Self Assessment is a system HM Revenue and Customs (HMRC) uses to collect Income Tax.
Tax is usually deducted automatically from wages, pensions and savings. However, people and businesses with other income (including COVID-19 grants and support payments) must report it in a tax return.
Therefore, you must complete tax return if you were self employed and had profits above £1,000, after deducting all expenses or the flat £1,000 tax free allowance.
How much tax you pay will depend on the Income Tax band you are in. There is a different rate for Capital Gains Tax if you need to pay it, for example you sell shares or a second home.
You must also complete and file a self assessment tax return if you were in a partnership, a shareholder receiving dividends over £2,000 or you receive income via property, a trust or if you have a capital gain.
Basically, if you receive untaxed income via the examples above it is necessary to inform HMRC.
Tax returns run over the government’s tax year being 6th April to 5th April each year.
Tax returns need to be filed by the 31st January each year. Therefore for the tax year end 5th April 2022, this needs to be filed and any tax paid by 31st January 2023.
Unfortunately, if you do not file and pay on time you will receive interest and penalties. Over recent years this has changed considerably and can now be quite hefty. As an example, filing and paying 1 year late on tax owed of £2,000, you would now owe £3,300 in tax, interest and penalties.
You can however file early. You can file as soon as the new tax window opens being the 6th April each year.
We do recommend filing early. That way you know in advance what tax needs to be paid. Filing early does not mean that you have to pay early. We have clients that like to pay early, others leave until deadline day!! If you are due a refund and you file early, you will receive your refund early. In our opinion, it makes complete sense to file early each year and get this gremlin out of the way.
Tax is due to be paid by the 31st January each year. However, if your tax due is more than £1,000 then you then need to also pay a payment on account by 31st July. An example of how this works is if your tax is £5,000 the tax system will assume that next year you will owe the same payment. You will then need to pay half of next years payment up front and the other half in July. In this example that would mean instead paying the £5,000 which you owe in January, you will need to pay £5,000 plus £2,500, therefore £7,500 in January and the remaining £2,500 in July. It is really important that you understand this to allow you to prepare for it. Once the tax return for the following year goes in the previous estimate will be amended to incorporate the correct figures. At this point you may need to pay an additional payment if you have had a better year than the assumed figures, or indeed if you have had a quieter year you will be due a refund.
If you are new to self assessment you will need to firstly notify HMRC that you need to file a tax return and apply for your UTR (unique tax reference) number. HMRC normally (on a good day) issue this within a month. Once you have this you are then able to complete and file self assessment tax returns. Or we can file it for you.
You will need to keep records for example bank statements, proof of income and receipts and invoices to allow the tax return to be completed correctly. Also, to support your claim should you have a tax investigation. Records need to be kept for 6 years following the year of the return.
Footprints Accountancy can help you initially with registering for tax returns. Moving forward we can complete these for you each year, ensuring that you are legally compliant and that we have utilised all tax efficiencies that are possible.
Do you need support with your taxes?
To discuss how we can help you with self assessment please get in touch.