Guide to completing your Self Assessment Tax Return
Self-assessment is the system that HM Revenue and Customs (HMRC) use to collect several personal taxes including Income Tax, Capital Gains Tax and Class 4 National Insurance.
If your only income is wages, pensions or savings, tax will be automatically deducted by whoever pays you and it is unlikely that will need to complete a Self-Assessment tax return. But individuals with untaxed income (e.g. self-employed or rentals) must complete a Self-Assessment form that declares all of their income and expenses from the previous tax year.
Do you need to complete a Self-Assessment tax return?
If you answer yes to any of the following, you need to complete a tax return:
- Are you self-employed, either as an individual or as a memberof a partnership (including Limited Liability Partnerships)?
- Have you received more than £2,500 or more in untaxed income?
- Are you a director of a limited company?
- Are you an employee or pensioner with an annual income of £100,000 or more?
- Do you have a gross annual investment income of £10,000 or more?
- Are you a trustee or representative for someone who has died?
- Do you have untaxed income from investments, land/property or from overseas?
- Do you have capital gains of more than the annual exempt amount?
- Are you a pensioner with income of more than the income limit for age-related allowances?
- Did you or your partner receive over £50,000 during the year and one of you claimed Child Benefit? (The higher earner will need to complete a tax return)
Registering for Self-Assessment
You will need to register for self-assessment by the 5th October following the tax year in which you have met any of the above criteria. Failure to register on may result in a penalty.
To register, you need to visit GOV.UK, and follow the steps. If you’re having trouble registering, please get in contact with one of our advisers who can help you with the procedure.
Completing your tax return online
You can complete your self-assessment tax return online using your self-assessment account with HMRC as your guide, filing it bit-by-bit. The online system saves your progress, meaning you can go away, find any extra information and come back and fill in any fields that are blank.
Many individuals consult a professional adviser to complete this on their behalf to ensure all reliefs are claimed for and the return is completed correctly. We can work closely with you to ensure it's a smooth and painless process. This reduces the risk of any subsequent enquiry and a potential penalty.
Paying your tax bill
Payment on Account is a system intended to help you spread your payments out during the year.
Some people consider that they are paying some of their tax bill in advance but actually you are paying it during the year in which you earn it (albeit before you know exactly what your earnings are). The first instalment is due on 31st January, which is the same day as your 'balancing payment', which clears your tax bill for the previous tax year. The second instalment is due on 31st July. Each of your instalments are usually 50% of your previous year's tax bill, whilst the balancing payment is your outstanding balance.
The infographic below explains how the payments work.
The balancing payment can be a little confusing. As you can see in the image above, you've paid £50,000 by 31st July 2017 based on your 2015/16 tax bill. However, your total tax bill for 2016/17 tax year is £70,000. That means you have an outstanding balance of £20,000.
By 31st January 2018, £55,000 will need to be paid to include your first instalment on account, which is 50% of your total tax bill for 2016/17.
Where this can become a problem is if in one year your tax liability is nil. That means the following years' payments are nil as well. But if the following year is a high tax bill then you have the whole amount to pay in one go as a balancing payment plus another payment account for the third year. Effectively you will have to pay 18 months' tax on one day!
What if I miss the deadline?
Whilst you won't go to prison for a late payment, it will cost you. The penalties for late filing include:
- £100 fine immediately after the due date for filing (whether or not the tax has been paid)
- Daily penalties of £10 per day for returns that are more than 3 months late, running for a maximum of 90 days
- Penalties of 5% of the tax due for the return period (or £300 if greater) for prolonger failures (over 6 months and again at 12 months)
- A higher penalty of 70% of the tax due where a person fails to submit a return for over 12 months and has deliberately withheld information necessary for HMRC to assess the tax due
- This becomes a maximum of 100% penalty if the behaviour is deliberate with concealment
Please note that these penalties will also apply to each partner in the case of a partnership tax return.
The penalties for late payment include:
- A penalty of 5% of the amount of tax unpaid, generally 1 month after the payment due date (or at the filing date of the relevant return)
- Further penalties of 5% of any amounts still unpaid at 6 months and 12 months
- Suspension of late payment penalties where the taxpayer agrees a time to pay arrangement with HM Revenue and Customs