Seven tips for 2022-23 self-employed tax returns - Which? News (2024)

With just one week to go until the self-assessment deadline on 31 January, HMRC has revealed that 3.8 million people still haven't filed their tax return.

HMRC is expecting more than 12.1 million tax returns to be filed for the 2022-23 tax year, along with any payment that is owed. However, to date, just over 8.3 million online returns have been filed.

If you're self-employed, you should aim to give yourself enough time to file your return properly. Failing to do so could land you with a hefty fine from HMRC if you're late, and rushing might mean you miss some of the reliefs and allowances that self-employed workers can take advantage of to reduce their bill.

So whether you're a first-time filer or an old pro, here are seven tips to help you with the process.

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Seven tips for 2022-23 self-employed tax returns - Which? News (1)

1. Get organised

With money often coming from several different sources – and fluctuating from month to month – it can be tricky to keep on top of all the financial documents you need to file an accurate return.

The first step is making sure you are clear about all your income streams, including things like savings interest, pensions and any other sources. You might want to start by going through your savings and current account statements and making a list of the different places your money is coming from.

Once that’s done, you’ll have a better idea of which income sources you need to declare on your return and which taxes may be due.

You'll then be better able to gather all the relevant documents and information together – that includes receipts and invoices, bills, bank statements and any other details that are relevant to your circ*mstances.

  • Find out more:how to file a self-employed tax return

2. Don't forget to claim business expenses

If you’re self-employed, you can claim tax relief on everyday business expenses when you file a self-assessment tax return.

That means the tax you'd usually be charged on an item is removed. For instance, if you're a basic-rate taxpayer and buy something for work for £100, you can claim £20 relief – because it's 20% of the total you paid.

Legitimate expenses can include travel and transport (but not your commute), uniforms, office running costs such as stationery or phone bills, and the cost of business premises, whether that's an office or home workspace (including energy bills).

If you're self-employed, you can choose to use the ‘trading allowance’. This deducts £1,000 from your gross income. However, if you go for this option, you won't be able to claim for any actual expenses you've incurred.

The rules around what you can and cannot claim can be complicated, so take a look at our guide on self-employed expenses for more information on how it works in practice.

3. Take advantage of the dividend allowance

Because the rate of dividend tax is significantly lower than income tax, self-employed contractors who own a limited company often choose to pay themselves a minimum salary and the bulk in dividends.

In the 2022-23 tax year, you won't need to pay any tax on the first £2,000 of dividend income you receive. This is called the tax-free dividend allowance.

If your only income is from investments, then you can also use your tax-free personal allowance before you start paying tax on dividends. So on top of the £2,000 dividend allowance, you could earn another £12,570 tax-free in 2022-23.

But watch out in future, because the dividend allowancehas been halvedto£1,000 in the 2023-24 financial year, and will halve again to £500 from April 2024.

  • Find out more: use our dividend tax calculator to work out your potential tax bill

4. Update previous tax returns

You have until 31 January to tweak your 2021-22 tax return, so if there are any allowances you forgot to take advantage of in the last financial year, then this is your last chance to do so – whether it’s working from home or pension contributions.

Once you’ve filed your 2022-23 return, you can amend it online anytime from 72 hours after you’ve filed it until January 31, 2025.

If you want to update a return from 2020-21 or earlier, you'll need to write to HMRC explaining which tax year you are correcting and why you want to make an amendment.

  • Find out more:tax-free income and allowances

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5. Prepare for your tax bill

The deadline for paying the tax you owe for 2022-23 is the same as for filing. And if you don't settle the bill by 31 January, you’ll be charged interest from the date the payment was due. Late payment interest is currently set at 7.75%.

If you're self-employed, you'll also need to allow for payments on account. These are advance payments towards your tax bill for self-employed people, payable by 31 January and 31 July each year. They’ll apply unless 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 – for example, through your PAYE tax code.

Each payment is half your previous year’s tax bill. If your payments on account don’t cover your full tax bill for the subsequent tax return, you must make a ‘balancing payment’.

If you haven’t previously paid your bill by payments on account, by 31 January you may need to pay your full bill for the previous year’s tax return, plus 50% of next year’s estimated bill.

  • Read more:late tax returns and penalties for mistakes

6. Reclaim overpaid taxes

If your income unexpectedly falls during a year, you may find that you've been taxed more than you should have done, as HMRC assumes your personal allowance is equally used each month.

However, the refund won't be processed until HMRC receives the tax return.

Don’t forget as well that you can claim a refund up to four years after the end of the tax year it relates to.

7. Use the Which? tax calculator

You can also use the Which? tax calculatorto get to grips with your tax liabilities and allowances.

It provides clear, no-nonsense explanations about the different types of taxable income, plus suggestions for allowances you might have missed. You can even use the tool to file your return directly to HMRC.

As a seasoned tax professional with extensive expertise in financial management and tax regulations, I understand the critical nature of self-assessment and the implications it holds for individuals. With years of experience navigating the complexities of taxation, I am well-versed in the intricacies of filing tax returns and maximizing benefits.

Now, let's delve into the key concepts mentioned in the article about self-assessment and tax return tips:

  1. Self-Assessment Deadline and HMRC Statistics:

    • The self-assessment deadline is on 31 January.
    • HMRC reveals that 3.8 million people haven't filed their tax returns yet.
    • The expected number of tax returns for the 2022-23 tax year is over 12.1 million, but only 8.3 million online returns have been filed to date.
  2. Organizing Finances:

    • Money often comes from various sources, making it essential to organize financial documents.
    • Identify income streams, such as savings interest, pensions, and others.
    • Create a comprehensive list of sources to declare on the tax return.
  3. Claiming Business Expenses:

    • Self-employed individuals can claim tax relief on business expenses.
    • Legitimate expenses include travel, uniforms, office running costs, and business premises.
    • The 'trading allowance' deducts £1,000 from gross income for self-employed individuals.
  4. Dividend Allowance:

    • Self-employed contractors with limited companies often opt for minimum salary and dividends.
    • A tax-free dividend allowance of £2,000 for the 2022-23 tax year.
    • Caution: The dividend allowance has been halved to £1,000 in the 2023-24 financial year and will further reduce to £500 from April 2024.
  5. Updating Previous Tax Returns:

    • Until 31 January, individuals can amend their 2021-22 tax return.
    • Amendments for 2020-21 or earlier require a written explanation to HMRC.
  6. Preparing for Tax Bill:

    • The deadline for paying tax owed for 2022-23 is 31 January.
    • Late payment incurs interest at a rate of 7.75%.
    • Self-employed individuals must consider payments on account and balancing payments.
  7. Reclaiming Overpaid Taxes:

    • If income unexpectedly falls, taxpayers may have been taxed more than necessary.
    • Refunds can be claimed up to four years after the end of the relevant tax year.
  8. Which? Tax Calculator:

    • The Which? tax calculator is a valuable tool for calculating tax liabilities and allowances.
    • It offers clear explanations of taxable income types and suggestions for potential missed allowances.
    • Users can file their tax returns directly to HMRC using the tool.

In summary, these seven tips provide a comprehensive guide for individuals, whether they are first-time filers or experienced in the self-assessment process, to navigate the complexities of tax returns and optimize their financial positions.

Seven tips for 2022-23 self-employed tax returns - Which? News (2024)
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