Self Assessment is a personal tax system that enables the self employed and other individuals to report untaxed earnings to HMRC. Through Self Assessment, you can file (submit) personal tax return forms, find out how much tax you owe, and pay tax and National Insurance contributions (NIC) on your earnings.
Directors and shareholders usually have to register for Self Assessment to report untaxed income they receive through a company, such as expenses and benefits, directors’ loans, and dividends from shares – essentially, any income that is not paid and taxed through payroll and PAYE.
However, not all directors and shareholders will need to file personal tax returns. Use HMRC’s Self Assessment tool to determine if you are required to register for Self Assessment and file a tax return.
Most LLP members (partners) are classed as self-employed for tax purposes, which means they’re required to register for Self Assessment to pay their personal tax and National Insurance on the allocation of profits received through a limited liability partnership. However, the introduction of “Salaried Member” rules in 2014 means that some LLP members must now be treated as employees for tax purposes.
Most people can register with HMRC for Self Assessment online. It’s a quick and simple process, which must be completed by 5 October after the end of the tax year for which you need to file a tax return. For example, if you start trading through a limited company in the 2021/22 tax year (6 April 2021 to 5 April 2022), you need to register for Self Assessment by 5 October 2022.
Through Self Assessment, you can calculate and pay (where applicable) Income Tax, Dividend Tax, Class 2 and Class 4 National Insurance contributions (NIC), student and postgraduate loan repayments, Capital Gains Tax, and the High Income Child Benefit Charge. HMRC will work out your Self Assessment bill based on the information you provide on the tax return form.
If you complete an online return, HMRC’s system will automatically calculate your tax liability and other relevant deductions, so you will know how much you owe before you submit the return. If you send a paper return, HMRC will work out how much tax you owe and send you a Self Assessment bill by post or online.
Depending on how much you earn in a tax year, you may have to pay Class 2 and Class 4 National Insurance contributions (NIC) through Self Assessment, even if you pay Class 1 NIC through PAYE on your director’s salary. If you do not meet the threshold for paying NIC, you have the option to make voluntary contributions to avoid any gaps in your National Insurance record.
Once registered, most people can file a Self Assessment tax return (form SA100) online. You will need your 10-digit Unique Taxpayer Reference (URT), National Insurance number, and details of all income, including employment (e.g., director’s salary), dividends from shares, interest on savings, pensions, and benefits. Where applicable, you will also need to include information about tax reliefs, allowances, and student loan repayments.
The deadline for filing a Self Assessment tax return falls a number of months after the end of the tax year. If you are sending a paper tax return by post, it must reach HMRC by midnight on 31 October. If you complete an online tax return, it must reach HMRC by midnight on 31 January. For example, tax returns for the 2021/22 tax year must be filed by 31 October 2022 (postal returns) or 31 January 2023 (online returns).
Normally, you need to pay your Self Assessment tax bill by 31st January after the end of the relevant tax year. For example, your tax bill for the 2021/22 tax year must be paid by 31 January 2023. This is the same deadline for filing online tax returns for the 2021/22 tax year. You also have the option to pay in advance on a monthly basis, if this is preferred.
Depending on how much you owe, you may also have to make ‘payments on account’ (advance instalments) toward your next Self Assessment tax bill. These payments will be due by 31 January and 31 July. For example, if your tax bill for the 2021/22 tax year is more than £1000, you will need to pay your 2022/23 tax in advance – 50% by 31 January 2023, and the remaining balance by 31 July 2023.
HMRC provides a number of payment options, whether you’re paying your Self Assessment bill all at once, in monthly instalments, or making payments on account. You can pay through online or telephone banking, at your bank, online by debit or credit card, or by CHAPS, Bacs, Direct Debit, or cheque.
Dividend income from shares must be declared on your Self Assessment tax return. If you owe any dividend tax on shares, it will be included in your Self Assessment tax bill. There is a tax-free dividend allowance of £2,000 per year, so you won’t pay anything on dividend income up to that amount. If you receive more than £2000 in dividends, you will pay dividend tax based on your total income for the year.