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

This article provides a summary of the short 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.

FreeAgent will pre-populate the Self-employment page for sole trader account types. If you have a limited company or unincorporated landlord account type, you’ll need to fill in this page manually.

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 short version?

If your business is preparing accounts for a full accounting year and your sales during that period were under £90,000, and your business’s accounting year end is between 31st March and 5th April inclusive, you’ll usually be able to use the short version. If your sales were over £90,000, or if your accounting year end doesn’t match the tax year, you’ll need to use the long version.

If your self-employed business is preparing accounts for less than a full year and your annualised sales were under £90,000, you’ll usually be able to use the short version so long as your business’s accounting year end is between 31st March and 5th April inclusive.

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 £16,500 sales during that time, your annualised sales would be calculated as £16,500 x 12/3 = £66,000. If your annualised sales were over £90,000 during that time, you’d need to use the long version.

You’ll need to use the long (full) version if you are using the averaging method for farmers, market gardeners, writers and artists, or if your business’s accounting year end does not match the tax year end.

FreeAgent will pick the short or the long version for you based on three criteria:

• If you’re including figures for less than a year on your Self-employment page, FreeAgent will pick the long version for you.
   
• If the information you’ve entered into FreeAgent indicates that your accounting year end date doesn’t align with the end of the tax year, FreeAgent will pick the long version for you.
   
• If you’re including figures for a full year, and your business’s accounting year end matches the tax year end, FreeAgent will choose the version depending on your turnover.

If you are presented with the short version but want to choose to fill in the long (full) version, you can switch at the top of the page.

An overview of the short version in FreeAgent

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

Income

Box 9 is for turnover - the income your business has earned during the year. This figure should exclude bank interest, which you need to record on the Main Return. Use box 10 to record any other income your business received during the tax year that’s not part of its sales.

Costs

In FreeAgent, cost categories are tagged as either allowable or not allowable for tax. The short form includes only transactions in cost categories that are tagged as 'allowable' (i.e. they can be used to reduce the amount of profit that's subject to tax). Boxes 11-19 show the total allowable business expenses in each category. Box 20 is the sum of boxes 11-19.

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.

Capital allowances

Boxes 23-26 show capital allowances. FreeAgent automatically treats all capital assets as 100% allowable for the 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 are 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

Boxes 28, 29 and boxes 32-35 refer 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 outweigh 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 put under box 28, and bring into the memo under box 35.

It assumes you're carrying all your losses forward. If your accountant advises you differently, you can change this figure. Use box 33 or 34 to claim loss relief, as directed by your accountant.

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.

CIS deductions

If you are a subcontractor in the construction industry, put into box 38 the tax which was taken off your earnings by your contractors. HMRC takes this tax into account when working out how much tax you should pay this year.

Class 2 National Insurance

From 6th April 2024, no one will be required to pay Class 2 self-employed National Insurance contributions (NICs) unless your profits are below £6,725 and you choose to pay it voluntarily. 

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. 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 below the Small Profits Threshold and you choose to pay Class 2 NIC voluntarily, 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, or reached state pension age.

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. 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.