An Introduction to Self-Assessment
Self Assessment started in 1997, the idea being that taxpayers can easily complete their own tax returns. The reality has turned out to not be quite so simple.
The tax year runs from 6th April to 5th April in the following year and under self-assessment it is up to the individual taxpayer to calculate their tax liability and pay the tax due by the due date.
Who has to fill in a Self-Assessment Return?
The majority of people in the UK are taxed under PAYE and do not have to complete a Self Assessment tax return. However, where you have income that is not taxed at source or may be liable to higher rate tax on income that has only had basic rate tax stopped you will probably need to complete a self-assessment return. It is your responsibility to notify chargeability to tax to HMRC.
The following people usually have to complete one...
- Anyone who is self-employed;
- A company director;
- A trustee;
- Pensioners with an annual income of £100,000 or more;
- Employees or pensioners with an annual income from savings or investments of £10,000 or more;
- An employee or pensioner with untaxed annual income of £2,500 or more;
- A landlord who rents out property or land.
If you are unsure whether you need to complete one, please contact us for advice.
Filing the Self- Assessment Return
If you are required to complete a return, they are normally issued to you at the beginning of April each year. The basic return is 10 pages but many sources of income require supplementary pages to be completed as well. Some people receive a short tax return of only 4 pages.
As well as your income it deals with the allowances and reliefs that you can claim.
Paper returns have to be filed by 31 October following the end of the tax year and HMRC will calculate your liability for you. For online returns you have until 31 January following the end of the tax year to file the return. If you file the tax return online through the HMRC website the software will calculate your tax liability for you.
The penalties for late Self Assessment returns are as follows:
- Initial £100 penalty for late filing of the tax return, irrespective of the tax due or if you have paid tax on time.
- If you haven't filed your return after 3 months daily penalties of £10 per day apply, capped to £900.
- If you haven't filed your return after 6 months a further penalty of 5% of the tax due or £300: whichever is greater.
- After one year, another 5% or £300 charge, whichever is greater. In serious cases the penalty after 12 months can be up to 100% of the tax due.
The penalties are applicable even if no tax is due.
Due Dates of Payment
The method of payment usually involves two payments on account of your tax liability as follows...
- One on 31 January during the tax year and
- Another on 31 July following the tax year.
These are based on the net income tax and Class 4 NIC liability of the previous tax year .
A final payment (or repayment) is due on 31 January following the tax year.
Thereafter, there is a 5% surcharge on any taxes that remain unpaid after 28 February, and a further 5% on taxes not paid after 31 July.
If your total tax liability for 2015/16 is £5,000 and for 2016/17 is £10,000, you will make payments for 2017/18 as follows...
On 31/01/2017 - £2,500 (half of the 2016/17 total)
On 31/07/2017 - £2,500 (half of the 2016/17 total)
On 31/01/2018 - £10,000 (being the £5,000 balance due for 2017/18 and £5,000 - half of 2017/18 - on account of 2017/18)
In calculating the level of instalments any tax due on capital gains of the previous year is ignored. All CGT is paid as part of the final payment due on 31 January following the end of the tax year.
The payments on account are not required if...
- Income tax and NIC liability for the previous year (net of tax deducted at source) is below £1,000 or
- More than 80% of the income tax and NIC liability for the previous year was tax deducted at source.
You can also apply to have the payments on account reduced if you expect your liability for a tax year to be less than the previous year.
Amendments to Returns and Enquiries
HMRC can correct a self assessment return within nine months of the return being filed in order to correct any obvious errors or mistakes in the return and an individual can amend their self assessment at any time within 12 months of the filing date.
HMRC have one year from the date the return is received by HMRC to enquire into a Return. This therefore offers a real incentive to file your tax return early. If HMRC have not opened an enquiry by then, they cannot subsequently enquire into it unless they make a discovery of information relevant to the return or the taxpayer makes an error or mistake claim. Enquiries can be aspect enquiries into just one aspect of the return or they can cover a full enquiry into the whole return, in which case expert advice should be sought.
By law you must keep all records in support of the tax return for at least 22 months after the end of the tax year, but if you are self-employed or have rented property the records must be kept for five years and ten months after the end of the tax year.
You can be fined up to £3,000 if you fail to maintain or retain adequate records to back the return.
How We Can Help You
We can assist you with completion of your self-assessment return, advice on payment of liabilities and deal with any enquiries into your return.