Working as self-employed contractor means that you’ll probably need to submit a tax return to tell HMRC about the money you earn, so they can work out how much tax you need to pay.

Do contractors need to submit Self Assessment tax returns?

Like all businesses, the type of tax return you submit as a contractor depends on the business structure that you operate.

Self Assessment is a type of tax return where you tell HMRC about the personal money you earn in a tax year, and HMRC use this information to work out how much tax you owe.

You will generally need to make Self Assessment submissions if you contract as a sole trader or in a partnership, or if you’re the director of a limited company.
 

What sort of information will I need to provide?

A Self Assessment tax return usually deals with everything that happened during a tax year, which runs from 6th April until 5th April the following year.

You’ll need to declare all of the income you received during the tax year, regardless of its source so that HMRC can see:

• How much you earned
• How you earned it
• What allowable expenses you can claim tax relief on
• Any tax that you have already paid (so you don’t pay tax twice on the same money)

When and how do contractors pay Self Assessment?

The deadline to pay any tax that you owe after submitting Self Assessment is midnight 31st January. So, if you need to submit a return for the tax year which started on 6 April 2023 and ended on 5 April 2024, the payment deadline is midnight 31st January 2025.

 
If your tax bill is more than £1,000, HMRC basically assume that you’ll earn a similar amount again, and ask you to make an advance payment (a payment ‘on account’) towards your next bill. The advance payment is equivalent to half of last year’s bill.
 

Can I reduce my payments on account?

This is a question we get asked quite a lot! This can happen, and it’s usually because a business has made less profit than the previous year. Where this is the case, you can apply to reduce your payments on account to avoid overpaying tax and then reclaiming it later.

You can request this through your Government Gateway account, or chat to your accountant about it.

Will I be charged interest or penalties for late payment?

It’s really important to pay your Self Assessment bill before the deadlines. Unfortunately, you will be charged a late fee if you don’t manage to do this. Interest will also be charged until you pay everything that’s still outstanding.

If you think you’ll have any trouble meeting your Self Assessment tax deadlines, the last thing you should do is avoid the issue. Contact HMRC directly or speak to your accountant about what to do – you might be able to make a Time To Pay arrangement.

I’ve made a mistake on my Self Assessment tax return. Can I correct it?

Yes, you can make amendments to your tax return within 12 months of the filing deadline. Just bear in mind that the changes you make could mean you have to pay extra tax or interest. If you submit your tax return with any obvious mistakes or issues, HMRC can correct it within nine months of filing.

Do HMRC ever enquire into a tax return?

Sometimes, yes. HMRC can launch an enquiry into your Self Assessment within 12 months of it being filed. You will be notified in writing if this happens.

No queries can be raised by HMRC about your tax return until it has launched an enquiry first. Try not to panic if this happens though; it doesn’t automatically mean that there’s a mistake or that you’re in any trouble. Often HMRC just want to check your tax calculations are correct – sometimes this can even be at random.

What records should I keep?

You’ll need to keep meticulous financial records to complete your Self Assessment accurately. Thanks to the upcoming Making Tax Digital for Income Tax Self Assessment rules, it’s worth thinking about taking a digital approach to your bookkeeping if you’re not already doing so.

You might also need additional documents and information to help you tick off everything on your Self Assessment checklist.

Do CIS tax returns affect Self Assessment?

Under the Construction Industry Scheme (CIS), contractors in the building trade keep back a percentage of what a subcontractor earns, and report this to HMRC using a monthly CIS return. It’s similar to what employers do for employees.

For the contractor this means some extra admin, but for sub-contractors it has more impact. This is because CIS deductions are calculated using the correct CIS tax rate, and without taking into account the tax-free personal allowance.

What about IR35 – How does that affect Self Assessment?

If you are a contractor, or you’re thinking about becoming one, then you’ve probably already come across IR35. It can be a confusing topic, but IR35 basically sets out to close a tax loophole for contractors who operate through their own limited company when really, they’re an employee in all but name.

The responsibility for working out whether a contract is within IR35 rules depends on who the client is but if IR35 rules do apply:

• The client will deduct income tax and National Insurance from your invoice before they pay you – just like they would if you actually were an employee. It’s down to the client to pay this on to HMRC for you.

The payment you receive from the client is ‘after tax’, so you’ve already paid tax on that particular chunk. It’s important to make that clear on your Self Assessment, otherwise you might end up paying tax on it again!

Can contractors claim tax relief through Self Assessment?

In short, yes. Any business can (and should!) include any allowable expenses on its tax return, and claim tax relief on what it spends. Knowing which expenses you can actually claim for is one part of Self Assessment many people struggle with.

It’s often tempting to under-claim just to “be on the safe side”, but in doing this you’re potentially selling yourself really short. In other words, you’ll end up paying more tax than you need to. Again, this is something our team will be pleased to advise you on.

Just to give you an example, a contractor working in the construction industry could claim tax relief on allowable expenses such as:

• Materials for work
• Essential equipment and tools
• General costs of running the business, such as marketing and stationery
• Travel costs relating to work
• Accountancy fees

These costs (and many more in fact) can be taken off your overall income which, because you pay tax on profits and not on income, reduces your tax bill. That’s why it’s well worth claiming all the expenses you’re entitled to when you complete your Self Assessment tax return.

 
We know that tax can be daunting, especially if you haven’t been a contractor for very long. Learn more about our online accounting services for contractors, and call 020 3355 4047 or get an instant online quote.