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25 Jan 2022

Eight tips for self-employed tax returns this year

From being wary of the deadline extension to dodging scams
taxpayer filling out tax return

With the deadline to file your self-assessment tax return fast approaching, it's a good time to brush up on some tips to make sure you get it right.

Whether it's your first time or your 50th, we've compiled a list of expert advice for you to check before you log into your account.

1. Declare SEISS payments

Due to continued Covid disruption, millions of self-employed workers received payments from the self-employed income support scheme (SEISS) in the 2020-21 tax year. But not all of them realised they were taxable.

One in eight taxpayers who received SEISS payments last tax year were unaware that they needed to declare them on their tax returns, according to our representative survey of 4,000 UK adults from October and November 2021.

If you're one of them, make sure you or your accountant have details of your SEISS support to hand when you're filing your return so you can declare it.

2. Get your tax allowances right

When you're trying to work out how much tax you owe, you'll need to know the 2020-21 tax allowances that might apply to your income, as most people aren't charged tax on everything they earn.

Personal allowance: the personal allowance was £12,500 in 2020-21, unless you earned more than £100,000, in which case you lose £1 of personal allowance for every £2 earned.

Capital gains tax allowance: if you have capital gains to declare, the allowance for 2020-21 was £12,300. Above this, what you pay again depends on your income tax band; basic-rate taxpayers are charged 10% capital gains tax (CGT) on assets and 18% on property, whereas higher or additional-rate taxpayers have to pay 20% on assets and 28% on property.

Dividend tax allowance: the dividend allowance for 2020-21 was £2,000. The tax you pay above this threshold depends on your income tax band - basic-rate taxpayers are charged at 7.5%, while higher-rate taxpayers pay 32.5%, and additional-rate taxpayers pay 38.1%. You'll only pay tax on income that exceeds these allowances.

3. Check how long your payments will take

In a world of seemingly instant digital payments, it's easy to forget how long it can take for a bank to transfer money.

Ideally, you'll have paid your bill before the 31 January deadline, but if you do leave it to the last minute, some payment methods might not be fast enough to avoid accruing interest.

Here's a breakdown of how long each payment type takes:

  • Five working days: a new direct debit
  • Three working days:Bacs, existing direct debit, cheque in the post (with no delays)
  • Same or next-day:online banking, telephone banking, Chaps, debit card online, in-branch at a bank or building society

Find out more:five ways to pay your 2020-21 tax bill

4. Watch out for scams

HMRC is one of the country's most impersonated organisations. Even if you've never filed a tax return in your life, you could find your inbox full of emails that claim to be from 'HMRC'.

The real HMRC received 800,000 reports of tax-related scams in 2021, and it's likely that many more went unreported. It issued a warning in November telling taxpayers to keep on the lookout for fraudsters.

Popular scams include:

Fake tax rebates

These are usually sent via text or email, often in messages that look realistic. They'll ask you to click the link and fill in your personal details to claim it.

You never need to follow a link in a message that says it's from HMRC. Instead, you can just log into your account separately and any genuine messages will be in your inbox there.

Phone scams

They're so prevalent that the chances are you've had a threatening call from a robot-voiced 'HMRC employee' who claims you owe them money, and that a warrant has been issued for your arrest.

This simply isn't how HMRC goes about collecting unpaid taxes.

Fake websites

HMRC reported over 8,000 malicious web pages to be taken down in 2021, some of them convincing copycat HMRC sites set up to steal your details or take payments.

5. Don't forget about expenses

If you've had to make certain work-related payments, such as costs related to running your business premises or buying stationery, you can deduct these costs from your profits. This, in turn, will reduce the amount of tax you'll owe.

6. Try to stick to the deadline

This might sound super simple, but it's important this year. HMRC is once again temporarily waiving fines for filing and making payments late, but that doesn't mean you should dawdle.

While you do have until 28 February to file your tax return, and until 1 April to settle your bill, you'll still be charged interest on what you owe from 31 January.

This means you're far better off aiming for the original January deadline rather than seeing the extension as a reason to put it off. Unless you really can't complete your tax return by the end of this month, it's not worth paying the interest for a delay.

7. Don't forget your 2021-22 payment

Payments on account for the 2021-22 tax year will also begin on 31 January 2022; the amount you'll owe will depend on your 2020-21 income.

The first instalment of your estimated 2021-22 tax is due on 31 January 2021, and the second is due on 31 July 2021.

8. Keep your records safe

It's important to make sure all the information you've included in your tax return is kept in an ordered way in case HMRC asks for any evidence.

Self-employed workers must keep their records for at least five years after the 31 January submission deadline - so, anything related to your 2020-21 tax return must be kept until at least 31 January 2027.

File your 2020-21 tax return with Which?

If you still need to file your self-assessment tax return, use the Which? tax calculator to tot up what you owe, and see the expenses and allowances you may have forgotten about.

The online tool is free, easy to use, and lets you submit your return directly to HMRC when you're finished.