The long version of the Self-employment page for sole traders
We are not authorised by HMRC to provide accounting or tax advice. Therefore, FreeAgent’s Support team cannot advise you on how to fill in your tax return correctly or check your figures to see if they are correct, unless they have been calculated by the software. If you’re unsure whether a figure on your tax return is right, please speak to your accountant or to HMRC.
Who should use the long version?
If your business is preparing accounts for a full accounting year and your sales during that period were over £85,000, you should use the long version. If your sales during that period were under £85,000, you’re usually able to use the short version.
If your self-employed business is preparing accounts for less than a full year and your annualised sales were over £85,000, you should also use the long version.
Annualised sales figures are calculated as a proportion of your sales during the accounting year. For example, if you began trading on 1st January with an accounting year end date of 5th April, and you made £30,000 sales during that time, your annualised sales would be calculated as £30,000 x 12/3 = £120,000.
If you’re using the averaging method for farmers, market gardeners, writers and artists, or if you have overlap profits (i.e. profits that the business pays tax on twice) you’ll have to complete the long version.
You’ll also need to use the long version if you received self-isolation support payments from the government due to coronavirus and treated these as part of your business’s income. These payments are subject to NI but not to tax, and there is a box you need to use to adjust your profits which can only be found on the long version.
If you want to choose to fill in the short version, you can switch at the top of the page.
An overview of the long version in FreeAgent
Box 15 is for turnover - income the business has earned during the year, excluding bank interest, which goes in the Main Return.
Recording coronavirus support grants
If you received any coronavirus support grants during your accounting year and explained these in FreeAgent as ‘Other Money In’ and ‘Grant Income’, enter the amount you received in the box below box 15. This will subtract the grants from your turnover.
To see how much you received as coronavirus support grant income to enter in the box below box 15, navigate to the ‘Accounting’ tab, select ‘Reports’, then ‘Show Transactions’. Next, select the correct accounting year and choose ‘Grant Income’. Add up all of the coronavirus grants to calculate your grant income total.
To record your grant income, you will then need to enter the total for any coronavirus support grants that you received and were entitled to receive, other than SEISS ones, in box 16. If you received more than you were entitled to, and haven’t yet told HMRC, you need to report the overclaim on your Main Return. This is the figure you need to pay back in full to HMRC.
Next, enter any coronavirus support payments for SEISS in box 70.1. The government paid out five SEISS grants and they have advised that box 70.1 for 2020/21 should contain any payments you received, and were entitled to receive, for these in that year.
Please note that if your accounting year does not finish on 5th April, or if you received more than you were entitled to, this may mean that the figure you enter in the box under box 15 and the figure you enter in box 70.1 are not the same.
If you received more in coronavirus support grants than you were entitled to receive and haven’t yet told HMRC about this, you need to report the overclaim on your Main Return.
Amounts entered in box 16 and box 70.1 are included in your profit for tax calculation.
Boxes 17-30 show the total business expenses, both allowable and disallowable, in the different categories. You can view or edit the accounting categories you have set up in FreeAgent in your account settings.
To see how FreeAgent has calculated the figures in any of these boxes, filter the Show Transactions report by tax reporting type to see the individual transactions that make up these figures.
If an expense is 'disallowable', that means it's not allowable for tax relief, i.e. as a sole trader you can't use that expense to reduce the amount of profit that you pay tax on. An allowable expense is one that can be used to reduce the amount of profit that's going to be subject to tax.
Box 31 is the sum total of boxes 17-30.
Boxes 32-45 show the disallowable expenses in the different categories. If you need to disallow certain expenses, such as some legal fees, you need to set up a new category for these and tag that category as disallowable. Some categories such as Business Entertaining and Depreciation, are tagged as disallowable by default.
Boxes 49-59 show capital allowances. There are complex rules governing what you can claim for different assets, which may be based on information that isn't recorded in FreeAgent. If you're not sure what figure you can claim here, talk to your accountant.
The rest of the boxes tend to be summations (see below for guidance on basis periods and overlap profits), except for boxes 73, 74 and 77-80, which relate to losses.
The basic principle is that if you make a loss for tax purposes in any one year (i.e. if your allowable expenses plus capital allowances, outweighs your income), you may well be able to use that loss to reduce your tax bill in some way.
You may be able to set the loss against other income you've received in the same year (e.g. salary from a job) and claim back tax you've already paid; you may be able to carry the loss back against profits from previous years; or you can carry the loss forward to set against future profits from that trade.
Using a loss to reduce your tax bill is called 'loss relief'. The rules around when each kind of loss relief can be used are complex, especially as losses can be treated differently for tax and National Insurance. If you've made a loss and you're not sure how you can claim relief on it, speak to your accountant.
FreeAgent will make a provisional calculation for you of losses from earlier years, which it will then bring into the memo under box 73.
It assumes you're carrying all your losses forward. If your accountant advises you as such, you can claim loss relief by making entries into box 78 or 79. Fill these in as directed by your accountant.
A business that makes losses in its early years of trading can only receive loss relief on any pound of loss once. But if it makes profits in its early years of trading, and doesn't have a year end of 31st March, 5th April, or anything in between (1st-4th April), it can end up paying tax twice on the same profit. Profits that the business pays tax on twice are called overlap profits.
Most sole traders prepare their accounts to 5th April each year, to match the tax year. HMRC also treats accounts that end on 31st March or on any of the intervening days as being prepared to match the tax year. So if you prepare your accounts to any day between and including 31st March and 5th April, you can stop reading this now - overlap profits do not apply to you!
BUT if your business does not prepare accounts to any of these dates, for example if you use 31st December as your business's year end, then its profits can sometimes be taxed twice.
The classic situation where this will happen is in the early years of your business's life. HMRC gives examples of the calculations for which profits will be taxed twice in that case.
Put the opening and closing dates of your basis period into boxes 66 and 67, if they're different from your accounting period, and add any adjustment between the profit of your accounting period and basis period into box 68. Your basis period is the period on whose profits you pay tax. It will usually match your accounting period but in some cases - such as in the early years of your business - it doesn't.
If you have overlap profits to use up this year, you'll need to put these into box 69. We're not supporting this box yet, so unfortunately you won't be able to file your return through FreeAgent if this applies to you. Talk to your accountant if you're not sure.
Any overlap profits to be carried forward that haven't been used up, go into box 70. Again your accountant should be able to advise here.
You shouldn't need to fill in boxes 71 or 72 unless your accountant tells you to.
If you are a subcontractor in the construction industry, put into box 81 the tax which was taken off your earnings by your contractors. This is because HMRC takes this tax into account when working out how much tax you should pay this year - it counts as part of your tax bill, so if you miss it out you'll pay too much tax.
The balance sheet boxes, 83-99, are optional. They won't affect the amount of tax you pay, so the choice is yours whether to fill in these boxes.
Class 4 National Insurance exemption
Most sole traders have to pay class 4 National Insurance contributions (NICs), but if you are under 16, over state pension age or not resident in the UK for tax purposes as at the start of the tax year in question, you are exempt from paying class 4 NICs. If this applies to you, select 'Yes' to question 37.
You may sometimes need to adjust the profits on which you're paying class 4 NICs (e.g. if you've used a loss to claim back some tax, and the loss is still available) to save you class 4 National Insurance. Check with your accountant to find out whether this applies to you.
You’ll also need to adjust the profits on which you’re paying class 4 NICs if you received a self-isolation support payment for coronavirus.
Class 2 National Insurance
If your self-employed profits are over the Lower Profits Limit (or Small Profits Threshold for tax years 2021/22 and earlier), you have to pay Class 2 National Insurance contributions (NICs). Class 2 NICs are usually a flat rate per contribution week or partial contribution week that you're in self-employment (unless you're a share fisherman).
A contribution week is defined as a period of seven days starting from a Sunday (just after midnight) to the following Saturday (just before midnight), so if you started self-employment on Saturday 11th February 2023, for example, you would be liable for Class 2 NICs from Sunday 5th February 2023. If you began self-employment on Sunday 12th February 2023 however, you would be liable for Class 2 NICs from that Sunday.
Once your Class 2 NIC liability has been established, it will continue for as long as you are ordinarily self-employed. This means that you will still remain liable for Class 2 NICs during holiday weeks, weeks when you do not do any self-employed work and weeks when you do not earn anything from self-employment.
If you cease self-employment, your liability to pay Class 2 NICs will end on the Saturday of the week in which you ceased to be self-employed. For example, if you gave up self-employment on Thursday 9th March 2023, for example, your liability would have ended on Saturday 11th March 2023 and you would still have had to pay Class 2 NICs for that whole week.
If your self-employment profits are over the Small Profits Threshold, FreeAgent will automatically calculate your Class 2 NI liability for you based on the number of contribution weeks in the tax year in accordance with HMRC guidance, as shown below. However, you can override this amount if you know it to be incorrect i.e. if you started self-employment mid-year.
If your self-employment profits are below the Small Profits Threshold you can still volunteer to pay Class 2 NICs. If you want to do this, select ‘Yes’ in the section shown above.
If you received any support payments relating to self-isolation due to coronavirus (Covid-19), enter these in box 102.