If you are working in a salaried job, chances are you get your salary after taxes (the Pay-As-You-Earn approach) and do not need to worry too much about filing returns. However, what if you run your own business or are a landlord for a property?
Or what if you are earning a little extra money through investments? You will need to file your returns to HMRC, and that can understandably make you a little nervous, whether it is your first time or if you have done it before.
In this article, we break down the essentials of a Self Assessment tax return to prepare you better for the upcoming deadline in January next year.
Understanding Self Assessment
Self Assessment basically means that you have to file your tax returns, either on paper or via the online portal, based on which the HMRC can calculate how much your tax bill is and whether or not you are owed a refund.
Independent contractors, small business owners, and freelancers are legally required to file Self Assessment tax returns and make two ‘payment on account deposits’ every year unless you’ve already paid more than 80% of all the tax you owe. In addition, salaried employees need to fill out a Self Assessment tax return if they:
- Make a loss on their investments
- Earn over £50,000 and are claiming child benefit
- Claim additional tax relief on their pension
- Have sources of income in addition to their salaried job
There are several criteria that mean you need to complete a Self Assessment, and you can check if you need to complete one here.
When does one need to file a Self Assessment?
You should file your Self Assessment tax return immediately after the close of the tax year and then pay any tax due by the following January.
Do I need to register for Self Assessment with the HMRC?
Not everyone who is earning money apart from salary automatically needs to register with the HMRC. If you are earning taxable income, such as returns on savings and investments, commissions, rental income or profits from selling property, you will likely need to.
You may also need to if you are claiming certain kinds of benefits. The UK government website features a handy tool that lets you check whether or not you need to file a return which we have included above. Plus, if you are not sure, you can always contact the HMRC yourself.
Important dates to keep in mind
If you are required to file a Self Assessment tax return, here are the dates you need to bear in mind at all times:
- April 5: Old tax year ends
- April 6: New tax year begins
- January 31: You will need to finish filing your tax return and pay your tax dues
- October 5: The deadline to register with HMRC for Self Assessment (if you run your own business, you have to do this in the second tax year of your business)
- July 31: If you are a freelancer, contractor or business owner, you need to make your ‘payment on account’ deposit by this date, in addition to another one in January.
- December 30: The deadline for completing online returns for individuals with tax liability less than £3000 and who already pay tax through PAYE if they want the HMRC to collect tax through extra wages and pension by using the relevant tax code.
You must file your tax return with HMRC by January 31, 2022, 11:59 pm. If you cannot do so, you will have to pay the penalty unless you have a reasonable excuse. That brings us to the next section of the article.
Penalties for missing tax deadlines
As you may already know, the HMRC is pretty strict about deadlines, and the penalties for missing them tend to rack up fast.
- Missing even a day leads to an immediate fine of £100.
- A three-month delay leads to £10 a day for up to 90 days.
- A six-month delay leads to an extra fee of £300 or 5% of the total tax owed, whichever is greater.
- A twelve-month delay means all the previous penalties plus an additional £300 or 5% of the tax owed, whichever is greater.
- In certain circumstances, you may even get a penalty of up to 100% of the tax you owe!
However, you may submit an appeal to the HMRC against a tax penalty in case of:
- Unforeseen postal delays
- Unexpected and severe illness
- Issues with the HMRC portal itself
- Calamities like earthquakes or floods
- Death of a close relative just before the deadline
- Unexpected hospitalisation just before the deadline
- Computer/software failure while filing the tax return
How to register with the HMRC for Self Assessment tax return
Whether you are self-employed, earn extra taxable income, or are in a business partnership, there are different ways to register on the HMRC portal. For self-employment, you also need to register for Class 2 and Class 4 national insurance contributions. Here, we break down the process. If you are registering for the first time:
- Open the HMRC sign-in page and click on the green sign-in button.
- Click ‘create sign-in details’ on the page that opens up.
- Enter your email ID.
- You will be issued a Government Gateway account user ID. Please make a note of this, as you will need it to file your online returns.
- You will receive your 10-digit unique taxpayer reference (UTR) code by post.
- You will also get an account activation code by post. This is supposed to arrive within ten working days, but budget some extra time just in case.
- Instead of registering on paper, complete the SA1 tax form and send it along by post. However, bear in mind that the HMRC is planning to phase out paper tax returns completely under its Making Tax Digital scheme. Plus, the deadline to file paper tax returns for FY 2020-21 was on October 31, 2021.
If you have previously registered:
- Keep your UTR on hand; you will find it on your old tax returns or any communications from the HMRC.
- You will need this UTR to re-register on the HMRC portal.
- If you have forgotten or misplaced your UTR, you can ask the HMRC to tell you.