Self-Assessment is a system HM Revenue and Customs (HMRC) uses to collect income tax in the UK. Unlike income tax that is deducted automatically from wages, pensions, and savings, the Self-Assessment system requires individuals to file a tax return each year if they have other forms of income. This system is used primarily by individuals who are self-employed, but it is also relevant for others who receive income that isn’t taxed at source.
Self-Employed Individuals: This includes freelancers, contractors, and sole traders.
Partners in a Partnership Business.
Individuals with Untaxed Income: This could be from renting out a property, tips and commission, income from savings, investments and dividends, or foreign income.
Individuals with Complex Tax Affairs: This might include those who need to pay Capital Gains Tax, or high-income individuals (£100,000+ annually) who could be subject to additional payments like the High Income Child Benefit Charge.
Register for Self-Assessment: If you’ve never filed a return before, you must first register with HMRC. Depending on your status (self-employed, not self-employed but need to declare extra income, etc.), the process may vary slightly.
Keep Records: You must keep records of your income and any allowable expenses to fill in your tax return accurately.
Complete Your Tax Return: The tax return can be completed online or on paper. The online version has automatic calculations and offers later deadlines.
Submit Your Tax Return: The deadline for paper returns is October 31 following the end of the tax year, and January 31 for online returns. The tax year runs from April 6 to April 5 the following year.
Pay Your Tax Bill: The tax you owe must be paid by January 31 following the end of the tax year. There is also a 'payment on account' system where you make advance payments towards your tax bill in January and July.
Penalties: Late filing and late payment will result in penalties and interest charges.
Adjustments: If you make a mistake on your tax return, you can amend it after it’s been filed. The deadline to make changes is up to 12 months after the original January 31 deadline.
You need to keep proof of all income received and any expenses you wish to claim. Typical records might include:
- Invoices and receipts for sales and purchases
- Bank statements and chequebook stubs
- P60, P45, and other tax documents
- Details of personal and business expenses
Filing online has several benefits, including:
- Automatic calculations to help prevent errors
- Immediate confirmation of receipt
- Extended filing deadline
Self-Assessment tax returns are crucial for ensuring that individuals pay the correct amount of tax. HMRC provides extensive guidance and resources on their website to help taxpayers understand how to comply with their tax obligations. For those who find the process complicated or have complex tax situations, consulting a tax advisor or accountant may be beneficial.