How to explain a Self Assessment payment to HMRC
This article describes how to explain a Self Assessment payment that has been paid out of your bank account to HMRC.
HMRC doesn’t view the payment of Self Assessment tax as an expense of the business as this is a personal tax to the individual. This means the tax would not be explained as a running cost of the business.
Once the relevant bank transaction has been imported into your FreeAgent account via a bank feed or uploaded from a bank statement, you'll need to explain it using the appropriate ‘Type’ and ‘Category’ as detailed below. You’ll see different options depending on whether you have a sole trader, partnership, LLP, unincorporated landlord or limited company account type in FreeAgent.
Please note that FreeAgent supports the filing of a Self Assessment tax return to HMRC only if you are a sole trader, unincorporated landlord or limited company director. If your business is a partnership or LLP, you can refer to the figures in FreeAgent, but you will need to file your Self Assessment tax return outside of FreeAgent, then explain the bank transaction as detailed below once your Self Assessment payment has been paid out of your bank account.
You'll need to have level 6 access or above to your FreeAgent account to explain bank transactions. If you received a Self Assessment refund from HMRC, find out how to explain a Self Assessment refund from HMRC.
1. Navigate to the relevant transaction
Navigate to the 'Banking' tab at the top of the screen and select 'Bank Accounts' from the drop-down menu.
Choose the relevant bank account from the list.
Select the transaction that relates to the Self Assessment payment.
2. Choose ‘Money Paid to User’ as the transaction ‘Type’
Select ‘Money Paid to User’ from the ‘Type’ drop-down menu. Please note that this option will only be available for business bank accounts. You won’t see this option if the bank account has been marked as personal or for a user who has been allocated the role of ‘Accountant’.
3. Choose the relevant user
Select the relevant user from the 'Payment to' drop-down menu.
4. Choose the appropriate transaction ‘Category’
The item you need to select from the ‘Category’ drop-down menu depends on your FreeAgent account type.
If you have a sole trader, partnership, LLP or unincorporated landlord account type, select ‘Drawings’.
If you have a limited company account type, select ‘Payment from Director Loan Account’.
Please bear in mind that, if overall you owe money to the company at the end of the company’s accounting year, you’ll almost certainly need to complete the CT600A form along with your company’s Corporation Tax return (CT600) and there may also be extra tax for the company to pay.
Fin out more about how the director’s loan account works in FreeAgent.
5. Explain the transaction
Select ‘Explain Transaction’ to complete the process.