Self Assessment is one of the two ways which HMRC uses to collect Income Tax. Find out if Self Assessment applies to you, the important dates, penalties and common questions in this article.
In the UK, HMRC collects Income Tax through PAYE and Self Assessment. PAYE is where your income is taxed at source, meaning the money you receive has already been deducted off tax and National Insurance. Most employees in the UK are taxed under PAYE.
Self Assessment is for people whose income has not been taxed at source. Examples of such income include the money you receive as a sole trader, your rental income, income from a trust, casual freelance earnings, occasional income like selling products on online, to name but a few.
Also, if you were taxed at an incorrect rate or if you want to claim allowances or reliefs, then you may need to file a Self Assessment tax return.
Who needs to file a Self Assessment tax return
Individuals who need to file a Self Assessment tax return include:
- Self-employed individuals, aka sole traders
- A partner in a business partnership
- A company director whose income is not taxed under PAYE
- A trustee who is responsible for reporting and paying tax on behalf of the trust
- An executor or administrator of a deceased’s estate
In addition, you may also need to complete a Self Assessment tax return if:
- You have untaxed income from property rental, investments, other freelance assignments, etc.
- You receive regular income from a trust or settlement
- You receive a gift from a loved one at some point in the seven years before they passed away
- You have an annual income of £100,000 or more before tax
- You have foreign income
- If you get child benefit and your income (or your partner’s income) is over £50,000
- You have capital gains
The list above is not exclusive. There are also other scenarios where you need to file a Self Assessment tax return.
Call our Personal Tax Accountants on 020 8108 0090 for expert Self Assessment advice.
We will highlight a few important dates below but beware that the dates may be applicable to you during this particular tax year or they may be applicable following the end of the tax year.
Before midnight on 31 January, one of the followings may be applicable to you:
- File your tax returns online for the previous tax year.
- Pay any tax you owe for the previous tax year.
- If you’re self-employed, pay your first payment on account. The phrase ‘payments on account’ refers to advance payments towards your tax bill.
- If you’re self-employed, pay your balancing payment if you still have tax to pay after you’ve made your payments on account.
- Amend your past tax return when you realise that you have made a mistake.
6 April marks the beginning of a new tax year in the UK. This is an important date as changes agreed in the Budget and new tax regulations may come into effect.
If you’re self-employed and you pay your taxes through payments on account, then you know that you need to make two payments a year. The first payment is before midnight on 31 January and the second payment is before midnight on 31 July.
Note: Due to the Coronavirus COVID-19 pandemic, the due date for the second payment on account for 2019/20 is now 31 January 2021 (instead of 31 July 2020).
If this is your first time submitting a Self Assessment, you must register by 5 October. Upon completing the registration, you will get a Unique Taxpayer Reference number and a code (in the post) which you need to activate your account.
31 October is the deadline for filing a paper tax return. Increasingly, HMRC wants you to file online but if you choose to continue with a paper tax return, then you will need to download one or request for a paper Self Assessment return.
If you have incomes taxed under PAYE and you also file your Self Assessment, you can pay your Self Assessment bill through your PAYE tax code if:
- You owe less than £3,000 on your tax bill
- You submitted your paper tax return by 31 October or your online tax return by 30 December
Please note that you can’t pay through your tax code if you don’t have enough PAYE income for HMRC to collect it.
Late filing and the penalties
Unless you have an excuse deemed reasonable by HMRC, filing late will cost you money. Here is an overview of the penalties:
- One day late: £100
- Up to three months late: £100, plus £10 a day (capped at 90 days), so up to a total of £1,000
- Up to six months late: £300 or 5% of the tax due (whichever is higher), plus the penalties above
- Up to 12 months late: Additional £300 or 5% of the tax due (whichever is higher), plus the penalties above
Every year, hundreds of thousands file the Self Assessment late and risk a fine. You can avoid this by getting in touch with our Personal Tax Accountants on 020 8108 0090 now. We can help you plan, prepare and file on behalf of you.
Late tax payment and the penalties
31 January is the deadline for paying any tax you owe for the previous tax year (assuming you have not requested to pay your Self Assessment tax bill through your PAYE tax code). If you miss this deadline, you may be charged interest plus a penalty of 5% of the tax outstanding. Visit this gov.uk page to calculate your estimated penalties if you file your Self Assessment late or pay your Self Assessment tax bill late.
If you’ve missed the deadline for your return or payment, you can appeal against some penalties if you have a reasonable excuse.
According to this gov.uk page, examples of reasonable excuses are:
- Your partner or another close relative died shortly before the tax return or payment deadline
- You had an unexpected stay in hospital that prevented you from managing your tax affairs
- You had a serious or life-threatening illness
- Your computer or software failed just before or while you were preparing your online return
- Service issues with HMRC online services
- A fire, flood or theft prevented you from completing your tax return
- Postal delays that you could not have predicted
- Delays related to a disability you have
You must send your return or payment as soon as possible after your reasonable excuse is resolved.
Mistakes on your Self Assessment tax return
Mistakes can happen and after you’ve filed your Self Assessment tax return, you can make still make a change by signing in to your Government Gateway portal (if you’ve filed it online) or download a new tax return and send HMRC and the corrected pages (if you’ve filed a paper return).
Beware that if HMRC doesn’t think that the mistakes are genuine, you could face a fine. How much fine you will need to pay depends on how HMRC sees the mistake; whether you have made the mistake due to carelessness, you have made it deliberately, or you have made it deliberately and have tried to conceal it.
Also, if HMRC finds the mistake (instead of you) and believes that you have been careless or you have deliberately done so, the penalty is usually more severe than you finding it.
Frequently asked questions about Self Assessment
As Personal Tax accountants with offices in Richmond, Putney, Wimbledon and London, we get many questions pertaining to Self Assessment. Here are a few common questions and their answers.
I’m self-employed and my business has made a loss, do I need to file a Self Assessment?
The answer is yes. In fact, you can carry the loss forward to deduct from any future profits you will make.
I’ve got a full-time job now, do I still need to file a Self Assessment tax return?
If you have a full-time job now and you don’t receive any income from any freelance work, then contact HMRC to let them know that your circumstances have changed. This gov.uk page lists how you can get help.
If you have a full-time job but you still receive untaxed income (like you are still selling products online or renting out a room in your home), then you must continue to file a Self Assessment tax return.
What records do I need to keep?
If you are self-employed, you must keep good records of business income and expenses for at least five years after the 31 January submission deadline of the relevant tax year. For more information, check out this post “Business records checks: how to keep good business records” and scroll to the self-employed section.
If you file Self Assessment but you are not self-employed, you should keep the relevant records for at least 22 months after the end of the tax year.
More questions are likely to arise during preparation and filing, which is why many individuals (particularly self-employed contractors) rely on an experienced Personal Tax Accountant like us to prepare and file Self Assessment.
Tax saving tips
If you are self-employed, you will have a higher tax liability if your business is prosperous and naturally, you may look to lower the liability and this is where professional advice can make a difference.
At Tax Agility, we work with you to look at how you can save some money when filing your Self Assessment tax return. For instance, we may look at:
- If you have claimed for allowable expenses and capital expenditures
- If you have invested in a personal pension scheme
- Other tax saving ideas applicable to you
Tax Agility can help with your Self Assessment Tax Return
We can act as your agent and we will deal directly with HMRC on your behalf.
As everyone’s financial situation is unique, we can customise our service to you depending on your needs. For example, we can:
- Calculate the amount of tax owed
- Share tax saving options
- File on your behalf
- Represent you if HMRC asks questions
Our Personal Tax accountants are experienced, competent and we offer professional and friendly advice. Above all, our fees are transparent with no hidden charges. We also provide a no-obligation meeting to understand your case first.
Give us a call on 020 8108 0090. Alternatively, use our online form to arrange a complimentary, no-obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.