A Self-Assessment Tax Return (‘Self-Assessment’) is used by HM Revenue and Customs (‘HMRC’) in the UK to calculate an individual's income and their tax liability. Unlike taxes deducted at source, such as those through an employer's payroll system, this process places the responsibility on individuals to report their income, profits and other financial details accurately. It’s a mechanism for ensuring a fair and just tax system.
Why is Self-Assessment needed?
Self-Assessments ensure that individuals contribute the right amount of tax based on their unique financial circumstances. This process accounts for various sources of income, allowances, and deductible expenses that cannot be included in the traditional tax deduction process.
Who has to complete a Self-Assessment?
The completion of a Self-Assessment isn't completed by all employees, and usually applies to people with more complex finances. This includes the self-employed, business owners, people earning income from property, those who earn income over £100,000 per year, savers, those with income from overseas or income from multiple sources.
How do I know if I have to complete a Self-Assessment?
Most taxpayers in the UK are taxed at source and don’t need to complete a Self-Assessment. ‘Taxed at source’ means that the money that employees receive has already had tax taken off during the payroll process.
People who have income that’s not been taxed at source, and on which tax is owing, are required to inform HMRC about the income within six months of the end of the tax year in which the income is received (that is by 5 October following the end of the tax year). HMRC will then send the individual a notice to file a tax return, either by post or electronically.
Types of income include, but are not limited to, rental income, self-employed income and income from savings and investments over the savings allowance. Occasional income like online sales or freelance earnings must also be reported.
The government has a tool for individuals to check to see whether they’re liable to submit a Self-Assessment, which can be found here.
What information does a Self-Assessment include?
Self-Assessment tax returns are a comprehensive collection of financial information depending on the different sources of income. Details about employment income, self-employment, rental income, profits and other sources of income is required. In addition, it accounts for acceptable deductions and reliefs, which provide a comprehensive snapshot of an individual's financial status. The level of detail ensures a thorough examination of an individual's finances, leading to an accurate assessment of tax liability.
When does a Self-Assessment have to be submitted?
Time is important in the Self-Assessment process. The deadline for submitting taxes falls on January 31 after the end of the previous tax year. Failure to meet this deadline will result in penalties. Planning and being aware of submission deadlines are important aspects of managing the Self-Assessment process.
Submitting a Self-Assessment well before the January deadline gives the individual a clear picture of their tax liability – what tax they owe – so that they can budget and make regular payments ahead of the January cut-off. This helps them make sure they pay what’s owed and avoid any penalties for non-submission or non-payment of tax. A Self-Assessment can be submitted any time from April 6th to January 31st for the previous tax year. A Self-Assessment is liable for penalty if it’s filed late, even if there is no tax to pay or the individual is owed a refund.
What happens if a Self-Assessment is submitted late?
Failure to submit a Self-Assessment by January 31st will result in a fine of £100 for the first three months. After this, the financial penalty will increase. The sum owing also becomes liable for interest on late payments. Timely submission is necessary to avoid unnecessary additional financial stress and legal consequences. Late submission penalties can be a significant financial burden, highlighting the importance of meeting deadlines.
What happens when a Self-Assessment tax return is submitted?
HMRC calculates the tax liability based on the reported income and applicable deductions. The calculation is made in ‘real-time’ if the submission is made using the government’s portal. Depending on the outcome, individuals may receive a tax refund or need to pay tax on income.
How to get help submitting a Self-Assessment tax return
Navigating the intricacies of a Self-Assessment tax return can be challenging, especially given the ever-changing tax landscape. Seeking professional advice from accountants or bookkeepers can make the process easier. This ensures both accuracy and compliance and professionals are aware of applicable deductions so can often reduce tax liability.
A Self-Assessment is an important component of personal financial responsibility. Understanding its purpose, determining whether it applies to you, and taking care of submission deadlines are key steps in managing tax obligations.
Seeking help when needed can help deliver a smoother and less stressful experience, and also ensures people fulfil their tax responsibilities accurately and efficiently.
About the author:
Payroll Manager Val Ellis is a member of the Chartered Institute of Payroll Professionals and is ITIL v3 Foundation-certified. She has 25 years experience in Payroll and has extensive knowledge of both employment law and payroll legislation.
