How to pay Self Assessment tax

Self-employment is a dream for many people in the UK. Being your own boss has its benefits, including choosing how you work, where you work and who you work with.

However, if you're self-employed, you'll need to submit an annual Self Assessment tax return to HM Revenue & Customs (HMRC). Whether you're a freelancer or the owner of a limited company, read on to find out how to pay Self Assessment tax in the UK for your business.

What is Self Assessment tax, and why do I need to pay it?

If you're registered as self-employed, you'll be responsible for paying your taxes. Self Assessment is the system HMRC uses to collect your National Insurance Contributions (NICs) and income tax for the previous financial year.

National Insurance + income tax = Self Assessment tax

In the UK, the financial year starts on 6 April and ends on 5 April.

As salaries and paydays for employed people are typically fixed, National Insurance and income tax are easily deducted. Even better, most companies will have a payroll department to handle all the paperwork.

That's not the case with self-employment, where earnings and pay dates are unpredictable.

Rather than filing a tax return every time you get paid for a job, Self Assessment lets you pay your taxes at the end of your tax year.

Who needs to file a Self Assessment tax return?

You must send a tax return if, in the last tax year (6 April to 5 April), you were:

• self-employed as a sole trader and earned more than £1,000 (before taking off anything you can claim tax relief on)

• a partner in a business partnership

You may need to send a Self Assessment tax return if you have any other untaxed income from the 2022-23 tax year, such as:

• some COVID-19 grant or support payments

• money from renting out a property

• tips and commission

• income from savings, investments and dividends

• foreign income

Check if you need to send a Self Assessment tax return

When is the 2023–24 Self Assessment deadline?

The deadline for filing a paper 2023–24 Self Assessment tax return is 11.59pm on Thursday 31 October 2024.

The deadline for filing an online 2023–24 Self Assessment tax return is 11.59pm on Friday 31 January 2025.

What does the 2023–24 Self Assessment return cover?

The 2023–24 Self Assessment tax return covers income, earnings and payments between 6 April 2023 and 5 April 2024.

What is the Self Assessment tax period?

The Self Assessment tax period is another way of saying 'tax year'. As mentioned previously, the tax year for most employed people ends on 5 April.

However, if you're self-employed, you can choose if your tax year ends on 5 April or 31 March. Regardless of which date you choose, you'll need to pay your Self Assessment tax by 31 January the following year.

Consequently, if your tax year ends on 31 March, you'll have roughly 300 days to pay your Self Assessment tax for that year. If your tax year ends on 5 April, you'll have slightly less time to pay.

If you're newly self-employed, Self Assessment can get tricky due to 'payments on account'.

What are payments on account?

Payments on account are additional Self Assessment payments that self-employed people need to make on top of their bill for the previous tax year. Confused? Don't be.

Imagine that your first tax year of self-employment ended on 31 March. Let's also assume that your tax bill for that first year is £4,000, due by 31 January of the following year.

With HMRC's payments on account system, you'll also owe them 50% of your current tax bill, i.e. £2,000. In other words, you'll need to pay £6,000 on or by 31 January. You need to pay the remaining £2,000 by 31 July of the same year.

Payments on account are designed to spread tax payments across the year, removing the burden of paying all the tax you owe in one go. However, it can be initially confusing and costly if you've only budgeted for the first year's tax bill, i.e. £4,000.

If payments on account mean you can't afford to pay your tax bill, there are other payment options. You'll need to contact HMRC and agree on an alternative way of paying, either through monthly or quarterly payments.

Not everyone who is self-employed has to follow the payments on account system. If your tax bill is £1,000 or less, you can just make a single tax payment. The same applies if more than 80% of your tax bill was paid via Pay As You Earn (PAYE).

How do you file your Self Assessment tax return?

You can file your tax return online. In some circumstances, you cannot file your tax return online and must use commercial software or download forms instead.

What information will I need to fill in a Self Assessment tax return?

If you've never filled in a Self Assessment tax return before, it can seem complex. However, once you understand the process, it's relatively simple, as long as you have the relevant information to hand. This includes the following:

• Your 10-digit unique taxpayer reference (UTR) number. HMRC assigns each self-assessment taxpayer a unique 10-digit UTR to track their tax records. Like your National Insurance number, your UTR stays with you all your life.

• Your National Insurance number.

• Details of your untaxed income from the tax year, including income from self-employment, dividends and interest on shares.

• Records of any expenses relating to your self-employment.

• Any contributions to charity or pensions which might be eligible for tax relief.

• A P60 or other documents showing how much income you've received and already paid tax on.

How do you pay your Self Assessment tax bill?

Once your Self Assessment tax return has been filed, you can pay your tax bill in several ways.

Note that the time you need to allow for the payment to clear varies depending on how you pay. Remember that if HMRC has not received your payment by the 31 January deadline, it will be considered as late and you may face a penalty.

Paying a Self Assessment tax bill: Step-by-step guide

• Log in to HMRC: Go to the HMRC website and sign in to your Government Gateway account.

• View your bill: Navigate to "Self Assessment" to see the amount you owe.

• Choose a payment method:

  • Same or next day:

    • Bank transfer: Pay directly through your online bank account using HMRC's bank details, referencing your UTR number. You can pay your Self Assessment bill using Faster Payments, CHAPS or Bacs.

    • Debit or credit card: Use the HMRC payment portal for online debit or corporate credit card payments.

    • At your bank or building society: Visit a branch of your bank or building society and make your payment there.

  • Three working days:

    • Bacs bank transfer: Pay directly through your online bank account using Bacs.

    • Direct debit: Set up a direct debit through your HMRC online account.

    • By cheque through the post: You can send a cheque by post to HMRC, Direct, BX5 5BD

• Confirm payment: Be sure to pay by the deadline to avoid any penalties.

How can I keep accurate records?

Keeping accurate records is essential if you want to pay the correct amount of tax. Accurate tax payments also help you measure how your business performs over time.

An accurate Self Assessment will help highlight important business metrics, including your profits, losses and future projections.

You'll need to submit proof of all your income and expenses during the task year. Consequently, you should keep and file all receipts for goods and stock, bank statements, invoices, chequebook stubs, sales invoices, till rolls and bank slips.

Downloading an accounting app will help simplify the Self Assessment process. With a tool like this, you can upload receipts, statements and more, putting your documents in one place and making submission easier at the end of the tax year.

What are the penalties for late tax returns?

HMRC said it "will treat those with genuine excuses leniently" as it "focuses on those who persistently fail to complete their tax returns and deliberate tax evaders".

Customers who provide HMRC with a "reasonable excuse" before the 31 January deadline can avoid a penalty. The penalties for late tax returns are:

• an initial £100 fixed penalty, which applies even if there is no tax to pay, or if the tax due is paid on time

• after three months, additional daily penalties of £10 per day, up to a maximum of £900

• after six months, a further penalty of 5% of the tax due or £300, whichever is greater

• after 12 months, another 5% or £300 charge, whichever is greater

There are also additional penalties for paying late of 5% of the tax unpaid at 30 days, six months and 12 months.

HMRC's Time to Pay service allows any individual or business the option to spread tax payments over time. Self Assessment taxpayers with up to £30,000 of tax debt can do this online once they have filed their return.    

If you owe more than £30,000, or need longer to pay, you should call the Self Assessment Payment Helpline on 0300 200 3822.

Advice for filing your Self Assessment tax return

• Enterprise Nation members can book free calls with accountants

• Find accountants offering Self Assessment tax return filing services

• Watch HMRC videos on Self Assessment

• Chat to HMRC's digital assistant

• Read how to find last-minute help with your tax return

• Get five tips for a smooth tax return

You can also call HMRC's Self Assessment helpline on 0300 200 3310.

HMRC warns that the helpline is usually extremely busy in January and business owners are encouraged to use online resources.

Relevant resources

• Small business taxes: A guide

• How to pay VAT – a guide for small business owners

• Self-employed people: How to find last-minute help with your tax return