How to file a self-employed tax return

Find out how self-employment tax returns work, how to choose the right accounting period and everything you need to know about payments on account and VAT returns
Josh WilsonSenior researcher & writer

Do you need to submit a tax return when you're self-employed?

If you're self-employed, you'll need to file a self-assessment tax return each year.

You'll need to detail all income you've received during the tax year in question. This can be offset against any expenses and allowances you qualify for, meaning that your resulting tax bill will only be based on your taxable profits.

You'll often need to pay the tax you owe in two chunks twice a year - a method known as 'payments on account'.

This guide explains how payments on account work, as well as how to decide on your accounting period, and many other aspects of self-assessment tax that you'll need to consider when you're self-employed, including VAT returns.

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Video: how to file your self-employed tax return

In our short video below, we explain how to make sure you pay the right amount of tax on your self-employed income.

What is the self-employment tax period?

While HMRC issues deadlines to submit your return and pay the tax you owe, you can choose the dates that your tax is calculated for. This is your 'accounting period', which usually spans 12 months.

Many sole traders choose between 31 March to 5 April for their year end, as the tax year finishes on 5 April and HMRC says that accounts prepared to 31 March will count as being prepared to the end of the tax year.

This means your accounts will start again in accordance with the start of a new tax year, and you'll have the longest possible time in which to pay the tax you owe, which won't be due until 31 January the following calendar year.

However, choosing this time of year won't work for everyone - if it's your busiest period of work, for instance, it's worth changing your accounting year to end to a time when business is quieter and you have the time to finalise your year end accounts.

Your 'basis period' is the period HMRC assesses your tax on. It's nearly always the same as your accounting period - especially if your accounting year end is the same as the tax year end.

Basis period reform from 2024-25

From April 2024 all unincorporated businesses must use 6 April to 5 April as their basis period, regardless of their accounting period.

The 2023-24 tax year will be a transitional year where businesses may need to calculate a basis period that's longer than 12 months if their accounting period doesn't match up to the tax year.

After the reform, many businesses may find it easier to move their accounting period to 6 April to 5 April.

How do self-employment tax payments work?

  • Year 1: in your first year, you're taxed on profits made from the date you started your business to the end of the tax year. For instance, if you started your business on 5 February, you'd be taxed on the profits you made between 5 February and 5 April.
  • Year 2: in the second year, you're taxed on profits for 12 months to your 'accounting date'. In our example, this would again be 5 February - so you'll be charged on profits made between 5 February to 4 February, effectively paying tax for a second time on profits between 5 February and 5 April. This is referred to as 'overlap profits' and can be claimed back - but only when you cease trading.
  • Year 3: your tax bill will be based on profits made to your accounting year.

Self-employed tax payments: need-to-knows

What is the 'tax year'?

Each tax year runs from 6 April to 5 April - so the 2022-23 tax year covers any profits you've made during your accounting year, which will have ended between 6 April 2022 and 5 April 2023.

What profits do you pay tax on?

The profits you made in this period must be declared in your 2022-23 tax return. Deadlines for submission are 31 October 2023 for a paper tax return and 31 January 2024 for an online return.

When are tax payments due?

Any tax due for the 2022-23 tax year must be paid by 31 January 2024. Late payments will incur interest, and HMRC may add other late penalties.

What if you're filing late?

If you send in your return later, you must file it online, and the HMRC software will tell you how much tax is due. Note that this calculation doesn't always include your most recent payment on account.

Are there other ways to pay?

If you owe no more than £3,000 in tax, are paid a salary or pension, and get your return in by 30 December, the tax can be collected in instalments during the coming year through PAYE.

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What are payments on account?

After your first full year of business, as well as paying tax for the tax year that's just ended, you are also required to pay tax for the current year in two instalments. These are known as 'payments on account.'

In this Q&A, we tell you everything you need to know about making payments on account, including changes in the rules due to the ongoing coronavirus crisis.

What are self-employed losses?

If you make a loss rather than a profit in any tax year, you can offset the loss by carrying it forward to deduct from any future profits you make from the same business.

Alternatively, you can use the loss immediately to reduce your income tax bill (and sometimes any capital gains tax bill) for either this or the previous tax year. Further options apply in the opening and closing years of your business venture. See HMRC helpsheet HS227 for more details.

Ways to pay your self-assessment tax bill

The time you need to allow to make your payment to HMRC depends on how you choose to pay.

Make sure the payment deadlines are in your diary - 31 January for any tax you owe for the previous tax year (AKA a balancing payment) plus your first payment on account and 31 July for your second payment on account.

HMRC has outlined how long various forms of payment can take.

Same-day or next day:

  • Online or telephone banking
  • CHAPS
  • Debit card online
  • At your bank or building society

Three working days:

  • Bacs
  • Direct debit (if you've already set one up with HMRC)
  • Cheque through the post

Five working days:

  • Direct debit (if you haven't set one up with HMRC before)

If the payment deadline falls on a weekend or bank holiday, the payment needs to reach HMRC on the final working day beforehand. Late payments may result in a penalty charge.

You can no longer pay HMRC via credit card or at the Post Office.

How to keep your records

Regardless of whether you opt to file your tax return using the paper forms or online, you must keep the records and documents that give evidence of the information you've stated in your return.

This could include things like bank statements, receipts and contracts - anything that documents your income and business dealings.

You must keep this evidence because HMRC has the right to request to see them if it carries out an investigation into your tax liabilities - and having everything to hand could save you from paying a penalty if HMRC believes you've made a mistake on your tax return.

Check our Q&A below for anything you want to know about self-employment tax and record keeping.

Self-employed VAT returns

Value Added Tax (VAT) is a tax charged on traders that they recover from their customers, and must declare in a regular VAT return to HMRC. The VAT rate that businesses charge depends on what goods and services they sell.

You charge VAT to whoever is buying your goods and services, and you must then hand it over to HMRC in a VAT return - these are usually done quarterly.

You must register for VAT with HMRC if your business' VAT taxable turnover - i.e. the total value of everything you sell that isn't exempt from VAT - is more than £85,000 in 2023-24. 

Even if your business turnover doesn't exceed £85,000, it can be a good idea to voluntarily register for VAT because you can claim the VAT tax back on purchases you make in order to run your business.

You can register with HMRC online - this will create a VAT online account which you'll need to submit your VAT return.

How much VAT should I charge?

VAT rates vary depending on the goods and services being sold. The current rates of VAT are outlined in the table below.

Tax rate& of VATWhat the rate applies to
Standard20%Most goods and services
Reduced rate5%Some goods and services, e.g. children's car seats and home energy
Zero rate0%Zero-rated goods and services, e.g. most food and children's clothes

The full list of VAT notices can be found on the HMRC site.

When charging VAT you must always do the following:

  • Charge the correct rate of VAT
  • Show the VAT information on your invoice
  • Show the transaction in your VAT account - this is a summary of your VAT
  • Show the amount on your VAT return

HMRC may charge you interest if you've reported and paid less VAT than you owe. Equally, if you pay too much VAT you can claim it back and may be entitled to interest on top.

When do I have to make a VAT return to HMRC?

You usually submit a VAT return every three months. If you're registered for VAT, you must submit a VAT return even if you have no VAT to pay or reclaim.

If you've signed up for Making Tax Digital (MTD) - which is now compulsory for all VAT-registered businesses, regardless of their turnover - you won't be able to submit your VAT return via your online tax account. Instead, you must record and submit your VAT figures using MTD-compatible software.

HMRC has a list of compatible software providers online, and you can choose whichever service suits your business best.

If HMRC doesn't receive your VAT return or your full VAT payment by the deadline, a 'default' will be recorded.

This means you may then enter a 12-month 'surcharge period'. This is like a warning as you won't get asked to pay a surcharge on your first default.

However, if you default again within this surcharge period you may have to pay an extra amount on top of the VAT you owe, and the surcharge period will be extended by another 12 months.

What is the flat-rate VAT scheme?

If your turnover is less than £150,000 it could be worth considering the flat-rate VAT scheme.

Under this scheme, you pay a fixed rate of VAT to HMRC and keep the difference between what you charge your customers and pay to HMRC.

Your flat rate depends on your business type, and you'll get a 1% discount in your first year as a VAT-registered business.

However, you can't reclaim the VAT on your purchases - except on certain capital assets over £2,000.

This reduces admin and can be good value for small businesses.

Submit your 2022-23 tax return with Which?

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