What’s worse whenever you’re self-employed? Having to pay your tax invoice, or making a mistake and discovering out you’ve overpaid?
Submitting your small enterprise taxes every year doesn’t need to be demanding or painful. Tax generally is a little bit of a headache for anybody in enterprise, and for the self-employed, it’s no totally different. The hazard of getting taxed wrongly may imply submitting tax returns late, incorrectly, or by no means, resulting in some hefty penalties and time-consuming investigations from HMRC.
>See additionally: How the newly self-employed ought to navigate the complicated SEISS course of
Nonetheless, when you be certain to do little bits of labor all year long, submitting your taxes could be fairly easy.
The 5 commonest tax errors
Some stresses are simply avoidable. Make certain to keep away from these 5 widespread tax return errors that many self-employed folks make:
#1 – Not registering for self-assessment
In the event you earn greater than £1,000 from a number of trades, you should register with HMRC. That is set to extend to £3,000 however this variation may very well be launched as late as 2029. Folks generally confuse this with the essential private allowance and consider they don’t have to register with HMRC except they earn over a sure threshold.
This, nevertheless, isn’t the case.
Everyone seems to be entitled to earn a sure amount of cash with out paying revenue tax. That is referred to as the private allowance and is £12,570 for the 2025/26 tax yr. The vital factor to know is that even when you earn under the private allowance threshold, you continue to have to declare your earnings to HMRC.
Even if you’re working for an employer, your self-employment taxes received’t be deducted out of your wage routinely so you will have to inform HMRC precisely how a lot you’ve earned within the tax yr after which pay them instantly.
To do that, it’s essential be sure to have registered as self-employed, so it is possible for you to to file your self-assessment tax return.
There are deadlines for registering and submitting your tax return so you will have to just be sure you meet these deadlines to keep away from massive penalties and fines. The deadline for telling HMRC that you’re self-employed is October 5.
Making Tax Digital was launched for VAT-registered companies in April 2022. This was step one in implementing a totally digital tax system within the UK. To conform, you should hold digital VAT information and use Making Tax Digital-compatible software program to be able to submit VAT electronically.
Making Tax Digital for revenue tax can be launched in April 2026 for self-employed folks with a qualifying revenue of over £50,000; these with a qualifying revenue of over £30,000 will comply with in April 2027; with these over £20,000 finishing the set in April 2028.
For the present VAT figures, take a look at What’s the VAT threshold?
#2 – Not submitting a self-assessment tax return on time
One of many greatest errors that self-employed folks make isn’t returning or forgetting to return their self-assessment tax return on time. The deadline for submitting your on-line self-assessment tax return and paying any tax owed is midnight on January 31 every year. Nonetheless, when you file a paper tax return, keep in mind the deadline is October 31 every year.
In the event you miss a self-assessment deadline, you may entice two totally different penalties. The primary is if you’re late submitting your private tax return and the second is if you’re late paying in your private tax.
In case you are late submitting:
You obtain an automated £100 high quality if you’re late by someday
You obtain an additional £10 high quality per day you might be late as much as a most of £900 (90 days) if you’re over three months late
You obtain an extra £300 high quality or 5 per cent of the tax owed (whichever is larger) if you’re over six months late
You obtain one other £300 high quality or 5 per cent of the tax owed (whichever is larger) if you’re over 12 months late
In case you are late paying in your private tax:
You obtain a 5 per cent cost on the tax you owe if you’re 30 days late
You obtain one other 5 per cent cost on the tax you owe if you’re 6 months late
You obtain a last extra 5 per cent cost on the tax you owe if you’re 12 months late
Along with the fines, additionally, you will be charged curiosity on the tax owed if it has not been paid by the deadline, together with quantities amassed in expenses. Which means that the prices can shortly add up, leading to vital fines. The identical high quality regime is utilized to the paper submissions.
Nonetheless, this does imply that when you miss the paper submission deadline, you continue to have the chance to submit on-line to keep away from any fines.
>See additionally: Self-employed ought to pay equal tax with workers, says prime thinktank
#3 – Not saving for tax
One other massive mistake that self-employed folks make is failing to save lots of for his or her tax invoice. It might generally be an enormous shock, particularly if in case you have forgotten to think about Nationwide Insurance coverage Contributions. It may be robust to try to scrape all of it collectively on the final minute when you haven’t saved for it all year long.
The most effective factor to do is put aside a share of all the pieces you make as you earn it. Create a separate financial savings account and transfer your tax cash into it each month and ensure to not contact it. When the tax deadline comes, you received’t fear about discovering the cash to pay your tax invoice as it would already be there.
#4 – Misreporting revenue
Misreporting revenue is one other mistake that self-employed folks make. Many individuals face penalties and tax surcharges for errors made yearly all through the UK because of negligence or delivering incomplete monetary information to their accountants.
That is one thing that usually occurs when you don’t hold observe of your earnings. You must be certain to maintain and file all receipts and invoices for all the pieces all through the tax yr. In case you are claiming again bills, HMRC would possibly ask for proof of this. By retaining an excellent file, it would assist you to account for all the pieces and keep away from any doable misreporting.
There’s a system of penalties for misreporting your revenue in your self-assessment tax return. What you’re charged with will rely upon whether or not HMRC thinks you’ve got simply been careless or have purposely tried to lie about your earnings. Penalties are based mostly on the quantity of tax you owe and are payable along with the tax owed:
When you’ve got taken cheap care to fill in your return accurately, you’ll don’t have any penalty to pay
When you’ve got been careless, the penalty can be between 0 per cent and 30 per cent of the additional tax owing
When you’ve got intentionally underestimated your tax, the penalty is between 20 per cent and 70 per cent
When you’ve got intentionally underestimated your tax and tried to hide the very fact, the penalty can be between 30 per cent and 100 per cent
In the event you realise that you simply’ve made a mistake in your self-assessment tax return, you may appropriate it for as much as a yr after the submitting deadline by way of HMRC on-line or by way of your software program supplier. After this, you’ll want to jot down to HMRC to clarify the circumstances and request a change.
#5 – Not paying nationwide insurance coverage contributions
Nationwide insurance coverage (NI) contributions assist fund the UK’s welfare state. You’ll discover that NI contributions and revenue tax are normally taken collectively via PAYE or paid for collectively if it’s essential pay for these via a self-assessment tax return.
In case you are self-employed, there are two forms of nationwide insurance coverage that you simply normally pay. The category will depend on how a lot you earn. In April 2024, necessary class 2 contributions had been scrapped. For the 2025/26 tax yr the totally different courses are:
Class 2 is at £3.50 per week (voluntary).
Class 4 in case your income are £12,570 or extra a yr.
To make sure you keep away from fines and penalties when working as self-employed, you will have to pay nationwide insurance coverage. There are two methods in which you’ll be able to pay NI if you end up self-employed. The primary manner is to pay via your self-assessment tax return. Nonetheless, when you don’t pay it this fashion, you can also pay voluntary contributions. You do that by logging onto the HMRC web site.
Simon Thomas is managing director of Oxford-based chartered accountants Ridgefield Consulting
Additional studying
Self-employed bill template – A useful template that can assist you create your self-employed bill and provide you with just a few tips on what to incorporate
