Self-Assessment Tax Calculation in the UK (2023/24)

What is Self-Assessment Tax, and Who Needs to File?

Self-assessment is the UK’s method of collecting income tax not deducted at source (e.g., through PAYE). Filing a self-assessment return is required if you:

• Earned over £1,000 from self-employment.
• Have income from property rentals.
• Received dividends or investment income exceeding the allowance.
• Claimed Child Benefit and your income exceeds £50,000.
• Are a higher-rate taxpayer with untaxed savings or overseas income.
• Made gains from the sale of assets subject to Capital Gains Tax.

The filing deadline for online returns is 31 January, following the end of the tax year.

Step-by-Step Guide to Calculating Your Self-Assessment Tax Bill

1. Gather All Income Sources

Compile all taxable income sources:

• Employment earnings (PAYE income).
• Self-employment profits.
• Rental income from properties.
• Dividends or investment income.
• Other taxable benefits (e.g., pensions, redundancy payments).

Example: For the 2023/24 tax year:

• Employment income: £30,000 (PAYE).
• Self-employment profit: £15,000.
• Rental income: £8,000.
• Dividends: £2,000.
• Total gross income: £55,000.

2. Deduct Allowable Expenses

Reduce your self-employment income by claiming allowable expenses. These include:

• Home Office Costs: A portion of rent, utilities, or internet.
• Travel Costs: Mileage, accommodation, and public transport for business trips.
• Marketing Costs: Advertising, website hosting, and promotional materials.
• Capital Allowances: Depreciation on business assets like machinery or vehicles.

Example: If your self-employment revenue was £20,000 and your allowable expenses were:

• Rent/utilities: £1,500,
• Travel: £700,
• Marketing: £500,
• Capital Allowance (vehicle): £4,000, your taxable income reduces to £13,300.

3. Account for Personal Allowance

The Personal Allowance for the 2023/24 tax year is £12,570. This is the amount of income you don’t pay tax on. If your income exceeds £100,000, the allowance reduces by £1 for every £2 earned above £100,000, disappearing entirely at £125,140.

4. Apply Income Tax Bands and Rates

After deducting expenses and Personal Allowance, calculate your tax liability based on these bands:

• 0% Tax: First £12,570 (Personal Allowance).
• 20% Basic Rate: Income from £12,571 to £50,270.
• 40% Higher Rate: Income from £50,271 to £125,140.
• 45% Additional Rate: Income above £125,140.

Example: For a total taxable income of £42,000:

• £12,570 taxed at 0% = £0.
• £29,430 taxed at 20% = £5,886.

5. Add National Insurance Contributions (NICs)

National Insurance Contributions (NICs) are calculated separately from income tax:

• Class 2 NICs: Flat rate of £3.45 per week (profits over £6,725).
• Class 4 NICs: 9% on profits between £12,570 and £50,270, plus 2% above £50,270.

Example: For self-employment profits of £20,000:

• Class 2 NICs: £3.45 × 52 weeks = £179.40.
• Class 4 NICs: 9% on £7,430 = £668.70. Total NICs = £848.10.

6. Adjust for Tax Already Paid at Source

Include taxes deducted from your employment income (PAYE) or other sources (e.g., CIS deductions).

Example: If £2,000 PAYE tax was deducted from your employment income, subtract it from your total tax liability.

7. Payments on Account

If your tax bill exceeds £1,000, you’re required to make Payments on Account towards the next tax year. These are split into two equal instalments:

• First Payment: 31 January.
• Second Payment: 31 July.

Example: For a total tax bill of £4,000:

• Payment 1: £2,000 (31 January).
• Payment 2: £2,000 (31 July).

Filing Your Self Assessment Tax Return

Online Filing

Filing online through HMRC is quick and provides instant tax calculations. Benefits include:

• Immediate confirmation of submission.
• Real-time tax estimates.
• The ability to save and return to your form.

Paper Filing

Paper submissions require calculations and entries by you. HMRC provides the SA302 tax calculation form after processing, but this method is slower and less flexible. The deadline is earlier: 31 October.

Common Pitfalls and How to Avoid Them

1. Missing Deadlines

Failing to file or pay on time incurs penalties:

• Late filing: £100 immediately, increasing over time.
• Late payment: Interest charges on overdue amounts.

Tip: Use digital calendars and HMRC’s reminders to stay on top of deadlines.

2. Incorrect Expense Claims

Overclaiming expenses can lead to HMRC penalties, while underclaiming increases your tax bill.

Solution: Keep detailed, organised records of all receipts, invoices, and payments.

3. Ignoring Payments on Account

Payments on Account can catch new self-employed individuals off guard, leading to cash flow issues.

Tip: Set aside around 30% of your profits to cover taxes and NICs, including advance payments.

Unique Data and Insights

1. Handling Mixed Income Streams

If you earn income from multiple sources (e.g., PAYE job and self-employment), ensure all are reported correctly. Employment income taxed via PAYE reduces your tax bill, but you must still account for:

• Self-employment profits.
• Rental income.
• Dividends.

2. Understanding Capital Gains Tax

If you’ve sold assets like property or shares, you may need to pay Capital Gains Tax (CGT):

• Annual exemption: £6,000 (2023/24).
• Tax rates: 10% (basic rate) and 20% (higher/additional rate).

3. Claiming Losses

If your business incurs a loss, you can offset it against other income or carry it forward to reduce future tax bills.

4. Practical Tools for Tax Management

• Accounting Software: Tools like Xero or QuickBooks streamline record-keeping and tax calculations.
• HMRC Personal Tax Account: Monitor payments, refunds, and tax estimates in real time.
• Professional Help: Hire an accountant or tax advisor to ensure compliance and maximise deductions.

Conclusion

Filing your self-assessment tax return doesn’t need to be overwhelming. By staying organised, understanding the process, and leveraging the right tools and professional support, you can manage your taxes efficiently. For tailored advice and support, contact Affotax—our experts are here to guide you every step of the way.

Get in Touch with Affotax Today!

FAQs About Self-Assessment Tax

Q1. Can I amend my tax return after submission? 

Yes, you can amend your tax return within 12 months of the original filing deadline.

Q2. What happens if I can’t pay my tax bill? 

Contact HMRC immediately to discuss a Time to Pay arrangement. Avoid ignoring the problem, as penalties and interest will accrue.

Q3. How long should I keep financial records? 

Keep all tax-related records for 5 years after the 31 January filing deadline.

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