How to file a Self Assessment tax return online: A step-by-step guide

Thinking about how to file a tax return online so you can make the Self Assessment deadline of 31 January? You're not alone.

According to Google Trends, searches for 'tax return' start increasing towards the end of December, while HMRC revealed 12,057 returns were submitted on Christmas Day and Boxing Day in 2019.

However, while 11.1 million people filed by 31 January in 2020 (with more than 10.4 million filing online), more than 958,000 missed the deadline, incurring a fine. Meanwhile, just over 702,000 filed their returns on deadline day.

Filing a tax return online can seem daunting but good preparation can take the pain out of this task and help you complete it ahead of the deadline.

This article discusses whether you need to file a tax return and how to do it. It will also provide you with details about dates, penalties and allowable expenses, and look at why many businesses use an accountant.

That last part is important because this article doesn't replace legal or professional advice. If you're in any doubt, contact HMRC or a professional.

This guide to filing a Self Assessment tax return covers the following topics:

Do you need to file a tax return?

For employees and pensioners, tax is typically deducted automatically at source from wages and pensions. But people and businesses with other income not deducted at source, and above a certain level, must report it in a Self Assessment tax return.

If, in the last tax year (6 April 2019 to 5 April 2020), you were self-employed as a sole trader and earned more than £1,000, you must file a tax return. You must also file one if you were a partner in a business partnership or director of a limited company whose income was not taxed at source and/or you have further tax to pay.

Even if your main income is from your wages or pension, you may still need to send a return if you work in certain sectors, were paid more than £100,000 via a PAYE salary scheme or have any other untaxed income, such as from:

• Renting
• Tips and commission
• Savings, investments and dividends
• Foreign income.

You can also file a tax return online to claim some income tax reliefs or prove you are self-employed, for example, to claim Tax-Free Childcare or maternity allowance.

HMRC offers this decision tree if you are still not sure whether you need to file a return.

Nick Levine, former Head of Enterprise at the Institute of Chartered Accountants in England and Wales (ICAEW), offers some further advice: 'If HMRC has sent you a notice to file a return, you must complete one.

'Even if you have not received such a notice, you may still need to file a tax return if you had a new source of income or capital gains in the last tax year on which you need to pay tax - if so, tell HMRC straight away.'

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Tax return dates and deadlines

For the last tax year, the deadline for registering for Self Assessment if you are self-employed or a sole trader was 5 October 2020.

The deadline for filing paper tax returns was midnight on 31 October 2020. The online deadline is midnight on 31 January 2021.

However, as a one-off measure for the 2019/20 tax year, you can submit your Self Assessment tax return as late as midnight on 28 February 2021 without incurring a penalty.

Once you've completed your first tax return, in addition to whatever tax and National Insurance (NI) is due for the previous tax year, you may also have to make two payments towards your upcoming tax bill for the current tax year we're in right now.

This is known as payments on account, and you'll have to do it every year moving forward.

The exception is if your last Self Assessment tax bill was less than £1,000, or you've already paid more than 80% of all the tax you owe at source in the previous year (note that underpaid tax collected via PAYE in the following year also counts as being deducted at source).

The first deadline for paying the tax you owe on account is also midnight on 31 January for the first payment on account, and 31 July for the second.

Here's an example.

If Jane Smith has a Self Assessment bill of £3,000 for 2018/19, she'll have to pay £4,500 by 31 January - £3,000 for 2018/19, and the first instalment of £1,500 in advance for the 2019/20 tax and NI bill. Then, by 31 July, she'll have to pay the remaining £1,500.

How to register and file a tax return online

The reasons that nearly 94% of tax returns are filed online are because, according to HMRC, it is easy, secure, available 24 hours a day, and you can sign up for email alerts and online messages to help you manage your tax affairs.

If you have not completed a tax return online before, you will need to register for an HMRC online account.

When you have signed up, HMRC will post you an activation code. This can take 10 working days to arrive - or up to 21 days if you are abroad - so do this well in advance. You will also receive a user ID and Unique Taxpayer Reference (UTR).

If you have filed a return before but not last year, you will need to register again.

Before applying online for Self Assessment, gather all the information you need in advance. You will need your UTR, National Insurance number and employer reference, if you have one. You may need your P60 end of year certificate, P11D expenses or benefits, P45 details of employee leaving work, payslips and or your P2 PAYE coding notice.

Now you are ready to tackle the online form itself. (Here is the pdf version of the printed form if you want to familiarise yourself with the sections and information you're likely to need to supply.)

You will need your bank or building society statements at hand, and if you work for yourself, you may need your profit or loss account or other business records too.

The first section asks for personal details. The next asks about where you have received income or gains from, for example, from employment or self-employment, from a company or partnership, properties, trusts, capital gains, or from the UK or overseas.

Answer 'Yes' to any of the boxes in this section to show that you did receive income from any of these sources. This will cause further questions to appear asking about these sources of income.

The third section asks about income from bank or building society interest, pensions, share dividends and benefits. It's important to mention these even if you're simply completing the Self Assessment because you're a sole trader. HMRC needs to know about all your income, no matter where it comes from.

The form then asks for other information such as about student loans, pension contributions, gifts, charitable donations, child benefit and marriage allowances.

How to fill in your tax return explains all these pages, including supplementary pages, in more detail. But if anything is not clear, contact HMRC to ask for help.

Do not send any receipts, accounts or other paperwork to HMRC in support of your Self Assessment return, unless HMRC asks for them. Even then you should only send copies and keep the originals safe.

You are responsible for the information provided, so take your time filling in your information on your return. Enter the figures carefully and double check everything before you click submit.

Levine advises: 'Fill in as much information as you can on your return. The information you enter on each screen can be saved as you go along, allowing you to continue later.

'You can go back and correct figures at any time before you hit the final submit button. Save a copy of your final return and print a copy of the receipt. If there are significant changes to last year's return, explain why in the section for further information.'

Assuming you file on time, you must keep records of all information used to complete your Self Assessment tax returns - which is to say, your accounts and other information. Self-employed businesses should keep this for up to five years after the 31 January deadline each year.

A penalty of up to £3,000 can apply for each failure to keep or preserve adequate records should HMRC come knocking at your door.

Read more about Self Assessment

Allowable expenses

If you are self-employed, your business will have various running costs. You can deduct some of these costs to work out your taxable profit providing they are allowable expenses.

These can include:

• Costs of running an office, for example stationery or phone bills.
• Uniforms or protective clothing - although you generally can't claim for clothing such as business attire or shoes.
• Staff costs, for example salaries or subcontractor costs.
• Financial costs, for example insurance or bank charges.
• Some or all of fees paid to professionals, such as accountants or lawyers.
• Costs of your business premises, for example heating, lighting, and business rates.
• Advertising or marketing, for example website costs (but not entertaining costs, such as buying a client lunch!).

Charlie Walker, partner at TaxAssist Accountants in Bedford, says HMRC's online filing system will calculate your tax liability, but it will not check whether your figures are correct or that you have claimed your full entitlement to expenses, reliefs and allowances.

'Allowances are a very broad area,' he says. 'A few of the common or generous deductions and allowances are for research and development; use of home as office, within certain limits; buildings bought for business use; and travel and accommodation when working away from home.

'Don't forget capital allowances such as expenditure on business equipment. Thanks to the annual investment allowance many capital allowances for SMEs such as plant and machinery offer up to 100% tax relief.'

An alternative to claiming individual expenses you may be able to claim simplified expenses, which are flat rates that you can use to calculate tax relief on vehicles, working from home and living on your business premises. This saves time but may mean you don't claim for all you might be able to.

Another option is to use the trading allowance, instead of expenses, to reduce your tax bill. The government allows sole traders to claim up to £1,000 as a tax-free trading allowance, but if you use it then you're not allowed to claim expenses.

Charity donations on tax returns

Donations by individuals to charity or to community amateur sports clubs (CASCs) attract tax relief, so make sure you include all charitable donations in your return.

The tax relief goes to you or to the charity depending on whether you donate through Gift Aid; straight from your wages or pension through a Payroll Giving scheme; give land, property or shares; or donate in your will.

There are different rules for limited companies as they pay less corporation tax when they give to charity.

To qualify for tax relief, you must keep a record of your donations.

Penalties for filing late and appeals

You will usually have to pay a penalty if you file after the deadline, or if you pay late. However, you can appeal against a penalty if you have a reasonable excuse.

You will be fined £100 if your tax return is up to three months late or if you pay your tax bill late. You will have to pay more if it is later and you will be charged interest on late payments.

Beyond three months, there is a more complex system of fines based on daily penalties and so-called tax gear penalties. HMRC also provides a penalty estimation tool.

Walker says if you are doing your own tax return and are concerned your online access to the HMRC website won't be active in time to file before 31 January, all may not be lost - an accountant or tax adviser could be able to file your return for you via their special agent logins with HMRC.

Levine adds: 'Filing late also increases the chances of HMRC taking a closer look at your return. So, complete the form as early as possible to avoid stress and a missed deadline. If you expect to miss a tax payment deadline, contact [HMRC] immediately.

'You may be able to get more time to pay or to make ad hoc or monthly payments. Keep in mind that, as 31 January approaches, the online service gets busier as do tax advisers.'

How to pay your tax

When filing online, once you have completed your Self Assessment return, HMRC will tell you how much tax you owe.

Each of the two payments on account is half your previous year's tax bill. If you still owe tax after making your payments on account, you must make a balancing payment by midnight on 31 January the following year.

If you're paying your tax bill by debit card, allow two working days for the transaction to clear.

If you prefer to pay more regularly throughout the year - such as weekly or monthly - you can use HMRC's budget payment plan, but only if your previous payments are up to date and if you are paying in advance.

Ways to pay

The ways to pay your tax are via online or telephone banking (faster payments), CHAPS, debit or corporate credit card online, your bank or building society, Bacs, direct debit (if you have set one up with HMRC before), or by cheque through the post.

You can no longer pay at the Post Office.

Pay your Self Assessment tax bill has more details on each option.

If the deadline falls on a weekend or bank holiday, make sure your payment reaches HMRC on the last working day before the deadline, unless you are paying by faster payments or by debit or credit card.

Walker says: 'Make sure you put something aside for your tax bill each month - particularly if it's your first year of being self-employed. As a rule of thumb, we recommend setting aside a quarter of your profits for tax. If you're a higher rate taxpayer, increase that to a third.'

You might choose to create a separate savings account for the money. And, yes, you get to keep any interest.

Why business owners may use an accountant and how much they cost

The main reason for doing your own tax return is to save money on accountancy bills. However, many business owners are too busy to do it themselves or lack a detailed understanding of the different allowances that they can claim and find that using an accountant pays for itself quickly.

Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants (ACCA), says: 'Business people can come unstuck if they cut corners to save money. Consulting an accountant should save money in tax savings, and in avoiding mistakes and penalties.

'Also tax rules change regularly so using an accountant is a good way to ensure you are up to date. Plus professionally qualified accountants have codes of conduct and ethics, continuing professional development requirements and you will also have recourse if something goes wrong.'

Roy-Chowdhury recommends shopping around to ensure you are paying the right amount for an accountant. A typical fee would be between £100 and £200 an hour for a small to medium-sized practice.

Charges can also depend on where the business is situated and the complexity of the work. A smaller accountant might charge around £250 to £300 all-in for a straightforward tax return.

Sole traders and other self-employed people might be able to claim the costs for their accountant as an expense and, appropriately, the accountant themselves will know if this is allowable.

Although strictly not allowed, by concession it's considered OK only if the accountant 'wholly and exclusively' calculates tax owed for the self-employed income.

If the Self Assessment includes calculations for any other income (such as capital gains) then the accountant might decide that it's not an allowable expense, or might decide only part of their fees can be claimed.

Levine, formerly of the ICAEW, says an accountant can help a client understand income tax rules and make sure they are fully aware of the rules and timings. He says using an accountant to file a Self Assessment tax return can ensure correct claiming for all allowable expenses.

As well as helping avoid errors, they can also help handle any disputes with HMRC, says Levine.

'Your accountant should always keep in touch, not just at the year-end,' he adds. 'This will be even easier if you use cloud-based accounting software, which will allow your accountant to keep track of how the business is performing in real time.'

The ICAEW and ACCA websites allow you to search for members in your area.

How an accountant helped strategist Kerry Needs focus on her core strengths

Kerry Needs, a writer and marketing strategist at kerryneeds.com, set up her business as a sole trader in 2015 and works remotely with clients around the world.

She did her own tax return in the first year but then started using an accountant from the second year.

'I could do it myself but I like to focus on my craft rather than things that I'm not strong at,' says Needs. 'And as my business gets more complex, it's a lot easier to outsource and one less administrative task to do.

'My accountant is knowledgeable. I send my books to him and he completes my Self Assessment and submits the returns for me. He keeps on top of things, chases up information and provides me copies of everything.

'The cost is reasonable at £250 and it pays for itself in saved time. Using an accountant also minimises the risk of making a mistake.'

Doing her own Self Assessment in the first year also means she has a good understanding of the process. To anyone doing it themselves, she recommends doing HMRC's free training and webinars on Self Assessment.

'It's important to get to know HMRC and what they require in as much detail as possible, including allowable expenses and things like how to record mileage,' she says.

'Make sure that you document everything, file your receipts carefully, and pay for as much as you can on your business card. You must keep copies of receipts as HMRC can ask for them.'

Conclusion on filing a tax return online

By now you should be feeling less dread about starting to fill in and send your tax return form.

If you decide to do it yourself, but are still not sure of anything, remember you can always contact HMRC and ask them to be sure that you have the right answer.

This is worth doing because if you complete your tax return incorrectly, you could be subject to fines and penalties.

While many small businesses switch to using an accountant at some point, it could well be worth doing your own Self Assessment for the first year at least - as it will you save some money and you will have a better understanding of how the tax system works in future.

The key to filing on time is planning. Squeezing in some Self Assessment preparation now will lead to a less stressful January as the deadline approaches.

Editor's note: This article was originally published in December 2018 and has been updated for relevance.

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