The long version of the Self-employment page for sole traders

This article provides a summary of the long (full) version of the Self-employment page of the Self Assessment tax return and the relevant information required to complete it, if you're a sole trader.

There are two different versions of the Self-employment pages: the short version and the long version. You can find out more in HMRC's guidance on the short and long versions of these pages.

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.

You’ll need to use the long version if you are using the averaging method for farmers, market gardeners, writers and artists, or your taxable self-employed period, known as the basis period, is not the same as your accounting period and you are affected by basis period reform. Find out more about basis period reform in the following HMRC guidance. If you have unused overlap relief which you need to use due to basis period reform, the 2023 to 2024 tax year is the final year you can use your overlap relief.

If you've been presented with the long version but want to fill in the short version, you can switch at the top of the page.

Basis period reform

From the 2024/25 tax year, sole traders will be required to include profits on their tax returns for the tax year, rather than their accounting year, in accordance with the basis period reform rules.

There is a transition year in 2023/24. During the transition year you’ll be required to calculate your standard profit. This is usually the profit you would have included on your tax return if basis period reform had not happened - typically the profit for your accounting year.

Next, you’ll calculate the profit for the rest of the tax year up to 5th April 2024. This is known as the transition profit.

From 2024/25 onwards, if your business’s accounts are not prepared up to the end of the tax year (5th April, or by concession 31st March or any of the first four days in April), HMRC requires the income and expenses from two accounting years to be apportioned in order to calculate accurate figures for a single tax year. Find out how FreeAgent apportions income and expenses for sole traders.

Basis period reform transition year 2023/24

During the transition year, 2023/24, you’ll be taxed on the profits of the ‘standard part’ and the ‘transition part’ of your basis period.

Your standard part is the 12 month period beginning immediately after the end of your basis period for tax year 2022/23. Your transition part is the period that begins immediately after the end of the standard part and ends on 5 April 2024.

For example, in the 2023/24 tax year, a business with a December 31st year end will pay tax on:

• standard profit (for 1st January 2023 - 31st December 2023)
• transition profit (for 1st January 2024 - 5th April 2024)

If the tax year overlaps with two accounting years and the end date of the second accounting year hasn't passed when you file your tax return, you need to submit provisional figures to HMRC on your Self Assessment tax return.

As per HMRC guidance, if you’re affected by basis period reform you’ll have more than one set of accounts for the basis period. FreeAgent will fill in boxes 1 to 65 and 83 to 99 as appropriate on separate ‘Self-employment (full)’ pages for each set of accounts. Boxes 66 to 82 and 100 to 103 will only be completed for the most recent set of accounts.

An overview of the long version in FreeAgent

FreeAgent fills in the boxes by taking data from the invoices, bills, bank transactions and out-of-pocket expenses that you enter.

Income

Box 15 is for turnover - income the business has earned during the year, excluding bank interest, which goes in the Main Return.

Costs

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.

Capital allowances

Boxes 49-59 show capital allowances. FreeAgent automatically treats all capital assets as 100% allowable for Annual Investment Allowance in your Self Assessment tax calculations. You can change this if you need to. 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.

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. 

CIS deductions

If you are a subcontractor in the construction industry, put into box 81 the tax which was taken off your earnings by your contractors in the tax year. 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.

Balance sheet

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.

Class 2 National Insurance

For tax years up to and including 2022/23, 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). 

Please note that from 6th April 2024, only sole traders with profits below the Small Profits Threshold will be able to volunteer to pay Class 2 NICs. Everyone with profits above this threshold will be treated as having paid Class 2 NICs but will not have to, or be able to, pay them.

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.