The process of completing your first self-assessment tax return can feel like a simple administrative task. You register with HMRC, enter your income, submit the return and pay the bill. However, first-time taxpayers often discover that there is far more involved than they expected. The biggest challenge usually isn’t completing the form itself, it’s understanding everything HMRC assumes you already know.
Whether you’re self-employed, a company director, earning rental income or have a growing side hustle, your first tax return comes with responsibilities that many people only discover once they’re already in the process.
As Scott Reynolds, Tax Associate at Hayward Wright, explains: “Most people who struggle with their first self-assessment don’t actually do much wrong, they’ve simply never been told what to do and what to expect.”
Your self-assessment tax return
Did you know that self-assessment tax returns don’t only apply to sole traders. While many self-employed people do need to file a return, there are plenty of other situations that create a filing obligation. These include, receiving rental income, significant untaxed bank interest, taxable capital gains, overseas income or being the director of a limited company. HMRC, may also specifically request a self assessment tax return be filled, even if you believe it isn’t necessary.
The rise of side hustles has added another layer of complexity. Selling products online, content creators, freelance work or earning additional income outside your main employment can all become reportable. Once turnover from a side hustle exceeds £1,000, it needs to be declared to HMRC. Read our article on HMRC red flags.
Preparation also starts much earlier than many people realise. Rather than waiting until the end of the tax year, it’s far easier to keep records as income and expenses arise. Cloud based accounting software makes this process much easier and ensure compliance with the new making tax digital requirements.
The deadlines and surprises HMRC don’t make obvious
One of the biggest shocks for many first-time taxpayers are payments on account. If your tax bill exceeds £1,000 (subject to certain conditions), HMRC will ask you to make advance payments towards your next year’s tax liability. Because these payments are based on your current tax bill, some people are surprised when their first payment is larger than expected. However, this doesn’t mean you’re paying extra tax. You’re simply paying part of your current year’s liability earlier, rather than waiting until the following January.
If your circumstances change and your income is likely to reduce, it’s possible to ask HMRC to reduce your payments on account. However, it is important to note, that if your tax bill then exceeds the reduced amount, you will be required to pay the additional interest. Alternatively, submitting your self-assessment before the 31st July payment deadline allows HMRC to recalculate the amount based on your actual figures. And if you do overpay, HMRC will refund the difference.
It is also important to remember that your self-assessment bill isn’t made up of income tax alone. Many first-time taxpayers calculate what they expect to owe based purely on income tax rates, only to discover that National Insurance contributions are also included as part of their overall tax liability. Factoring both into your calculations throughout the year can help you budget more accurately and avoid an unexpected bill when payment is due.
There are other deadlines that catch first-time taxpayers out. If you’re newly self-employed, you must register for self-assessment by 5th October following the end of the tax year or risk penalties. The filing deadline and payment deadline remain as 31st January, while the second payment on account is due on 31st July.
When a self-assessment accountant can make all the difference
If you have a straightforward tax return, it can be completed without professional support. However, as soon as your circumstances become more complex, expert advice can quickly become worthwhile. Multiple income streams, selling assets, overseas income, partnerships or being a company director all introduce additional tax considerations. VAT registration can also bring further reporting obligations once you expect your taxable turnover to exceed the registration threshold of £90,000. Read our tips on filling in your self-assessment tax return.
A personal-tax accountant can also help identify reliefs that are frequently overlooked, such as the £1,000 trading allowance, pension contributions, donations with gift aid, professional subscriptions, business mileage and working from home expenses can all reduce your overall tax bill when claimed correctly.
Perhaps the biggest lesson HMRC never tells you is that a successful self-assessment isn’t won or lost in January. It starts from the moment you begin earning income, by keeping good records, understanding your obligations and asking for self-assessment tax return help before small mistakes become expensive ones.
Our team provide self-assessment services for individuals, sole traders, company directors and business owners. Whether you need a tax accountant or practical advice on your first return, the team can help you stay compliant with HMRC while ensuring you claim the reliefs and allowances you’re entitled to.