What is a Self Assessment
Self Assessment is a systematic process that HMRC uses to collect Income Tax. An individual that is required to Self Assess submits a tax return to HMRC stating the various sources of income that they have received. It is important to note that the personal tax year is from 6 April to 5 April. For those interested in why, here is an article from the Chartered Institute of Taxation to explain.
Most people earning a salary will not need to submit a tax return as HMRC collects the income tax and national insurance due to being paid on a monthly basis via the Pay-As-You-Earn (PAYE) system.
Generally, business owners, sole traders, freelancers, and landlords will need to submit an annual self-assessment tax return. This is because they have earned income that has not been taxed. The self-assessment tax return can act as proof of income when required, such as applying for a mortgage. 9
HMRC expects you to file a tax return if:
- You are self-employed with an earnings of more than £1,000
- You are a partner in any business partnership
- Generally, if you earn any untaxed income, which can include:
- Property rental income
- Tips / Commission
- Foreign Income (inc. bank interest from a foreign bank account)
- Income from savings, investments, and dividends
- Some COVID-19 grant/support payments
Please note, if you sell any assets such as a vehicle, jewellery, cryptocurrency, or property, these come under a different tax (capital gains tax) and you may be liable to pay this.
It should be noted that if you earn more than £100,000, you are also required to self-assess, even if all of your income tax and national insurance is collected via PAYE.
Why Should You Pay Self Assessment (Income) Tax?
The political arguments can come later!
Quite simply, if you do not pay up, then you could incur substantial penalties, and in the most extreme cases, go to jail.
It is important to check that when you do earn any money that is untaxed, to speak with an expert advisor so they can confirm the next steps. HMRC has various ways of checking whether you have earned untaxed income so it is worth staying on top of this so you are not caught out!
How To Pay Self Assessment Tax?
Register Yourself for Self Assessment
When a person finds out that they need to file a self-assessment tax return for any particular year, they must complete their registration with HMRC. The last date for registration is 5th October of the calendar year in which that tax year ended (i.e. for the April 2022 tax year, you should register by 5 October 2022). Once registered, you will receive a Unique Tax Reference (UTR) number which you will need when filing your tax return.
Filing a Self Assessment Tax Return
Taxpayers can complete the process and pay self-assessment tax online either via the official HMRC website or using any tax return software. Those who are not able to do it online can download the documents and complete the paperwork and send it to HMRC via post.
The information you will need will depend on the type of income you are declaring on your tax return. As an example, for sole traders/freelancers, you will need:
- Your UTR number
- Invoice/Sales records
- Expense records
- COVID-19 grant / support payment Records
A good place to start would be your bank statements and then you can work from there.
When do you need to file the Self Assessment Tax Return?
The last date for filing a self-assessment tax return to HMRC online is midnight of 31st January each year. For example, the last date for submitting an online tax form for the 2020/21 tax year (ended on 5th April 2021) is 31st January 2022.
The last date for filing a paper tax return form to HMRC is 31st October. For example, the final date for filing a paper form for the 2020/21 tax year is 31st October 2021.
What If You Miss The Deadline?
If you miss or fail to file your self-assessment tax return before the deadline, you need to pay the penalty.
If you’re up to three months late in filing or paying your tax, you’ll get a penalty of £100. If it’s later than three months, the penalty will be more. You can estimate your penalty for late Self Assessment tax returns here. You will be charged interest on late payments. However, if you have a genuine reason, you can appeal with a reasonable excuse such as the death of your partner or close relative, unexpected stay in the hospital, or recovering from a serious illness.
Disclaimer: The information in this article is based on our understanding of tax law at the time of publication. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this article. If you’re looking for reliable financial advice, look no further than Apex Accountancy.
References:
- Accounting Glossary, Free Agent, accessed January 4, 2022 <https://www.freeagent.com/en/glossary/self-assessment/>
- Self Assessment Tax, Cover Fox, accessed January 4, 2022 <https://www.coverfox.com/personal-finance/tax/self-assessment-tax/>
- Income Tax, Money and Tax, Government of United Kingdom, accessed January 4, 2022 <https://www.gov.uk/self-assessment-tax-returns/penalties>
- Dealing with HMRC, Money and Tax, Government of United Kingdom, accessed January 4, 2022 <https://www.gov.uk/tax-appeals/reasonable-excuses>
