Self-Assessment Tax Explained
Advice on tax and national insurance for self-employed drivers
As a self-employed owner-driver, you will be paid for the services you provide to GSS. This does mean you will be responsible for paying your own personal tax and national insurance so it is important to stay on top of your tax obligations.
What is self-assessment?
Self-assessment is a way for the Government to collect tax from self-employed people who pay income tax on the profits they make. It is also used for people who are business partners, or directors of a limited company.
The difference between PAYE and self-assessment
When you are employed by a company, your tax and national insurance is sorted out by your employer at source. You get a pay-slip that shows the tax deductions, which are taken and paid by your employer. You receive a net amount with all the deductions already made so you do not need to apply for self-assessment unless you earn any other money independently. This is called Pay As You Earn (PAYE).
You are also given a tax code, which shows the allowance of money you can receive each year before you pay any tax (tax-free allowance).
If you are an employee of a company but are also self-employed (running a business part-time, for instance) you will probably be required to enter a self-assessment tax return.
You will need to show details of your employment, earnings and tax deducted via PAYE as well as any other earnings.
How is my tax calculated?
As either a self-employed sole trader or as the owner of a Limited company you are responsible for ensuring your business makes the correct tax and national insurance contributions.
This is called “self-assessment” (completing a tax return) and is usually calculated (as a rough guideline) as your sales revenue (the money you bill) minus the costs of running your business. This leaves a net profit.
As a self-employed person, all of this profit is seen as taxable (taking into consideration your tax allowances).
For Limited companies, it is different as the individual owner(s) of the business and the business itself are different entities. You have different tax liabilities and we would advise employing an accountant to help you calculate your liabilities and the most tax efficient way of earning your money.
Whether a sole trader or a limited company, it is important you keep accurate records of all of your sales and purchases, either by using software or a spreadsheet, or employing a bookkeeper.
It is essential to keep copies of all your receipts and invoices for money spent or earned by your business for a minimum of five years. HMRC may decide to audit your business and you will be required to provide accurate records and proof of all earnings and expenditure.
Every year, you will need to provide HMRC with an accurate account of the money your business has made and spent in the year using an online self-assessment. This form outlines any money you have made in the previous year from work and other income.
Your self-assessment form must be completed and any contributions (tax) you owe paid by January the 31st following the end of your previous tax year. If you fail to do this, you will be fined.
For example, if your tax year runs from April-March, your self-assessment for the tax year would need to be filled with HMRC by the 31st January that follows the end of the March your year ended.
You will need your unique taxpayer reference (UTR), which you are given when you register as self-employed.
If the thought of managing and calculating your tax each year is overwhelming, why not outsource it to a small bookkeeping or accounts practice?
There are many self-employed people offering this service and although it will cost extra money, you can rest assured it will be managed efficiently.
And, of course, the cost is tax deductible so you can claim it against your earnings.
Want to learn more?
We have a range of articles to help you if you are currently a self-employed driver or thinking of becoming one.