Freelancer tax returns are due imminently: final tips to file on time

We’ve all done it, and self-employed freelancers probably do it more than most! A deadline creeps from a distance, close enough to niggle yet far enough to ignore and we hope it’ll go away -- until the inevitable last-minute pressure strikes!

In the case of your personal tax return, which must reach HMRC by this Tuesday January 31st, this is one rush that could have hefty financial consequences if you don’t make it on time, or you make mistakes, or you don’t pay.

Here, exclusively for FreelanceUK, we share our top tips for getting prepared – and if you have left it until last-minute – which is sort of now, here’s what you need to know, writes Christian Hickmott, manging director of Integro Accounting.

Know your timings, and format

While submitting your return and paying what’s owed late (after midnight on January 31st) will incur penalties, making errors because you haven’t allowed time to provide accurate figures could result in either overpaying or underpaying what’s owed – and the latter could also land you a fine.

Those choosing a paper return rather than filing online will need to have worked towards a much earlier submission of October 31st – meaning October 31st 2022 was the deadline for tax returns covering the tax year April 2021 to April 2022. Be aware though if you’re new to self-employment or self-assessment, there are instances whereby you cannot file online and must opt for the paper form – such as having lived abroad as a non-resident. You can find out more on this here.

Ensure you’re actually registered for self-assessment!

To file a personal tax return, you must be registered for self-assessment with HMRC (essentially, this is notifying them that you’re liable to pay tax).

For those self-employed, this registration, along with registering for Class 2 National Insurance, needs to be done by October 5th following the tax year (i.e. October 5th 2022 for the 2021/22 tax year). If you haven’t done this before, you can do both via your HMRC personal tax account. For this, you’ll need a Government Gateway user ID and password.

Once you’ve completed the self-assessment registration it’s worth noting that HMRC could take around 10 working days to post your Unique Taxpayer Reference (UTR) to you – you’ll need this 10-digit number for your return, so allowing time for the unpredictability of the post will land you in good stead! Once you’ve got this to hand and have logged into your personal tax account, it’s important to check all of your personal details such as name, address, NI number are correct – as any incorrect details on a tax return could mean HMRC struggles to contact you.

Have everything you need, set out ready

We recommend having all the relevant documents set out ready, such as bank and student loan statements and your P60/P45s. You’ll need anything detailing the untaxed income you’ve received for the relevant tax year including dividends, share interest, bank savings interest, rental property income and income from self-employment.

You’ll also need details of the expenses relating to your self-employment, so you can add up the allowable expenses to put the total into your return. The records you keep such as receipts and invoices will act as proof of your costs – they won’t need to be sent to HMRC, but you are required by law to keep them for at least five years after the filing deadline (in case HMRC need to check anything).

Helpfully, when filing online you can always save your progress and come back to it if you find you’re missing something.

Familiarise yourself with allowances and tax reliefs

Knowing which of your costs can be put in as expenses can reduce the overall profit on your tax return, in turn meaning you’ll pay less tax.

As a sole trader, you’re able to include your vehicle/motor and working from home expenses in two ways – calculating them by using the actual costs or using the so-called ‘simplified’ expenses system and its flat rates (-- an option not available to those with limited companies).

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So, it’s good to know that as a sole trader a proportion of your home-running costs can be put into your expenses.

If you work from home for a minimum of 25 hours a month, you’ll be able to use HMRC‘s simplified expenses to work this out – but you may want to use their checker to compare this versus calculating the actual costs.

By using the flat rate method, you won’t need to work out the proportion of personal and business use for your home, for example how much of the electricity bill is due to work versus home use. For those working at home between 25 to 50 hours a month, the flat rate is £10 per month, increasing to £18 for 51 to 100 hours.

What about costs before self-employment begins?

Of course, there’ll be some costs you incurred before your business was trading – if these costs are solely for the purpose of your business, deemed by HMRC as allowable expenses, and within seven years, then you can include them in the return.

This could be things such as website domains and email addresses or maybe even bank charges if you have a separate bank account (but a separate bank account it is not a requirement for sole traders). As well as keeping records of these expenses, you should claim these as a deduction in your self-assessment tax return for your first year of trading.

Final thought

You will also need to remember that your tax return should include all income received, even if HMRC already has the information or if tax has already been deducted! That might not feel intuitive, but remember your imminently-due tax return is a submission of all income and a calculation of any additional tax that is due. This includes employment income, pension income, dividends and bank interest. Good luck freelancers, and if in doubt talk it out with your accountant but soon, because the clock is ticking on your return – and loudly.