages and pensions, however you must be eligible)
- 31 January 2023 for paying all of the tax you owe
What are the penalties?
If you need to file a return but it’s up to three months late, you’ll receive a penalty of £100, with this sum increasing the longer you leave it. If a partnership tax return is late, all partners will have to pay a penalty.
What if you make a mistake?
If you realise that you’ve made a mistake on your tax return, don’t fret – you’re able to make amendments after you’ve filed it. But the deadlines are as follows:
- 31 January 2023 for the 2020-21 tax year
- 31 January 2024 for the 2021-22 tax year
Intouch contractor accountancy services
If you are an Intouch Accounting customer, your personal contractor accountant will have already been in touch to guide you through the process and make sure you know exactly what needs to be submitted.
We offer complimentary completion of a SATR for one employee as part of our comprehensive monthly accounting services for freelancers. If you want to find out about the many other features of this plan, contact the best Limited Company accountants, Intouch Accounting, by calling 01202 375758 today.