4.6 million self-employed workers need to complete a tax return…do you?

Authored by Emma Simon.
5 min read
man calculating business tax

With the impending Self Assessment tax return deadline rolling around, Heather Dore, Regional Manager of Easy Accountancy (external link) answers some of your most commonly asked tax return questions.

For some of my jobs I am paid in cash by my clients. How is it best to record this income in case HM Revenue and Customs (HMRC) ask to view it?

Whether you are paid by bank transfer, cash, cheque or PayPal you are required to record your income. It is recommended that you keep a spreadsheet to record your income and outgoings. It is also advisable to keep copies of sales receipts and invoices as proof of income for seven years in case HMRC make an enquiry into your return.

As a self-employed individual, what are some of the costs that I can claim as a business expense?

Business expenses are costs that are incurred solely and exclusively for your business. Some common examples of costs that could be claimed as business expenses are equipment, travel, accommodation, training courses and protective clothing to name a few. You can see more in our expenses infographic.

How do I claim tax relief on costs that I want to claim as a business expense?

To claim tax relief on business expenses you need to note your expenses on your tax return. The total amount that you have spent on business expenses is then deducted from your annual income or profits. You are only required to pay income tax on your income and so you are receiving tax relief on business expense costs.

Say I have a low-level addition income – for example, I own bees and occasionally sell jars of honey. I make on average £800 a year, which is well below my personal allowance. Am I still required to complete a tax return?

If you are self-employed, no matter how much or how little you are earning you are still required to submit a tax return. HMRC will then calculate the amount of tax that you are required to pay based on your income for the year.

When do I have to complete my tax return by?

The deadline for the upcoming 2013/14 tax year for online returns is 31st January 2015.

What happens if I miss the tax return deadline?

If you miss the deadline of the online return you will automatically incur a penalty of £100. If your return is three months late you will incur a further penalty of £10 for each day your return continues to be late up to a maximum of £900 or 90 days.

If HMRC have not received your return six months after the deadline you will incur a further fine of either £300 or five per cent of your total tax bill, whichever is the larger amount.

If your return is 12 months late you will again incur a further penalty of either £300 or five per cent of the total tax due. You may then be liable for further penalties depending on your circumstances.

What happens if I don’t pay my tax bill by the deadline?

If for whatever reason you are unable to pay your tax bill on time it is worth contacting HMRC as depending on your circumstances you may be able to negotiate a deadline extension or the option of paying your tax bill in instalments.

Failure to pay your tax bill on time without first contacting HMRC will leave you liable for further penalties.

Interest is usually charged on unpaid tax bills from the deadline to the date that the payment is received. If your tax bill has not been paid by February 28th then you may incur a five per cent penalty.

If your tax bill has still not been received by July 31st then another five per cent charge will be made, and if the tax is more than a year late you may receive a penalty equal to the amount of unpaid tax.

Can I edit my return once it has been sent in?

It is possible to amend your return once it has been submitted. The deadline for tax return amends is 12 months following the tax return deadline.

If you have submitted your return online you can make amends by logging into your online account on the HMRC website. If you have completed a paper return then the usual correction procedure is to send HMRC the correct pages of your paper return and mark them for amendment.

How long does HMRC have to investigate my return once I have submitted it?

If HMRC decides to investigate your tax return they will contact you in writing, within 12 months of receiving your return.

If you have amended your return or submitted your return late, HMRC is entitled to an enquiry window of 12 months following receipt of your tax return and up until the next “quarter day”. The quarter days are January 31st, April 30th, July 31st and October 31st.

How long do I have to keep my records for?

If HMRC decides to enquire into your return they may ask to see proof of income, expense receipts and other records such as bank statements. It is recommended that self-employed individuals keep copies of these records, in particular, expense receipts and proof of income for seven years in case HMRC request to view them.

You can find more information on tax returns on the Easy Accountancy website.  (external link)If you’re interested in learning about the protection Hiscox offer self-employed professionals, visit our freelance and sole traders insurance policy page.

Heather Dore is Regional Manager at Easy Accountancy, sister company of SJD Accountancy. For more information on Hiscox’s partnership with SJD Accountancy please visit http://www.hiscox.co.uk/sjd/.

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At Hiscox, we want to help your small business thrive. Our blog has many articles you may find relevant and useful as your business grows. But these articles aren’t professional advice. So, to find out more on a subject we cover here, please seek professional assistance.

Emma Simon

Emma Simon is an award-winning consumer journalist with over 20 years’ experience of writing about money, property, travel and business. She is a former personal finance editor of the Sunday Telegraph, deputy money editor of the Daily Telegraph and personal finance correspondent at the Press Association. She writes for a number of national newspapers, including the Sunday Times, the Guardian and the Mail on Sunday.