Self-assessment of income is one of the issues with the most misinformation going around in the general public. It is quite bewildering to think that such a simple concept could be lost on so many people and would result in so many penalties every year. Let me explain the whole concept.
HMRC are determined to keep every tax payer in full control and prefer to see everyone register themselves for self-assessment in time. Of course, anyone who already gets their income after taxes does not need to bother about it, but freelance contractors and limited small business owners need to be careful about it. They need to hire qualified specialist contractor accountants to get the technicalities right.
It is simply a process of letting the government know exactly what you earn, so that they know how much tax they should collect from you. Since freelance contractors do not have a fix source of income, the government has no idea of how much they are going to earn. So, the ideal thing is for the contractors to go and declare what they are earning. Income from properties owned outside of the country also falls in the same category. It needs to be declared to HMRC.
You need to be ready before the prescribed last date for registration. The self-assessment is done obviously for the current fiscal year, which is from 6th of April to 5th April of the next year. At whichever point of time in that year you setup a company of your own, you have to declare the self-assessed income before 5th of October. Here are some of the things you need to have ready before the self-assessment:
Self-employment income – All of your invoices and other expenses
Partnership income – Details of any income from partnerships
Capital Gains – Details of income from capital
Interest – Details of any interests gained from different sources
Dividends – Dividend vouchers from your own limited company, if any
Foreign income – Details of income from abroad
P11D – For information of employee benefits
Rental income – Details of any income from rental properties
Apart from all these things, its best to keep an online account of your finances that you are ready to produce at a moment’s notice. Again, a good contractor accountancy in London will be able to sort all of this out for you. If you can do this one time and keep the HMRC on your good side, a lot of hassle in your freelancing career can be avoided.