Death and taxes are the two givens in life. While the former is often not discussed, the latter needs urgent attention because late tax returns or missed payments are now automatically met with financial penalties that increase with time. Self Assessment applies to those that have complex income and tax affairs such as the self-employed, landlords, and those that have made a capital gain. Since 2014, those on more than £50,000 and receiving child benefit also now need to complete a return. Those with simple affairs, who are on PAYE, and who have no other forms of taxable income need not comply. However, if their circumstances change they must tell HMRC.
If you receive a tax return you have the legal obligation to complete it – here’s how:
HMRC conducts most of its work online now; paper is either no longer an option or comes with much shorter deadlines. If you think you have to file a return, your priority is to register for HMRC’s Online Services. You’ll need your 10-digit unique tax reference (often referred to as the UTR) number. Allow plenty of time to register as the process involves an activation code that is sent by post – it’s not something you will want to wait for just before a filing deadline.
Completing a tax return requires information from several sources – P60, P11D, P45, P2, national insurance number, employers reference – as well as detail on trading income, taxable benefits, income, investments, interest, foreign income, and any capital gains from the sale of assets (shares and property for example) but not the sale of your main home.
The basic tax return is eight pages long and you will need to request extra pages, if appropriate for your affairs, if you submit on paper. The online version allows you to select the appropriate sections for completion. Some taxpayers with very simple affairs are sent a short tax return four pages long – it cannot be requested and cannot be downloaded. It’s your responsibility to request a longer return if a short return is not appropriate.
When filling out the return you will need to consider the tax reliefs available to you. These relate to monies you’ve paid into a pension or approved government small business investment vehicles such as enterprise investment schemes and venture capital trusts, your gift aid donations to charity, and if appropriate, the blind person’s allowance and the marriage allowance. Again, you will need records to back up these claims.
The tax regime rigidly sticks to dates for compliance and failures involve penalties (and in theory, a risk of investigation). For the Self Assessment regime, the key tax year dates are October 31, January 31 and July 31. Your tax return needs to be submitted by 31 October if on paper, or 31 January the following year if it’s submitted online. The tax you pay will depend on your profits and is made in two estimated instalments; January 31 of the tax year you’re in (i.e. up to 5 April) and July 31 immediately following, with a balancing payment on 31 January after the tax year.
The instalments are based on your previous year’s return and set at half of last year’s liability. If you know that’s not going to be appropriate (for example your income has risen or fallen) then you should contact HMRC using Form SA303 to revise the amount up or down – that won’t affect the interest due/payable on over or underpayments once the position’s finalised, but it will stop HMRC chasing in the meantime. If you have opted in to receive electronic communications from HMRC, you should be sent an email telling you to check your Self Assessment online account for a notice to file letter. Otherwise, you should get a letter telling you to file a return. Do bear in mind that HMRC don’t send out payment reminders any more either, so you need to make sure it’s in your diary.
Remember: You need to complete and submit a tax return even if there is no tax due to HMRC. An automatic penalty of £100 is given to taxpayers who do not submit by the deadline, with further penalties of £10 a day applied after three months to a maximum of £900. Six months late means a penalty of £300 (or 5% of the tax owing if this is greater). If you are 12 months late, you will be charged another £300 (or 5% of the tax owing if this is greater). Late payment also incurs a penalty plus interest: 5% of tax unpaid after 30 days; another 5% of tax unpaid after 6 months; and another 5% of tax unpaid after 12 months.
If your circumstances change and the need to complete a Self Assessment form evaporates tell HMRC and remove yourself from the process.
It’s perfectly possible to complete your own tax return. However, difficulties arise when individuals fail to note a recent change to tax law or misinterpret a regulation. If you have numerous sources of income, trading income, or are unsure how to treat a situation, engaging a qualified accountant will be worthwhile. Why not use Informi’s search tool to find an accountant or bookkeeper near you and our self employed tax calculator to steer you? Alternatively, the UK’s professional accounting bodies have tools to help you find a qualified accountant.
Lastly, it’s worth noting that the government’s own website offers advice on completing the tax return.