What Is Self Assessment?
Self Assessment is the method used by HMRC to collect Income Tax from individuals and businesses with income that is not taxed automatically at source. This includes income from self-employment, property rentals, interest on savings, dividends, and various other earnings.
When you are employed, your employer deducts Income Tax and National Insurance directly from your salary through the Pay As You Earn (PAYE) system. However, as a self-employed person or sole trader, you are responsible for declaring your income and calculating your tax liability yourself. This is done through the Self Assessment process.
Who Needs to File a Self Assessment Tax Return?
Not everyone in the UK is required to file a Self Assessment return. You need to do so if you fall into any of the following categories:
- You earned more than £1,000 from self-employment during the tax year
- You are in a business partnership
- You earned untaxed income, such as rental income or dividends
- You received income from abroad
- You earned income over certain thresholds from investments or savings
- You want to claim tax reliefs or allowances not handled automatically
- You need to prove your income for mortgage or visa applications
If you are unsure whether you need to file, HMRC’s online tool can help determine your filing requirement.
The Importance of Registering for Self Assessment
Before you can file a tax return, you must first register with HMRC for Self Assessment. This process is crucial because it allows HMRC to create your tax records and issue your Unique Taxpayer Reference (UTR), a ten-digit number that is essential for filing returns.
If you have not previously submitted a tax return, you should register as a new self-employed person as soon as you begin earning income. The latest you can register without penalty is by 5th October in your business’s second tax year. For example, if you started working for yourself between 6th April 2024 and 5th April 2025, you must register by 5th October 2025.
How to Register as a Sole Trader for Self Assessment
Registering as a sole trader for Self Assessment can be done online or by completing and sending a physical form to HMRC. Here’s what the registration process typically involves:
- Create a Government Gateway account on HMRC’s website
- Complete the registration for Self Assessment and self-employment
- Receive your UTR number by post within ten working days
- Use your UTR to access your personal tax account and begin managing your returns
Once you are registered, HMRC will expect a return from you each year unless you inform them that you are no longer trading.
Understanding the UTR (Unique Taxpayer Reference)
The UTR number is a unique identifier used by HMRC to track your tax records. It will appear on most of the correspondence you receive from HMRC and is required for logging into your tax account, completing tax returns, and paying your tax bill.
You should store your UTR number securely. If you lose it, you can retrieve it by accessing your HMRC online account or contacting HMRC directly.
Overview of the Tax Year and Important Dates
The UK tax year runs from 6th April to 5th April of the following calendar year. It is during this period that your business income, expenses, and other relevant earnings will be assessed for tax purposes.
Filing deadlines are strict, and missing them can lead to penalties and interest charges. The key dates for sole traders include:
- 5th October: Deadline to register for Self Assessment
- 31st October: Deadline for submitting a paper tax return
- 31st January: Deadline for submitting an online tax return and paying your bill
- 31st July: Deadline for the second payment on account, if applicable
Preparing ahead of these deadlines is one of the best ways to avoid fines and manage your cash flow efficiently.
National Insurance Contributions for Sole Traders
As a sole trader, you are responsible for paying two types of National Insurance contributions:
- Class 2: A fixed weekly amount if your profits exceed the lower threshold (this may change annually)
- Class 4: A percentage of your profits above a certain limit
These contributions go toward your entitlement to state benefits such as the State Pension, Maternity Allowance, and Employment and Support Allowance. National Insurance is calculated and paid through your annual Self Assessment return.
Self Assessment Tax Return Forms
Once registered, you will need to complete the appropriate tax return forms. The main form is SA100, which covers your personal income, tax allowances, and overall tax liability.
As a self-employed person, you will also need to complete one of the following supplementary pages:
- SA103S: For those with a turnover below the VAT threshold
- SA103F: For those with a turnover above the VAT threshold
Depending on your circumstances, you may also need to complete other supplementary forms:
- SA102: For employment income
- SA105: For UK property rental income
- SA106: For foreign income
- SA107: For trust income
- SA108: For capital gains
You are only required to fill in the sections relevant to your income. HMRC provides guidance notes to help you understand which parts to complete.
Bookkeeping and Record-Keeping Requirements
Maintaining accurate financial records is a legal requirement and essential for completing your tax return correctly. You must retain records of all income and expenses that relate to your business. This includes:
- Sales invoices
- Purchase receipts
- Bank statements
- Mileage logs
- Utility bills if claiming home office costs
- Loan agreements or finance documents if applicable
These records must be kept for at least five years after the 31st January submission deadline of the relevant tax year. Keeping detailed records will make completing your tax return easier and support your claims in the event of an HMRC audit.
Understanding Allowable Business Expenses
Sole traders can reduce their taxable profit by deducting allowable business expenses. These are costs that are incurred solely for the purpose of running the business.
Common allowable expenses include:
- Office supplies and stationery
- Raw materials or goods for resale
- Utility bills for business premises
- Vehicle fuel, maintenance, and insurance used for business travel
- Professional services such as legal or accounting advice
- Marketing, website hosting, and advertising costs
- Business insurance premiums
- Phone and broadband bills, where a business portion is used
- Subscriptions to industry-related publications or organisations
It is important to note that you can only claim the portion of the expense that is used for business. For example, if you use your personal phone for business and personal calls, only the business portion is deductible.
Simplified Expenses for Home-Based Sole Traders
If you work from home, HMRC allows you to use simplified expenses to claim a flat rate for home office costs. This flat rate is based on the number of hours you work from home each month and eliminates the need to calculate the exact proportion of your bills.
While simplified expenses are easier, some traders may benefit more from calculating actual costs if they have higher business-related home expenses. Reviewing both methods can help you choose the most beneficial approach for your situation.
Keeping Your Business and Personal Finances Separate
Although not legally required, opening a separate business bank account is highly recommended. It simplifies the process of tracking income and expenses and reduces confusion when completing your tax return.
Separate financial records also make it easier to provide evidence of your business activity, which can be useful for applying for loans, grants, or mortgages.
Using Accounting Software to Stay Organised
Digital accounting tools are increasingly popular with sole traders. They can help with tasks such as invoicing, recording expenses, generating financial reports, and tracking income in real time.
Using software to manage your books can streamline the Self Assessment process. It helps ensure nothing is missed and allows you to complete your tax return more accurately. Some platforms even allow direct submission of your tax return to HMRC through approved APIs.
Getting Ready to File Your Return
After registering for Self Assessment and receiving your Unique Taxpayer Reference (UTR), the next critical task is preparing to file your tax return. As a sole trader, your responsibility is to report your business income and relevant expenses accurately to HMRC. This ensures that your Income Tax and National Insurance contributions are calculated correctly.
The filing process can be smooth and stress-free if you begin preparations early. Organising your records, choosing the correct forms, and understanding the various submission options are essential steps.
Information and Documents You Will Need
Before you start completing your tax return, gather all necessary documents and records. Having this information on hand will make the process quicker and reduce the chance of mistakes.
Common documents and information include:
- Your UTR and National Insurance number
- Details of your self-employment income
- Records of your business expenses
- Invoices, receipts, and bank statements
- Interest statements from banks or building societies
- Dividend statements, if applicable
- Details of any other income such as rental property or investments
- P60 or P45 if you had employment during the year
- Details of pension contributions or charitable donations you wish to claim
Once you have all your data ready, you can proceed to complete the forms either on paper or online.
Filing a Paper Tax Return
Filing by paper is the more traditional method, but it comes with an earlier deadline and less flexibility compared to online filing.
The main form is the SA100, which is the core Self Assessment tax return form. If you are self-employed, you will need to complete supplementary pages: either SA103S (short form) or SA103F (full form).
SA103S vs SA103F
- SA103S is for sole traders with a business turnover under the VAT registration threshold
- SA103F is for those whose turnover exceeds the VAT threshold or who wish to provide more detailed business accounts
These supplementary forms collect information about your business income, allowable expenses, and adjustments. You’ll also be asked about capital allowances, simplified expenses, and losses from previous years if relevant.
Once completed, the forms must be posted to HMRC. Paper returns must be received by 31st October following the end of the tax year. It is advisable to send your return using a tracked postal service and keep a copy of everything for your records.
Submitting Your Tax Return Online
Filing your tax return online offers many advantages including extended deadlines, immediate confirmation of receipt, automatic calculations, and real-time access to your tax account.
To use this service, you need a Government Gateway user ID and password. Once logged into your personal tax account, you can access the Self Assessment section and begin completing your return.
The online system is designed to guide you through the process, presenting you with only the sections that are relevant based on your responses. This simplifies the experience and reduces the likelihood of errors.
Key Benefits of Online Filing
- Submission deadline is extended to 31st January
- Instant confirmation that your return has been received
- Automatic calculations of your tax liability
- Ability to amend your return after submission if needed
- Secure access to previous returns and tax history
Once submitted, HMRC will calculate how much tax you owe and update your account with your payment obligations.
Understanding the Tax Calculation
When you complete your Self Assessment return, your total taxable profit is determined by subtracting your allowable business expenses from your total business income. This figure is then used to calculate:
- Income Tax payable for the tax year
- Class 2 National Insurance (if profits exceed the lower limit)
- Class 4 National Insurance (on profits above the relevant threshold)
The Income Tax rates and thresholds vary depending on your total income and personal allowance for the tax year. For most sole traders, the personal allowance is a fixed amount of income that is tax-free, with the remaining income taxed at the basic, higher, or additional rates. National Insurance contributions are calculated based on your business profits and are added to your total tax bill. The online system performs these calculations for you.
Making Payments and Understanding Payment on Account
Once your tax return is submitted and your tax liability has been calculated, the next step is paying what you owe.
Most sole traders are required to make two advance payments toward their next year’s tax bill. These are known as payments on account. Each payment is typically half of the previous year’s tax bill and is due in two instalments:
- First payment on 31st January
- Second payment on 31st July
If your actual tax bill for the following year ends up being lower, you may request a reduction in your payments on account. If it’s higher, a balancing payment will be due by 31st January the following year. Failing to make payments on time can result in interest charges and penalties. Ensuring you’re aware of the due dates and amounts is critical for staying compliant.
Supplementary Forms You Might Need
In addition to the main SA100 and self-employment pages, you may need to submit other supplementary forms depending on your income sources.
- SA102: For individuals who had employment income alongside self-employment
- SA105: For reporting income from UK property rentals
- SA106: If you earned income from overseas
- SA107: If you received income from trusts
- SA108: If you disposed of assets and need to report capital gains
Each form serves a specific purpose and requires supporting information. Be sure to include them if they apply to your situation. Omitting relevant forms can result in incorrect tax calculations and potential penalties.
Handling Business Losses and Tax Relief
If your business made a loss during the tax year, you may be able to claim relief by offsetting the loss against other income. This could reduce your overall tax liability and potentially lead to a refund.
Common ways to use a business loss include:
- Offsetting it against other income in the same tax year
- Carrying it back to a previous year’s profits
- Carrying it forward to offset future profits
Each option has its own conditions, and it is important to ensure the correct treatment is applied when completing your return.
Claiming Tax Reliefs and Allowances
In addition to deducting business expenses, you may be eligible to claim various tax reliefs and allowances. These can help reduce the amount of tax you owe and include:
- Marriage allowance
- Trading allowance (for income under £1,000)
- Capital allowances for business equipment or vehicles
- Tax relief on pension contributions
- Gift Aid donations to registered charities
Including these reliefs in your tax return can help lower your tax bill. Be sure to keep records of any contributions or payments made that support your claims.
Amending Your Tax Return
If you realise after submission that you’ve made a mistake, you can amend your return. For online returns, amendments can be made through your HMRC account up to 12 months after the filing deadline.
For example, if you submitted your 2024/25 return by 31st January 2026, you have until 31st January 2027 to make any changes.
Common reasons for amending a return include:
- Incorrect income figures
- Forgotten expenses or allowances
- Updated bank interest or dividend information
- Late receipts or invoices
It’s always better to correct a return yourself than wait for HMRC to flag an issue, as proactive amendments reduce the risk of penalties.
Keeping a Copy of Your Submitted Return
After you have filed your return, make sure to keep a digital or paper copy for your records. It’s also advisable to save a copy of the calculation summary that shows how your tax was worked out.
These documents can be useful for reference in future years, applying for loans or mortgages, or responding to HMRC inquiries.
Late Filing and Penalties
Missing the filing or payment deadlines can result in penalties and interest charges. The initial penalty for missing the 31st January deadline is £100, even if no tax is owed.
Further penalties may apply as follows:
- After 3 months: £10 per day for up to 90 days
- After 6 months: Additional £300 or 5 percent of tax due (whichever is higher)
- After 12 months: Further £300 or another 5 percent of tax due
Interest also accrues on late payments, so it’s crucial to pay on time or contact HMRC to set up a payment plan if needed.
Future Tax Years
Once you have completed your return for the current tax year, it’s helpful to start planning for the next. Good habits such as monthly record updates, saving for tax bills in advance, and staying informed about tax changes will make future filings easier.
Some sole traders choose to set aside a fixed percentage of their income in a separate savings account each month. This approach helps ensure they are prepared when the payment deadlines arrive and reduces the risk of financial strain.
Importance of Maintaining Accurate Financial Records
For every sole trader, maintaining comprehensive and accurate financial records is not just a matter of organisation—it is a legal requirement. These records form the basis of your Self Assessment tax return and can serve as critical evidence in the event of an HMRC inquiry or audit.
Keeping detailed records ensures that the figures you submit are accurate and that any claims for business expenses are properly documented. It also simplifies the tax return process when deadlines approach and reduces the likelihood of mistakes or omissions.
HMRC requires records to be kept for at least five years after the 31 January deadline following the end of the tax year. For example, for the 2024 to 2025 tax year, records should be retained until at least 31 January 2031.
Types of Financial Records You Should Keep
The financial records required can vary depending on the nature of your business, but there are key documents that every sole trader should maintain, including:
- Sales invoices and receipts
- Records of payments from clients or customers
- Business-related expenses and purchase receipts
- Mileage logs for business travel
- Vehicle usage records if claiming motor expenses
- Bank and credit card statements
- Cashbook entries
- Payroll records if you employ anyone
- VAT records if you are VAT-registered
Keeping digital and physical copies of all relevant records ensures that they are readily accessible when preparing your tax return.
Best Practices for Organising Business Records
To manage your records efficiently, consider implementing the following practices throughout the year:
- Use a dedicated business bank account to separate personal and business finances
- Label and categorise expenses immediately after transactions occur
- Store digital copies of paper receipts to prevent loss or damage
- Update your income and expenditure records at least monthly
- Keep backups of your digital financial records
These steps not only help you stay compliant but also provide useful insights into your cash flow, profitability, and areas where costs might be reduced.
Allowable Expenses for Sole Traders
Claiming allowable business expenses is an essential way to reduce your taxable profits. As a sole trader, you can deduct expenses incurred wholly and exclusively for business purposes.
Expenses you may be able to claim include:
- Costs of goods and materials purchased for resale or production
- Office supplies such as paper, pens, ink, and postage
- Rent, rates, utilities, and insurance for business premises
- Marketing and advertising costs including websites, business cards, and online campaigns
- Subscriptions to trade or professional bodies
- Accountancy and legal fees related to your business
- Software or digital tools used for business management
- Mobile phone and internet bills (business portion only)
- Business-related travel expenses including mileage, fuel, parking, and tolls
It is important to retain original documentation for every expense you claim. HMRC can request proof if your return is reviewed or investigated.
Claiming for Use of Home as Office
Many sole traders operate their businesses from home, particularly during the early stages. If this applies to you, you may be entitled to claim a proportion of your home costs as business expenses.
There are two main ways to claim home office expenses:
- Flat Rate Method (Simplified Expenses):
HMRC provides a flat rate depending on the number of hours you work from home each month. This method is quick and requires minimal record keeping. - Actual Costs Method:
Alternatively, you can calculate the actual business use of your home by measuring the business portion of your household bills. For example, if one room in a five-room home is used exclusively for business, and your total utility bill is £1,000 annually, you might claim £200 if that room is used 100% for work.
Choose the method that provides the most tax-efficient outcome for your circumstances and ensure you document how the calculation was made.
Vehicle and Travel Expenses
If you use a vehicle for business, either partially or exclusively, you can claim the associated costs. You have two options for claiming:
- Simplified Mileage Method:
Claim a flat rate per mile travelled for business purposes. The current rate for cars is 45p per mile for the first 10,000 miles, and 25p per mile thereafter. You must keep a mileage log with dates, destinations, and purpose of travel. - Actual Costs Method:
Claim a proportion of the total vehicle costs including fuel, insurance, road tax, maintenance, and repairs based on business use. You will need to maintain detailed records to justify the percentage used for business.
Whichever method you choose, be consistent year to year unless changing vehicles or business circumstances.
Avoiding Common Mistakes with Expenses
Claiming expenses incorrectly can lead to reduced tax savings or even penalties. To avoid mistakes, consider the following guidelines:
- Only claim the business-use portion of mixed-use costs
- Don’t claim capital items like machinery or equipment as running costs; use capital allowances instead
- Keep receipts and records for all claims
- Don’t include personal expenses in business records
- Review HMRC’s list of allowable expenses regularly, especially if rules change
Accurate claims not only lower your tax liability but also improve the credibility of your return should it be reviewed by HMRC.
Using Digital Tools to Simplify Bookkeeping
Technology offers valuable tools that can simplify your record keeping, expense tracking, and tax return preparation. Many apps and accounting platforms are tailored specifically for sole traders and small business owners.
These tools can help you:
- Automatically import bank transactions
- Create and send invoices
- Track income and expenses in real time
- Generate profit and loss reports
- Store receipts using mobile scanning features
- Prepare for Self Assessment filing with automated calculations
Some platforms also offer tax estimate features that help you see how much you’re likely to owe based on current data. Others can integrate with HMRC’s systems for Making Tax Digital (MTD) compliance.
Choosing the Right Software or Method for You
There is no one-size-fits-all approach to managing your bookkeeping or tax reporting. Some sole traders are comfortable using spreadsheets to log income and expenses manually, while others prefer the automation and integrations that software provides.
When choosing an accounting solution, consider:
- The size and complexity of your business
- Your budget and willingness to invest in software
- Whether you need mobile access or cloud-based functionality
- Whether you want to manage your return yourself or work with an accountant
For some businesses, a simple spreadsheet may be sufficient. For others, especially those with multiple income streams, paid software with robust features may be the better investment.
Planning Ahead for Future Tax Years
Proactive planning is one of the most effective ways to remain compliant and financially prepared. Tax rules and thresholds change frequently, so staying informed is essential.
Strategies to consider include:
- Setting aside a percentage of your income for tax purposes throughout the year
- Reviewing your financials quarterly to monitor profit trends and forecast tax obligations
- Creating a separate savings account for tax payments to avoid shortfalls
- Scheduling monthly admin time to update and reconcile financial records
- Consulting with a tax adviser or accountant before making large purchases or structural changes to your business
Preparing early and often gives you more time to explore legitimate tax-saving opportunities and lessens the pressure around Self Assessment deadlines.
Making Use of HMRC Guidance and Support
HMRC offers a wide range of support tools and documentation for sole traders, including:
- Webinars and video guides on filing Self Assessment
- Toolkits for common tax areas
- Live chat and phone support for specific queries
- Online calculators for estimating Income Tax and National Insurance contributions
These resources can help clarify rules and obligations, especially if you’re new to self-employment. Refer to official guidance when in doubt and stay updated with any changes to filing procedures or tax reliefs.
What to Do if You Receive an HMRC Enquiry
Occasionally, HMRC may open an enquiry into your tax return. This is not necessarily an indication of wrongdoing. Enquiries can be random or prompted by unusual figures.
If selected, HMRC may request:
- A breakdown of your income and expenses
- Proof of purchases and invoices
- Explanations for claims made on your return
- Copies of bank statements or contracts
Respond to all correspondence professionally and within the given deadline. If you need support, you may consider engaging a qualified accountant or tax adviser to assist with the response. Keeping your records accurate and accessible will make this process far less stressful.
When to Consider Professional Help
While many sole traders manage their tax affairs independently, there are circumstances where professional guidance can be invaluable. You may wish to hire an accountant or tax adviser if:
- Your income sources are varied or complex
- You have made capital gains or significant asset purchases
- You plan to employ others and need support with PAYE
- You want advice on tax efficiency and long-term planning
- You receive a letter from HMRC indicating an audit or compliance check
Working with a professional can help you identify reliefs you may have missed, ensure compliance, and give you peace of mind that your tax affairs are in order.
Conclusion
Filing a Self Assessment tax return may initially seem like a complex and time-consuming task, but with the right knowledge, preparation, and tools, it becomes a routine part of managing your business. As a sole trader, understanding your responsibilities—from registration and record-keeping to expense claims and submission deadlines—can significantly reduce stress, improve accuracy, and help you avoid costly penalties.
By registering on time, maintaining detailed and organised financial records, and accurately completing your tax return using the appropriate forms, you not only meet legal obligations but also gain valuable insights into your business’s financial health. Taking advantage of allowable expenses and tax reliefs further ensures you’re not paying more tax than necessary.
Using modern bookkeeping tools and staying up to date with HMRC’s guidance helps you remain compliant and efficient throughout the tax year. Whether you choose to file your return independently or with professional support, consistency, organisation, and awareness of deadlines are your strongest allies.
Ultimately, managing Self Assessment successfully is about building good financial habits, being proactive rather than reactive, and keeping your focus on what you do best—running and growing your business. With each tax year, the process becomes more familiar, empowering you to take full control of your financial responsibilities with clarity and confidence.