Help available for the self-employed when completing tax returns

How do I get started?

If you are newly self-employed or not feeling confident in how to pull together your accounts and complete your tax return then our self-employment guide can help you. This guide specifically focuses on the 2021/22 tax return and contains information on:

• how to register with HMRC;

• how to prepare a set of accounts;

• how to complete your tax return;

• growing your business;

• tax credits and universal credit when self-employed; and

• a detailed case study showing how a new sole trader prepares her accounts and Self Assessment tax return.

Does the Trading Allowance apply to me?

If your gross income is £1,000 or less, you can choose to use the trading allowance (sometimes called the trading income allowance or ‘hobby allowance’). Gross income means income before any expenses are deducted, for example commission payments or sellers’ fees. If your gross income is £1,000 or less and you decide to use the trading allowance, then you may not need to register with HMRC or file a tax return.

However, the trading allowance covers all casual and miscellaneous income as well as the gross income from any different self-employment trades you may have, so you must work out whether your total gross income from all relevant sources is at or below the £1,000 threshold. If it is more than £1,000, then HMRC will expect you to register for Self Assessment and complete a tax return even if there is no income tax or National Insurance to pay.

If your gross income is above £1,000, you can still use the trading allowance instead of deducting your actual expenses which may be beneficial if your actual expenses are below £1,000.

Should I tick the cash basis box?

When completing the self-employment section of your tax return, you will be asked if you are using the cash basis. The cash basis is a way of preparing your accounts so that you include sales income and expenses when you actually receive or make a payment. When using the cash basis, there are special rules regarding losses, cars used for business purposes and interest payments.

If you don’t elect to use the cash basis by ticking the box, then you will need to prepare your accounts using the accruals basis.

There are additional rules if you want to change from the accruals basis in 2020/21 to the cash basis in 2021/22 (or vice versa).

What if I have more than one self-employment?

Some people have more than one self-employment at the same time (multiple trade), for example, perhaps selling ice creams in the summer and making hand-made Christmas cards in the winter or running your own plumbing business during the week and being a DJ on a weekend at different events.

You will need to include each one as different self-employment trades on your tax return and then complete different self-employment sections for each, so the income and expenses for each trade are dealt with separately. Our guidance covers how you prepare your accounts and what happens if you make a loss in one of your businesses (see more on losses below).

What do I do about business support grants I received during the pandemic?

You may have received a grant from a government department such as HMRC or from your local authority (council), during the coronavirus pandemic. Usually, if this was related to your business, this income is taxable and should be included on your tax return under ‘other business income’ within the self-employment section.

However, if you received either the fourth or fifth Self-employment Income Support Scheme (SEISS) grants this income needs to be included in a separate box in the self-employment section- see our guidance for more information.

I work under the CIS – what do I need to complete?

If you have had deductions withheld for tax and National Insurance contributions under the Construction Industry Scheme (CIS) then you need to make sure you:

• complete the self-employment section on your tax return;

• include your gross sales income (so your earnings before the CIS deductions were withheld);

• include the amount of CIS deductions withheld during the tax year from all contractors;

Information on your gross sales income and the amount of CIS deductions withheld should be available from the statements provided by the contractor(s) you have worked for.

Most CIS workers will have overpaid their tax and National Insurance contributions and will be due a refund from HMRC upon submitting their tax return. To speed up this repayment it is a good idea to include your bank details of where you want the repayment to be automatically deposited.

The example of Lee on our CIS page covers this in more detail. 

I have made a loss, what should I do?

You may have made a loss during the year (this is where your tax allowable expenses and capital allowances are more than your trading income).

There are various ways you may be able to get tax relief for these losses, but these can depend on factors such as when you started trading and if you are using the cash basis or the accruals basis. Our table can help you work out what options are available to you.

Claiming tax relief for a loss may mean your tax bill will reduce due to the loss or you may be entitled to a tax repayment.

It is important you include the loss in the self–employed section on your tax return, even if you can’t use it this tax year and need to carry it forward to future tax years.

What do I do with my paperwork when I have completed my tax return?

Don’t dispose of any paperwork such as your invoices and receipts straight after you have submitted your tax returns- you have a legal duty to keep business records relating to your self-employment for almost six years after the end of the tax year. So, if you are completing your 2021/22 tax you must keep all business records until 31 January 2028.