Self Assessment Tax Returns is a system used to calculate your Tax and National Insurance liability, this can be because your income isn’t taxed at source, for example, by an employer or because you income is more complex or you are self employed or have income from rental properties
As the name suggests, Self Assessment allows HMRC to calculate your tax liability based on what you tell them. It is important that the information reported is accurate and that you are confident that you have correctly applied any allowances and exemptions. Just because your Self Assessment Tax Return is accepted and your liability paid, does not mean that anyone at HMRC has examined your return. Assuming that you filed your Self Assessment Tax Return before the deadline, HMRC have 12 months from when you filed to open an enquiry into your tax return, if during the course of their investigation they suspect that you have not paid correct tax then they can look back up to six years if they consider errors to be careless or negligent; or up to twenty years if the errors are considered dishonest or deliberate tax evasion.
It is important to note that whilst there are mechanisms in place to allow transfer of liability between the PAYE & Self Assessment systems, they are essentially two entirely different systems with not much interaction. This makes it important that you clearly understand your liabilities and which system they are being paid under to avoid confusion. For example when you are completing your self assessment tax return, it is important to include any adjustments that have been made under the PAYE system, such as adjustment to tax code to collect underpaid tax, otherwise the calculation will not take this into account. Similarly, when completing your self assessment tax return, if you elect to have your tax collected via your tax code, it is important that the information is carried forward otherwise the liability could potentially keep passing between PAYE and Self Assessment system and will simply accrue without being paid.
If during the tax year (6th April to 5th April) you receive any income that is not taxed at source, you should check if you need to submit a Self Assessment Tax Return. Some common reasons that someone should file a Self Assessment Tax Return are:
- Income over £1,000 from self-employment
- Income as a director of a Limited Company
- Income from renting out property
- Sale of property that has not been your private residence for the entire time you have owned it
- Income received from overseas
- You have received in come from a trust or estate
Sometimes there are other reasons for submitting a Self Assessment Tax Return:
- To claim some tax reliefs
- You receive Child Benefit and have to pay the High Income Child Benefit Charge
- You have more than one income source or a complex tax code and want to complete a Self Assessment Tax Return to be confident that everything has been taken into account to ensure that your tax liability has been correctly calculated and paid.
If you have been sent a notice to file a Self Assessment Tax Return by HMRC and you believe that you no longer meet the criteria, you must notify HMRC of this before the filing deadline. Simply ignoring a notice to file will result in penalties being incurred.
The first time that you need to submit a Self Assessment Tax Return, you will need to register with HMRC and receive your Unique Tax Reference (UTR) number. You will then need to register to file your return online or authorise a tax agent to submit on your behalf.
Throughout the tax year, you must keep accurate records to evidence the income you declare along with any allowances, exemptions or reliefs that you claim. You must keep these records for 6 years
If you intend to submit your Self Assessment Tax online, this must be received by HMRC by midnight on 31st January following the tax year end. Any liability that you owe must also be paid by this date so it makes sense to submit your return in good time so you know in good time how much tax and national insurance you will need to pay. There are some instances when your Self Assessment Tax Return will need to be submitted earlier, for example if you wish to submit a paper return or you wish HMRC to collect unpaid liability through your tax code.
If you have difficulty paying your liability due, you should still ensure that your Tax Return is submitted on time to avoid penalties. Once submitted, you should contact HMRC to let them know about the difficulties that you are facing. HMRC may offer you a time to pay arrangement so before you call you should work out how much you can afford to pay them and how often so that this can be agreed quickly
If you do not submit your Self Assessment Tax Return by the deadline, you will receive a late filing penalty of £100. After 3 months, if your return is still not submitted, you will start to incur a daily penalty of £10 and then further penalties. By the time your Self Assessment Tax Return is 12 months overdue, you will have incurred penalties totalling £1600, you will also incur additional penalties if you fail to pay your tax on time without agreeing a time to pay plan with HMRC and interest will also be added.