Your HMRC tax return as a contractor: an expert’s self-assessment guide

One of the benefits of operating as a limited company contractor outside IR35, is the ability to structure you take-home pay through a combination of salary and dividends.   

But since dividends are received as untaxed income, you will need to register with HMRC for Self-Assessment to report the income you extract from your company.  

Managing the ‘SA’ process efficiently and understanding your HMRC tax return as a contractor is crucial to ensure compliance and that you minimise financial burdens.  

With penalties in place if you get it wrong, let’s look at what completing and understanding your return as a limited company contractor correctly looks like, for 2024-25 and beyond, writes chartered accountant Helen Christopher of Beansprout Consultancy

Registering with HMRC 

As a director of your limited company and shareholder, who receives dividends, you must register for Self-Assessment by October 5th after the end of the tax year that you need to report.  

For example, if you need to complete a tax return for the tax year April 6th 2023 – April 5th 2024, you must register by October 5th 2024.

(N.B. Irrespective of your company’s year-end, your personal income is reported for the tax year April 6th to April 5th.) 

Registering with HMRC for Self-Assessment can be done by creating your Government Gateway or through your professional adviser.  

Once registered, HMRC will send you a Unique Tax Reference (UTR) number -- a reference you will need to be able to file your return.  

What do contractors need to report as part of Self-Assessment? 

Your Self-Assessment tax return must document all sources of income.  

In the contractor’s case, the most obvious sources will be salary and dividends from the company. 

But you may also receive additional Benefits in Kind which are taxable, such as medical insurance or company car. 

If you have had other sources of income in the tax year such as those listed below, these need to be included on your tax return too. 

  • Additional Employment Income P60/P45  

  • Bank interest (excluding ISAs) 

  • Foreign Income 

  • Rental Income – such as from the Rent a Room scheme. The rental property’s details of income and expenditure. 

  • Capital Gains -- details of chargeable assets or property sold within the tax year. 

When preparing your return, explore available tax deductions and reliefs to legally reduce your tax liability.  

This includes allowances for pension contributions and charitable donations, relief on losses from other income, trading losses or certain capital losses. 

On your tax return, you also need to record and report details of any Student Loans (both undergraduate and graduate loans), as well as any Child Benefit received to ensure you don’t get a surprise bill if you are receiving income you are not entitled to. 

What pages and sections on a tax return are key? 

Your Self-Assessment tax return consists of multiple pages, and so it can be confusing when trying to check that the return is complete. 

The main body of the return -- known as the SA100 -- reports the following elements: 

  • Taxed and untaxed income in the form of dividends and interest 

  • Pension contributions 

  • Charitable donations 

  • Student Loan repayments 

  • High Income Child Benefit Charge 

  • Marriage allowance 

  • State Pension, Child Benefit and Blind Person’s Allowance, among other potential benefits. 

Other income sources then appear on the tax return’s Supplementary Pages, with the most common ones being, 

  • SA103 - self-employed income 

  • SA105 - property income and 

  • SA108 for capital gains. 

Tax return ‘due dates’  

Having completed your Self-Assessment tax return, you will know how much tax you need to pay. 

The deadline for submitting your form and paying any tax due is January 31st following the end of the tax year that is being reported. 

But there are multiple benefits to making the submission sooner, including the ability to reduce future payments on account. 

If you miss the deadline to register or fail to submit your return or pay your bill on time – you’ll get a penalty from HMRC. 

If you’re up to three months late filing or paying tax, it’s a penalty of £100. If it’s later than this, the penalty will be more. You can appeal but only if you have a “reasonable excuse.” 

Payments on Account 

Unless your Self-Assessment tax bill was less than £1,000, or you’ve already paid more than 80% of all the tax you owe through deductions at source, you’ll be asked to make ‘Payments on Account’ towards your next tax bill for the following tax year.  

These payments on account are based on the previous year's tax liability and are due in two instalments -- by January 31st and July 31st. 

This is perhaps best explained by way of an example. 

If your tax bill for 2022/23 was £1,500 – during the 2023/24 tax year, you’ll have been asked to make two payments on account of £750 each. When you submit your 2023/24 tax return, these two payments will be deducted from your tax bill. 

So, if your 2023/24 tax bill was £3,000, £1,500 (two payments of £750 on account) were deducted on January 31st and July 31st that year. And you’ll have to pay £1,500 as a balancing payment before January 31st 2025. In addition, you will need to pay an extra £1,500 as your first payment on account for the 2024/25 tax year. 

Payments on account can significantly impact your cash flow, so it's essential to plan for them in advance and put money aside to cover these payments. This is also why it can be a good reason to file your Self-Assessment before July 31st each year to see if these payments on account can be reduced. 

Final thought  

Managing your Self-Assessment tax return as a contractor requires careful attention to detail, and can feel daunting at first, especially with the threat of HMRC penalties. 

But with a little organisation from yourself, and support from an accountant, almost all contractors end up navigating the process effectively, while ensuring compliance with tax regulations, avoidance of penalties for errors or carelessness and optimisation of income.

Tuesday 26th Mar 2024
Profile picture for user Helen Christopher

Written by Helen Christopher

Chartered accountant Helen Christopher is a former head of finance & accounting and a former chief operating officer, who has worked for 28 years in corporate roles. Helen qualified as an accountant in 1995 with Price Waterhouse (now PwC) – the year she became a member of the ICAEW, and seven years prior to her becoming an FCA. Also a local magistrate for the Department of Justice, Helen specialises in tax, accounting and HMRC advice for small companies and their owners. 
Printer Friendly, PDF & Email

Sign up to our newsletter

Receive weekly contractor news, advice and updates.

Every sign up will be entered into a draw to WIN £100 Amazon Vouchers.

* indicates required