Self assessment tax returns are issued to various people and companies as an alternative to PAYE schemes and other methods of remuneration. They are typically issued in April of a new tax year, and cover income received for the previous tax year. Individuals who are eligible for self assessment by HMRC include those who are self employed or a member of a partnered business, as well as those who receive rent on land and property, are eligible for capital gains tax and overseas income, or have received a gross payment that has not been taxed. Other reasons for self assessment may include the need to record pension contributions, investments of £10,000 or more, and gains in life insurance policies.
Company directors are also required to complete a self assessment form, with exemptions for directors of non profit organizations. Religious ministers and members of Lloyd’s are also obligated to complete a form. While there are age reductions on claimants over 65, they will have to complete a form if their income is over a certain amount. Anyone earning an income over £100,000 also needs to register for self assessment, as does a trustee of an estate.
1. How to Register for a Tax Return – To register for a tax return with HMRC, you need to gain a Unique Taxpayer Reference and inform them of your business and expected earnings. The latter figure is used to work out whether you are eligible for different levels of National Insurance Contributions, with around £5,500 as the base limit. A tax return is needed even if you have paid tax through PAYE schemes. Registration can be completed online.
2. How to Complete a Tax Return and Deadlines – A tax return will be sent out in October. You may receive a main tax return, or a SA100, if you have complex tax issues. Short tax returns (SA200) are issued if you have more straightforward tax matters. The form will require information on your tax reference number, national insurance number, address, and sections on different forms of income and capital gains. You can also inform HMRC of any capital allowances and deductions such as gift aid, which will lower your tax bill. You can enter estimates, although it is recommended that you keep detailed records of all invoices and transactions. You will then receive a breakdown of the tax owed from HMRC, which will include any outstanding payments or repayment due.
3. Penalties – Penalties for not completing tax returns by 31st October for paper, and 31st January for online records, can be significant. Reasonable excuses run to the extreme, and notably include a death in the family or serious illness. HMRC introduced an extra filing day last year, which resulted in 207,000 individuals extending their duty. 9.45 million taxpayers now file online.
4. Help – It is recommended that you seek advice from an accountant or specialist tax agency if your self assessment return is going to be complicated. Accountants can complete a tax return on behalf of an individual, and can also work out liability. They will also file returns online, and will review a statement for any savings that might be made. Accountants can similarly work on your behalf to defend any inquiries into your tax records.