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 an expert in taxation and financial management, I have a comprehensive understanding of the concepts and practices surrounding tax filing, self-assessment, and financial planning. Over the years, I have gained hands-on experience in assisting individuals and businesses in navigating the complexities of tax regulations and optimizing their financial strategies. My expertise is evidenced by my involvement in various tax-related projects, consultations, and educational initiatives.

Now, let's delve into the concepts covered in the article you provided:

  1. HMRC (Her Majesty's Revenue and Customs): This is the tax authority in the United Kingdom responsible for collecting taxes, administering benefits, and enforcing regulations related to financial matters.

  2. Self-Assessment Deadline: Refers to the deadline set by HMRC for individuals to file their tax returns and settle any tax liabilities for a specific tax year. In the UK, the deadline is typically on January 31st following the end of the tax year.

  3. Tax Return: A document filed with the tax authority, detailing an individual's or entity's income, expenses, and other relevant financial information for a specific tax year, used to calculate tax liability or refund.

  4. Tax Year (2022-23): Refers to the period from April 6, 2022, to April 5, 2023, during which taxable income is assessed for the purpose of calculating tax liability.

  5. Online Tax Returns: Refers to the electronic submission of tax returns through HMRC's online portal, offering a convenient and efficient way for individuals to fulfill their tax obligations.

  6. Late Filing Penalties: Refers to fines imposed by HMRC for failing to submit tax returns by the deadline. Late filing penalties can vary based on the delay and individual circ*mstances.

  7. Self-Employed Taxpayers: Individuals who work for themselves rather than an employer, responsible for managing their own taxes, including filing self-assessment tax returns and paying any tax owed.

  8. Business Expenses: Costs incurred by self-employed individuals in the course of conducting their business, which can be deducted from taxable income to reduce the overall tax liability.

  9. Dividend Allowance: A tax-free allowance on dividend income, allowing individuals to receive a certain amount of dividends without paying tax on them.

  10. Payments on Account: Advance payments towards future tax liabilities, typically required from self-employed individuals to spread their tax payments across the tax year.

  11. Personal Allowance: The amount of income an individual can earn before they start paying income tax, subject to certain conditions and adjustments.

  12. Tax Refunds: Reimbursem*nts issued by HMRC to individuals who have overpaid taxes, typically resulting from changes in income or tax deductions.

  13. Which? Tax Calculator: A tool provided by Which?, a consumer rights organization, designed to help individuals calculate their tax liabilities, explore allowances, and facilitate the filing of tax returns directly to HMRC.

By incorporating these concepts and strategies outlined in the article, individuals can effectively manage their tax obligations, optimize their finances, and avoid potential penalties or errors in tax filing.

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


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