As the UK’s financial year draws to a close, the question arises: as a sole trader, when do I need to submit my Income Tax return? In this article, we will run you through the essential points when it comes to fulfilling your self-employment Income Tax obligation. From understanding the tax year to grappling with the Income Tax Self Assessment, read on for more details!
Understanding the tax year
What is the tax year?
In daily life, we celebrate a “new" year which begins every 1 January. However, the tax year (also known as the “financial year”) in the UK does not align with this date. Instead, the UK’s tax year refers to a specific period of time beginning and ending every April.
When is the current tax year?
The tax year runs from 6 April until 5 April in the following year. For example, Friday 5 April 2024 is regarded as the end of the year in the eyes of HMRC. The new tax year will begin the following day, lasting from 6 April 2024 to 5 April 2025. As a sole trader, it is important to bear this in mind when keeping track of finances and planning for upcoming tax compliance.
Are taxes due in April?
Although essential for bookkeeping, the end of the tax year does not necessarily mean an impending deadline. That being said, you should always be aware of your upcoming tax obligations. Below, we outline the typical timeline for Income Tax Self Assessment – an essential Income Tax formality for sole traders (self-employment).
Income Tax Self Assessment
What is income tax?
Income Tax, as the name suggests, is the tax we pay on the money we earn. In a traditional job, your employee typically takes care of this. However, as a sole trader, the situation is different: your self-employment earnings form part of your personal income and it is your duty to report them to HMRC (alongside any other relevant income) and pay the tax yourself.
What is Income Tax Self Assessment?
Sole traders earning more than £1,000 per tax year must declare income through the Income Tax Self Assessment form and pay the required tax. This typically takes the shape of an online form in which you list and calculate your taxable income(s) and state any business expenses. It is also possible to submit a paper-based Self Assessment, although this is less encouraged due to a higher risk of error.
The precise details of your Income Tax will depend on your earnings and associated tax band (which determines the percentage of tax you pay):
- For earnings up to £12,570, the tax rate is currently 0%. This is called your Personal Allowance.
- For taxable income between £12,571 and £50,270, you must pay 20% tax. This is the “Basic Rate” in England, Northern Ireland or Wales in 2024.
- If you live in Scotland, or earn more than £50,270, it is important that you check the tax rates and tax allowances applicable to your circumstances.
Self Assessment deadlines
- Self Assessment forms should be filled in and submitted after the completion of the tax year concerned (i.e. after 5 April).
- If you have not filed a Self Assessment before, then you must set up as a sole trader and register for Self Assessment by 5 October.
- If you want to submit a paper tax return, this is usually due 31 October (midnight).
- If you want to submit your Self Assessment online, this is usually due 31 January (midnight).
- The usual deadline for paying the tax you owe is also 31 January (midnight).
Example
Let us imagine a scenario relating to the tax year 2023–2024:
You have recently started selling homemade items online. You earned £3,000 in the tax year from 6 April 2023 to 5 April 2024. Since it is your first time, you need to set up as a sole trader. You must notify HMRC by registering for Self Assessment by 5 October 2024. Wanting to avoid the hassle of a paper-based tax return, you decide to submit online. You must submit your Self Assessment and pay the tax owed by 31 January 2025.
Always make sure to check deadlines on the HMRC website well in advance, in case of any changes.
Software and filing tax online
Luckily, there is some handy software available to make the Self Assessment process easier. First, HMRC provides a service to check your Income Tax for the current year. Following the instructions there, you should be able to work out details such as your Personal Allowance and expected taxable income.
Second, HMRC-approved services such as AbraTax can help you to complete your Income Tax Self Assessment online for free. Simply set up an account and fill in a short form to calculate the tax due and submit your return. If your business turns over more than £85,000 per year, then we can also help you to submit your VAT Return in accordance with the Making Tax Digital (MTD) initiative.
Conclusion
It’s important as a sole trader to get familiar with Income Tax. If you are earning more than £1,000 per tax year (6 April–5 April), then you should be prepared to notify HMRC (if it is your first time) and submit your Income Tax Self Assessment by the relevant deadline. Although it can sound daunting, the process can be made smoother by the use of online tools such as AbraTax. At the end of the day, being self-employed can have huge benefits on our wellbeing and finances: just make sure to keep on top of the formalities!
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