Many people are unaware of the various circumstances in which a tax return may be required to be prepared and file to HMRC. In this article we explore the basics of what a self assessment tax return is and who needs to complete one.
Self Assessment
Self assessment means just that, you are responsible for determining whether you need to complete a tax return, preparing it, filing it and paying the right amount of tax. Considering the responsibility and potential penalties for getting things wrong many chose to hire an accountant.
A self assessment tax return will need to include all of your income even it if it has already been taxed for example income earned through your employment. You can also claim any relevant expenses or tax reliefs on your tax return.
Who needs to complete a self assessment tax return
The general understanding is that a tax return needs to be completed by those receiving untaxed income, however this may be true as a generalisation it isn’t always the case. Below are the main circumstances in which a tax return will need to be completed:
Self employed and have a turnover of £2,500 or more
Partner in a partnership
Landlord receiving gross rental income of £2,500 or more
Savings interest income of £10,000 or more (not including ISAs)
Dividend income of £10,000 or more
Earnings from overseas
Earnings of over £100,000 even if it is all from employment
Earnings of over £50,000 and either you are your partner are receiving child benefit even if earnings are from employment only
You have Capital Gains Tax (CGT) to pay (see article on CGT)
You want to claim a tax refund, for example when;
You work in the construction industry under the CIS Scheme
You’re a higher rate taxpayer and you’ve made donations to charity
You’re a higher rate taxpayer and you’ve made contributions to a private pension
You have work related expenses over £2,500
It has been established in a number of tax tribunals that there is no requirement to complete a tax return just because you are a director of a company. However if any of the above reasons apply, particular if you are also a shareholder in receipt of dividends over £10,000 then you will need to complete a self assessment tax return.
In many cases it is a good idea for a company director who is also a shareholder to complete a tax return anyway even if you are not required to do so by HMRC. A tax return can prove useful as proof of income particularly when applying for finance such as mortgages.
The Tax Year & Key Deadlines
The tax year in the UK runs from 6 April to 5 April.
The reason for this unusual tax year date back to when in 1752 the UK moved from the Julian to the Gregorian calendar. In most cases the end of the tax year, 5 April, is coterminous with 31 March.
You may see or hear a tax year being referred to as 2022/23 or just 2023; this refers to the tax year running from 6 April 2022 to 5 April 2023.
Record Keeping
If you are required to file self assessment tax returns not only do you have to ensure that filings and payments are done on time, you also have to make sure you keep records backing up the figures submitted to HMRC. These records can be kept digitally or on paper. HMRC can charge you a penalty if your records are not accurate, complete and readable.
Examples of records that you’ll need to keep; P60s/P45s, sales invoices, expense invoices/receipts, bank statements.
You must keep records for at least 22 months after the end of the tax year.
For businesses such as sole trades and partnerships you must keep records for at least 5 years after the deadline for the tax return submitted. For example, for the tax year 2021/22 the deadline is 31 January 2023. So records must kept until at least 31 January 2028.
There are separate penalties for filing your tax return late and paying your tax late.
If your tax return is filed late the penalty depends on how late it was filed. If you miss the filing deadline you will be issued with an automatic £100 penalty. Once the return is 3 months late you will be charged £10 per day for every day the return is not filed for up to 90 days.
If you pay the tax due is paid late then you will be charged a penalty of 5% of the outstanding tax after 30 days from the date the payment was due. Once the payment is 6 months late another 5% penalty will apply and again after another 6 months.
Penalties can be appealed if there are grounds to do so.
