I’m sorry this is a boring and long blog but it is REALLY IMPORTANT, so you should read it.
I’ve touched on this subject briefly in Blog 2: ‘Becoming a Writer is Like Climbing a Mountain’ and now I am going to go into more detail. In the UK and certainly during my school years, tax was and is, that evil little subject that never really gets covered, but you’re expected to know what it is and more importantly how to pay it regardless. Makes total sense right? Not.
If you work for yourself and earn money from what you do, then you are self-employed. You could be an artist, writer, builder, yoga instructor, pretty much anything, but if you do not work for a company or an employer who already sorts out your tax for you (you will need to check this out if you are employed, particularly if you do contract work), then you need to register as self-employed and you need to do your own tax returns.
So, for the benefit of pretty much every self-employed person, I’m going to do my best at explaining how you sign up for tax as a UK resident, and how you complete a Self-Assessment form.
Registering for Self-Assessment.
To register for Self-Assessment the first step is to click the following link https://www.gov.uk/register-for-self-assessment. Read through the information on each page by clicking the NEXT Button, and then click on the links that apply to you. To register for Self-Assessment and getting a tax return, and to receive your Unique Tax Reference Number (UTR), you need to fill out a SA1 form, click on the following link https://online.hmrc.gov.uk/shortforms/form/SA1.
On the SA1 form you will need to fill in your name, National Insurance Number, address, telephone number, and email address. You will then be asked ‘Why do you need to complete a tax return?’ your answer should be the last box ‘I’ve untaxed income which cannot be coded in PAYE’. You will also need to give the date for when you started receiving your ‘untaxed income’ so when you started earning from your self-employed work (even if you know you have made a loss you still need to declare when you started earning). It is also important to note that anything you have earnt before April the 5th of the current year will be counted as taxable income for the previous tax year (the tax year runs from April 6th to April 5th.) Assuming you have no child benefits, you can then skip to the declaration at the end of the form, tick the agree box, give your full name, the present date and then click next at the bottom right of the page. You will receive your UTR in the post within 10 working days.
The next stage is to enroll for Self-Assessment either online or a paper version. I would recommend enrolling for Self-Assessment Online Services, to register as a new user click the following link https://online.hmrc.gov.uk/registration/individual. Tick the Self Assessment (SA) box and then click next. Follow all the following steps which will ask you to give your name, email, create a password, UTR, National Insurance Number, Postcode and details about you and your profession (i.e. writer, author, researcher, editor and all that apply to you). Then you should receive an activation code, sent to the inbox of the email address you have provided. You will be asked to give this activation code when you sign onto your online account for the first time. You can sign in to your account by clicking the following link, https://www.gov.uk/log-in-register-hmrc-online-services.
Class 2 and 4 National Insurance are now included on your tax return (before you had to apply for this separately). Class 2 National Insurance is £2.80 per week and you only pay this if your profits are £5,965 or more a year. Class 4 if your profits are £8,060 or more a year. However, paying your National Insurance contributes towards your state pension and you can opt to pay Class 2 NI on your Self-Assessment form, even if you earn less than the stated amount (I recommend that you do this). To find out more click the following link https://www.gov.uk/national-insurance/overview.
Filling Out an Online Self-Assessment Form.
First things first, you need to go through your bank statements and receipts (yes you should really hold onto all of your receipts, or pay for everything with your card). You’re looking for anything you have earnt being self-employed, between April 6th of the previous year and April 5th of the current year. As a writer/author, this will be royalties, or freelance work such as editing or researching, and even your earnings if you’ve sold anything on ebay or any other online site. Your earnings do not include the £20.00 bank transfer that your grandma gave to you as a Christmas present.
Make a note of all your self-employed earnings and add them up to get your total earnings. Then you need to go through your bank statement for anything you have bought that was necessary/has been used for/and related to your work. As a writer/author this will be books, stationary, writing courses etc. This will not include your recreational trip to the spa or the dinner you went out for with your friends. Add up all of these self-employed work related costs to get your total costs.
You should receive an email reminding you to complete your online Self-Assessment Form, you will have until January the following year to complete this (if you are completing a paper form then you have until October of the current year to complete it). If you receive tax credits then the due date is different again and you will need to check this.
Sign in to your online account, there should be a notice to fill in your Self-Assessment Form, click the ‘Complete Return’ button and you will be taken to another page. On this page there should be several sections to complete, you will need to fill in all the boxes relevant to you.
Section 2 Tell us about you, will require your name, UTR, NI Number, Telephone Number, Email address, Address, Date of Birth, and Martial Status. You will be asked if you or your spouse or civil partner is registered blind on local authority or register (Yes or No answer). If you have been or are a university student you will also be asked to check the repayment date details of your Income Contingent Student Loan (Yes or No answer).
Section 3 Tailor your Return, will ask you a number of Yes and No questions, you will probably answer No to most of these questions. You will answer Yes to ‘Were you Self-Employed’, which will then ask for your Business Name. As an author/writer, your business name will probably be your own name.
Section 4 Fill in your Return, will ask if you’ve had an annual turnover of £82,000 or more (which unless you’re incredibly lucky will probably be a No.) Then you will be asked to tick boxes that apply to your circumstances, you will probably tick the box for ‘None of these apply’.
You will then be asked for your Business Name, again this is likely to be your own name. Then you will be asked for your Business Description, here you can put whatever applies to you; Writer, Author, Researcher etc. You will then need to put in your postcode and fill in the remaining boxes or leave them blank if they do not apply to you and do not have an asterisk(*).
Then you will be asked for the date your books or accounts are made up to, this will be the 5th of April of the current year. Then you will be asked ‘Did you receive the cash basis, money actually received and paid out, to calculate your income expenses?’ You will probably answer this with a Yes.
Next, you will be asked to put in your Turnover (total earnings) and your Total allowable expenses (total costs). It will automatically calculate your Net Profit. You will then be asked about Other Tax Adjustments and Losses which you will probably leave mostly blank, especially if this is your first Self-Assessment. The you will be asked if you are exempted from paying Class 4 NIC’s, (Yes or No answer). I actually answered No to this but now I am not so sure. Also, today the question said expected not exempted but I think this is a typo/spelling error. Clearly HMRC can’t afford a proof reader.
The next thing you will be asked about is Class 2 National Insurance Contributions, you will be told how much you owe, and if you have earnt less than £5,965 you will be given the option to voluntarily pay for your Class 2 NI.
You will then be asked to fill in boxes for underpaid tax included in PAYE coding and other debts, which will probably be filled in automatically as £0.00. You will be asked if your return contains provisional or estimated figures, your answer is likely to be No.
Section 5 will check your return.
Section 6 View your Calculation, will check and state the amount of Tax (if any) and National Insurance, that you are required to pay.
Section 7 will save your tax return and ask you to check all of the details before moving on to the next section.
Section 8 will submit your Self-Assessment/tax return and give you a (very long) submission receipt reference number. You should also receive a confirmation email after this is complete.
Ok now that I have sent you all to sleep, I shall say goodnight! I hope this blog has helped you to navigate the big and scary adult world of tax. If you have any questions or queries then do not hesitate to ask by leaving a comment below, I will try and provide the answers. Thank you for reading my blog and I will update with something a bit more fun and less tedious next week!