This article explains how FreeAgent updates its Self Assessment calculations for sole traders and limited companies every year.
What it involves for FreeAgent
Sole traders and limited company directors can complete and file their tax returns directly from within FreeAgent. The software calculates your Self Assessment liability by calculating the information you enter into FreeAgent throughout the year against HMRC’s rates and thresholds for that particular tax year.
Before FreeAgent can do this accurately, however, our software developers must first receive a set of finalised data from HMRC. The first round of draft test data is normally released by HMRC in November/December of the tax year in question. Subsequent versions are usually released before HMRC confirms the finalised set of data for software developers and shares it with us. This usually happens shortly before the end of the tax year; the set of data for the tax year ending 5 April 2016, for example, was finalised and shared with us in February 2016.
HMRC also finalises payroll guidance around the same time, and to ensure that our customers can run payroll from the beginning of the new tax year, we first implement payroll changes, then move on to developing and testing the necessary changes for Self Assessment filing in the new tax year.
Self Assessment filing is normally available a few months after the beginning of the new tax year (usually in June or July), allowing you to file in good time for the online Self Assessment filing deadline of 31st January in the following calendar year.
What this means for you
If you view your Self Assessment tax return in FreeAgent before we have updated the figures for the tax year in question, the liability you see won’t take into account HMRC’s latest rates and thresholds. You will also be unable to file your Self Assessment tax return through FreeAgent.
During this time, FreeAgent provides a projection of your Self Assessment liability using the rates and thresholds from the previous tax year. You will notice that FreeAgent alerts you to this when you access the Self Assessment area of the software.
Once FreeAgent has updated its Self Assessment figures for the tax year in question, the ‘estimated figures ahead’ notice will be removed and the ‘Prepare to file online’ button will be illuminated to indicate that filing has been enabled.
Self Assessment calculations for the 2016/17 tax year
During the 2016/17 tax year (ending 5th April 2017), changes to dividend taxation will have the effect of raising taxes for taxpayers who have dividend income in excess of the new £5,000 tax-free dividend allowance.
If you’re using the figures in your tax timeline or your Self Assessment pages for tax planning purposes before FreeAgent updates its Self Assessment calculations for the 2016/17 tax year, please be aware that your eventual tax liability might be considerably higher as a result of this change.