Self Assessment Tax Return: How To Stay On Top Of It

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This post will share how I stay on top of my self-assessment tax return.

It’s that time of the year again when self-employed people run helter-skelter trying to file their tax returns before the end of January.

Yes, you will incur penalties if you fail to file your self-assessment tax return every year before the end of January 31st.

I’m not sure why people wait till the last minute, especially since you could quickly have filed at the beginning of the tax year in April or sometime during the year.

I do not like to leave things until the last minute, including my tax returns.

The stress and anxiety are not worth it, so I get it done as early as possible and forget about it.

I file mine at the beginning of the tax year in April.

I find it more convenient.

Also, I have systems to ensure I do not spend more than an hour on it.

Yes, it can be taxing, especially if you’re doing it yourself, but you’ll get a hang of it after the first few years.

Some people hire accountants, but I don’t make enough money to justify one, so I do it myself.

I promise it is not hard if you track your income and expenses throughout the year.

It becomes tedious when your records are disorganised, which becomes an additional job.

Also, filing early lets you know how much you’ll need to save if you eventually need to pay taxes.

There’s nothing worse than being hit with an unexpected tax bill from HMRC; it is the worst!

With that out of the way, let’s get into more details.

Here’s how to ensure your Self-assessment tax return never catches you unawares.

As someone with a full-time job under PAYE, I also have a side hustle that makes over £1,000 in a tax year, which means I must file a tax return.

The current tax-free trading allowance is £1000, so anything over that requires you to file a self-assessment return.

Some people might prefer not to declare their income, but I would rather not deal with the anxiety of getting caught by HMRC.

Again, it is the worst and not worth the stress.

Also, being honest and transparent upfront removes any chances of being investigated for tax evasion.

So, a few years ago, I registered with HMRC as self-employed and got my Unique Taxpayer Reference (UTR) number.

It goes without saying that that is the first thing you need to do when you become self-employed or when your trading income/revenue (not profit) grosses £1,000 in a tax year.

This post is not a self-assessment guide; you can get all the details from the government’s website.

I will share how I manage my business finances as a self-employed individual.

Managing business finances

As I mentioned earlier, the best way to ensure that filing your tax returns is stress-free is to track your income and expenses during the tax year.

This way, at the beginning of the tax year, you can input all the data and complete your self-assessment tax return in thirty minutes.

Get a separate bank account for your business income and/or expenses

The first thing I did when I became self-employed was to get a separate bank account.

I opened a personal Starling account because it was seamless.

A business account would have incurred some fees, which I wanted to avoid, so a personal account was perfect.

My Starling account was my main business account until I started receiving income in USD.

Then I had to open a Wise account because conversion fees are low, the exchange rate is decent, and I can receive money in about forty currencies.

It’s an excellent choice if you ask me.

I made Wise a dedicated income account with both accounts and Starling an expense account.

This way, I could track my incomings and outgoings and only transfer what I need.

If you can’t do this, open a Wise account and use it for income and expenses.

Get a bookkeeping app.

With a dedicated business bank account, you have saved yourself a couple of hours you would have spent while filing your self-assessment tax returns.

To save even more time, you need a bookkeeping app, specifically one tailored to the self-employed.

I promise it is a game-changer.

Until I transition into a Limited Company, I will continue to sing the praises of Quickbooks Self-Employed.

It makes my life so easy that I only need roughly thirty to forty-five minutes to file my tax returns.

Here are the key things that make Quickbooks Self-Employed special:

• Connecting your bank account lets you seamlessly track your income and expenses.
• You can also send invoices and upload receipts.
• The software is structured so that you can manage and categorize transactions based on the self-assessment framework. This ensures you can start working towards it every month, so by the time it is time to file your returns, you only need to input your figures into the HMRC website, and you’re good to go.
  • To avoid a backlog of transactions, I organize them frequently, at least once a month or after significant outgoings. This ensures accuracy.
• You can also get an income tax estimate, which allows you to save toward it. Don’t forget that you get a tax-free personal allowance of £12,750, after which you pay a 20% tax rate on all income, including self-employed income. (Yes, I learnt the hard way.)
• There’s also a self-assessment template where you can get an overview of all the categories you can potentially claim as expenses. For anyone intimidated by the entire process, this is a great way to ease into it, so when it’s time to fill the real thing, you’re a lot more confident.

In Conclusion

There’s honestly no reason you should be intimidated by your self-assessment returns.

Again, once you get the hang of it, it’s pretty straightforward.

Then, you can file it, pay whatever tax you owe, and forget about it until the next tax year.