Self Assessment Tax Returns
Personal Tax Return
A Personal Tax Return, or Self Assessment Tax Return is a form issued by HMRC. The form requests that the individual declare all of their taxable income, deductible expenses, allowances and anything else related to income Tax for that year. Personal Tax Returns are usually issued on 6th April and required to be filed electronically by 31st January.
What is a Self Assessment Tax Return?
A Self Assessment Tax Return is an annual form issued by HMRC to request details of income and expenditure from relevant individuals. The purpose of the Self Assessment is that it puts the onus on the individual to "self declare" their taxable income and circumstances.
Yearly Self Assessment Tax Return would be required by a number of people, typically those in self-employed, pay Tax at a higher rate, have untaxed sources of income, or even have foreign income.
Self Assessment Tax Returns are usually used by HMRC to collect Tax from sources of income that normally cannot be achieved through common methods such as PAYE
Who Needs to Complete a Self Assessment Tax Return?
There are many types of situations where HMRC require an individual to prepare and submit a Tax return. They are usually required for those in self-employment or where the source of income is irregular or uncommon, some examples are as follows:
- Self-employed workers
- Members of a partnership
- Directors of limited companies
- People who live abroad but have UK income
- People who live in the UK but have foreign income
- Higher rate Tax payers earning over £100,000 each year
- Trustees of trusts
- Individuals that have untaxed income
- Where annual investment income exceeds £10,000
- Individuals that may be liable to Capital Gains Tax (for example, the purchase and disposal of stocks, shares, or even property)
- High dividend income
- Random HMRC enquiries
This is not an exhaustive list, but it does cover the majority of cases when Self-Assessment Tax Returns are legally required. Most people living and working in the UK, their Income Tax will be paid through PAYE and will not be required to complete a Tax return
What is the Self Assessment Tax Return Deadline?
The deadline for completing and sending your Self Assessment Tax Return is 31st January following the retrospective Tax year. For example, Tax returns for the year ending 5th April 2020 would be required to be received by HMRC by midnight on 31st January 2021. This is for Self Assessment Tax returns completed online.
For Self-Assessment Tax Returns completed on paper, the deadline is much shorter and ends on the midnight of 31st October following the Tax year. So for example, the deadline for the 2019/20 Tax year would be 31st October 2020, instead of 31st January 2021 for online submission. The reason for the shorter deadline is that HMRC are persuading people to cut down on paper submission that requires to be manually processed (and also subject to being lost in mailing systems). Filing Tax returns online also means that the Tax return is accepted there and then, and the Tax payer is given immediate notice of receipt.
For all Tax returns, the deadline applies to when the Tax return was received by HMRC, not when the Tax return was sent. For example, if a paper Tax return was sent in the post on 31st January, but received on the 2nd February (they stamp all post as it lands with the current day), there will be a late filing penalty of £100 to pay.
Tax Returns for PAYE Workers
HMRC can sometimes request that you file a Tax return, even if all of your income is taxed at source, for example under PAYE. For most individuals, HMRC are happy that the correct Tax is being deducted by the employer under PAYE.
There are situations however, when a Tax return is requested for a PAYE worker:
- When they are in receipt of certain employment benefits and/or expenses
- For higher rate earners
- When Income Tax has been underpaid in previous years
- When there are also alternative sources of income, for example, rental or investment income
- If certain allowances are to be claimed
The above is not an exhaustive list but covers the main areas where you will be required to complete a Self Assessment Tax Return whilst being in the PAYE system.
How Much are the Late Filing Penalties
First of all, the deadline for HMRC receiving your Tax return to HMRC is 31st January following the end of the Tax year. The following penalties apply depending on how late the Tax return is:
- £100 under three months late
- £10 per day if over three months late
- The greatest of 5% of Tax due or £300, if over six months late
- The greatest of 5% of Tax due or £300, if over twelve months late
As you can see, the self assessment late filing penalties increase drastically the longer you leave the submission of your Tax return. Of course, there could be mitigating circumstances such as illness, family bereavement, computer failures or other extenuating issues which have caused your Tax return to be filed late. In these positions HMRC can withdraw the penalties if they see fit to do so.
In addition to late filing penalties, late payment surcharges also exist should you be late in settling your Tax liability:
- 5% for 30 days late
- 5% for 6 months late
- 5% for 12 months late
HMRC also charge interest on late payments, therefore it is imperative that you settle your Tax liabilities on time.
What Expenses Can I Claim When Self Employed
Compared to claiming expenses under PAYE, claiming expenditure for a self-employed trade is much more relaxed. When preparing the self employed section of your Tax return you are able to claim costs in the areas of:
- Stock and goods for resale
- Wages and salaries
- Rent, rates, gas and electricity costs
- Administrative costs, for example stationery, telephone, mobile bills
- Capital allowances (A Tax form of depreciation) on vans, tools and equipment
- Allowances for using your own home as an office
- Legal and accounting fees
- Advertising costs
- Many more areas
At QuickRebates we stress to our clients that the more information we have when preparing your Tax return, the better. This enables us to claim as many expenses as physically possible, thereby reducing your Tax payable. With the highest rate of Tax being 45%, potentially this means that an invoice for £100 could be potentially worth £45, by reducing your Tax bill (or increasing your Tax repayment), for the same amount.
Tax Returns For High EarnersThose individuals earning above £100,000 and in some cases above £45,000 are required by HMRC to file an annual Self Assessment Tax Return. The main reason for this is due to the amount of money being earned, any errors can be material. HMRC will require a full, detailed overview of your overall income and expenditure. That includes information on all your sources of income such as:
You will also be expected to declare any employment benefits you have been receiving and If you have any allowable expenses then HMRC will also require this information.
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Income From Property
Rental income would usually give rise to a requirement of a Self Assessment Tax Return. Particularly if you also have other income elsewhere such as a salary. Income from property can either be from residential or commercial estate, there is not much distinction between the two in the eyes of HMRC. It all counts as rental income.
Allowable expenses are quite similar to that of being self-employed, but of course the amount of expenses will be different in nature. For example, you will have rental costs such as:
- Loan or mortgage interest costs if the property is financed
- Letting fees
- Repairs and maintenance costs
- Possibly utility bills depending on the contract arranged
- Legal fees
- Capital allowances on certain tools and equipment
There can be complications when deciding whether some repairs are allowable. For example, whether the expense is for an improvement to the property or whether it is simply restoration.
Company Director Tax Returns
Directors of limited companies are required to file Self Assessment Tax Returns. This is mainly due to them having 100% control over how their personal income is paid from the company, for example it could be a combination of:
- Salary
- Dividends
- Loans offered by the company
- Benefits in kind
- Reimbursed expenses
In order that the system isn’t abused, HMRC require all company directors to file a personal Tax return that would include reporting on the above areas. For the most Tax efficient result, it is advised that preparation of the company director Tax return is done alongside the Corporation Tax affairs. For small limited companies with one or two directors, there are various means and methods to reduce overall Tax payable.
How Long Does it Take for HMRC to Process a Tax Return
If the Tax return has been submitted online, this is usually accepted by HMRC there and then. If filed on paper, it could be anything from weeks to months depending on how busy there and what backlog of paperwork they are dealing with.
When filing Tax returns online, although they can be “processed” immediately, requesting an overpayment of Tax can take a little longer. In most cases these Tax refunds need to be manually authorised by HMRC agents. For simple and basic Tax rebates, repayments have been known to have been credited within a few days. More complex claims, particularly those requiring further information, can take several months.
At QuickRebates we always do our best to ensure that HMRC have all of the information they need at the earliest opportunity in order that Tax overpayments can be swiftly repaid.
