What is Self-Assessment?
Self-Assessment is aimed at individuals whose income isn’t taxed automatically when it’s paid. So, while employees are generally taxed automatically by their employer through the Pay As You Earn (PAYE) scheme, the individual is responsible for paying any tax and National Insurance on income outside of the PAYE scheme. It is possible to complete your Self-Assessment via a paper form or online, but both methods require you to provide details on all of your income and expenses for the previous tax year. Using this information, HMRC will calculate whether you need to pay any tax, and if so, how much.
Whether it’s your first time or you’re a seasoned filer, it’s unlikely that self-assessment is an upcoming highlight this Winter. Every year we face the January self-assessment rush as people suddenly realise that they can’t put it off any longer. So, before we delve into the finer detail of self-assessment, the most important piece of advice we can give to anyone is to get started AS SOON AS POSSIBLE.
You may not be sure if you need to complete a self-assessment, and if you do there may be additional considerations following disrupted working arrangements and employment terms over the past couple of years. However, the task of self-assessment isn’t just about detailing your income for HMRC to calculate the tax you owe. It’s also an opportunity to carefully consider your business expenses and record any tax exemptions, and the more time you allow yourself to do this, the better.
While the process may initially seem daunting, the stress and financial implications of missing the deadline entirely, certainly isn’t an appealing prospect.
Who needs to complete a 2020/2021 self-assessment tax return?
If you are not sure whether self-assessment applies to you, then check whether you meet any of the following criteria.
- Earning more than £2500 annually from property rental
- Receiving Child Benefit alongside an annual income of more than £50,000 (This could be yourself for your partner)
- Receiving more than £2500 annually in other untaxed income (such as tips or commission)
- Self-employed sole traders with an annual turnover in excess of £1000
- Employees claiming expenses in excess of £2500 annually
- Individuals with an annual income of over £100,000
- Individuals with foreign income which is subject to tax
HMRC also provides an easy to use online tool if you’re still not sure whether you should complete self-assessment.
First steps to complete a self-assessment
If you haven’t completed a self-assessment before, then you will need to register at Gov.uk. As the registration will need to arrive in the post, you will need to allow up to 10 working days. The initial stages require information such as your passport, National Insurance number and bank details. You will receive your Unique Taxpayer Reference (UTR) and Government Gateway ID once you have registered and this will be used for your tax return in the current year and any subsequent years.
What details are required by HMRC
The following gives you some idea of the type of detail you can expect HMRC to request for your self-assessment tax return.
- Total income- you will need to detail your total income including any employment benefits.
- If you receive an employee income as well as being self-employed, this will need to be declared as well as any income earned abroad or pension income.
- Property earnings – If you are a buy-to-let investor, the earnings from this will need to be declared.
- Stocks and shares – If you have made gains from stocks, shares or (business) property, then this will need to be declared
Tax relief allowances and expenses
It is important to be aware that there are a number of tax relief entitlements which you may or may not be eligible for. One very good reason for preparing early when it comes to your tax return, it that you are allowing yourself the time to carefully check which allowances you are eligible for.
This could relate to employment expenses for example, or if you are self-employed then it may the purchase of work equipment such as a computer.
Charitable donations could also be eligible for tax relief of up to 60%.
Completing the online form
Assuming you have access to a computer, the easiest way to complete your tax return is online. HMRC provides step-by step instructions and the form is broken down into sections and pages. Once you have completed a section, you can save the information and easily move back and forward between sections if you don’t want to complete the whole return in one go.
Once you have entered the required information, you will have the chance to review the details before submitting it. When you are ready to submit the return, you will need to make a final confirmation by entering your Government Gateway ID and password.
HMRC Self-Assessment Deadlines and Penalties
There are a number of important deadlines and associated penalties for missing deadlines that you should be aware of.
- Initial registration for self-assessment must be completed by 5 October
(following the end of the tax year that you are required to submit a tax return)
- Paper returns must reach HMRC by midnight 31 October
- Online returns must be submitted to HMRC by midnight 31 January
- Tax owed must be paid by midnight 31 January
A penalty of £100 is payable for tax returns which are filed up to 3 months late, and this increases for later payments, with interest also charged on late payments.
Top Tips for Self-Assessment
- Complete the Self Assessment registration as soon as possible. The registration deadline is 5 October and it can take up to 10 days to receive your UTR and up to 10 more days to receive an activation code. Ideally you should register one month before the deadline.
- Take advantage of HMRC’s help sheets which provide guidance on each section of the tax return. If you’re doing an online return, look out for the ‘?’ icon which gives additional information on the various fields.
- Take your time. Your tax return doesn’t need to be completed in one session. Even on the online portal, you can save your progress and return to it later. This allows you to start early and gather the tails and figures you need.
- Keep accurate records. Approximately 1 in 20 tax returns is subject to further investigation, and if your return is selected, you’ll need to provide records to demonstrate how you reached your figures. Additionally, you must keep your records for at least one year after filing. This increases to six years if you are self-employed.
- Check before you submit. Carefully review each section of your return before you make the final submission. Simple errors and omissions can lead to your return being rejected.
Still uncertain about completing your Self-Assessment?
Many people do complete and submit their own self-assessment tax return without the specialist support of an accountant. There are potential financial savings to be made by doing this, and if you are confident of what information to include there is no reason not to give it a go.
On the other hand, it is entirely reasonable to seek help if you are at all uncertain as the financial penalties of completing the return incorrectly could far outweigh the initial cost savings. An accountant will ensure that all the specifics are included as well as making sure that you benefit from any available tax reliefs.
If you would like to further advice or support with your tax return, get in touch with our friendly team on 020 3627 4321.