Regarding taxes, the term “self-assessment” often sends shivers down people’s spines. In layman’s terms, it’s a system by which HMRC (Her Majesty’s Revenue and Customs) in the UK collects Income Tax from individuals and businesses. If your income does not pay tax automatically via PAYE (Pay as You Earn), you will probably need to file a Self-Assessment Tax Return.
The deadline for the 2025/26 tax year is approaching. If you plan to file your tax return online, it must be submitted by midnight on January 31, 2026.
Suppose you are a sole trader, a director of a limited company managing your own business, or a partner in a partnership. In that case, you are required to submit a Self-Assessment tax return to HMRC by January 31 each year.
This blog provides all the essential information about self-assessment tax returns and serves as a step-by-step guide for completing them.
Let’s make tax season easy and transparent!
What is a Self-Assessment Tax Return?
When you are earning money that is not financially taxed at source, for example through PAYE, a Simple Assessment tax return is a document in which HMRC calculates how much income tax you ought to be paying. It’s usually needed by self-employed people, directors of companies, or those who have sources of income on which they’ve not paid tax.
In basic terms, this form tells HMRC about all your income sources, so they can calculate what you owe in tax for the financial year.
Who Needs to File a Self-Assessment Tax Return?
Filing a Self-Assessment tax return is not a requirement for everyone. You have to file one if you meet any of these conditions:
- Sole traders earn more than £1,000 a year (gross).
- Business partnership associates.
- People whose total taxable income is more than £150,000.
- People who paid Capital Gains Tax on assets sold for profit.
- Persons who are liable to the High Income Child Benefit Charge.
- Those making more than £1,000 from a side hustle or part-time job.
You might also need to file if you’ve got untaxed income from:
- Individuals with untaxed income (e.g. rent, dividends).
- Investments or savings.
- Overseas income
If your income isn’t taxed at source, then a Self-Assessment tax return will likely be required.
The Basics of Self-Assessment
How Self-Assessment Works
The process consists of reporting your income, expenses, and any tax allowances or reliefs you qualify for to HMRC. You’ll then either pay the tax owed or claim a refund if you’ve overpaid.
Why It’s Important
When you file on time and accurately, it keeps you in HMRC’s good books and avoids penalties. It’s also important to get a sense of your financial commitments.
How to Register for Self-Assessment
The process of registering for Self-Assessment depends on whether you are employed and/or have filed before. Below are the key scenarios:
If you’ve Never Filed a Tax Return
- Deadline: Registration must be completed by 5 October 2024
- How to Register: Register online and receive your Unique Taxpayer Reference (UTR) using your Government Gateway account.
- Your UTR will be delivered within 10 days (or 21 days if you’re abroad).
If you’ve Filed Before
- Complete (CWF1) the Self-Assessment form to re-register if you have not filed a return last year.
- Please use your current UTR to reactivate your account.
Self-Assessment Deadlines
To avoid penalties, you need to meet deadlines. Here are the key dates:
- Notify HMRC: By 5 October if you’ve never submitted before.
- Paper Returns: Due by 31st October 2024.
- Online Returns: due by 31 January 2025
- Payments on Account: 31 January and 31 July each year
Consequences of Missing Deadlines
There’s peace of mind (and time to budget) in filing taxes early in the year.
Submissions can be penalized £100 for the first day, increasing with further delays.
Submitting Your Tax Return: A Step-by-Step Guide
1. Gather Your Information:
- National Insurance number.
- Information for income from employment, self-savings, or investment.
- Documentation of deductible expenses and tax-deductible claims.
2. Choose a Filing Method:
- Online: The easiest option and features automatic calculations.
- Paper: Download and fill in the SA100 (for special cases such as pension trustees or non-resident companies).
3. Complete and Submit:
- Sign into your HMRC account to enter your income, deductions, and allowances.
- Review your tax liability or refund and file by the deadline.
Common Mistakes to Avoid
- False or incomplete information.
- You cannot find your UTR or Government Gateway credentials.
- Not reporting all sources of income.
- Not claiming deductible expenses such as business expenses or charitable contributions.
- Missing filing and payment deadlines.
Errors can trigger penalties, interest charges, and sometimes audits. Draft, proof, and recheck.
Income to Declare
You must report:
- Income from employment, self-employed, and rental properties.
- Dividends, interest,t, and overseas income.
- Certain income, including tax-exempt savings interest, does not need to be declared.
Deductions and Reliefs
Expenses You Can Claim
Self-employment means you are entitled to deduct expenses on office supplies, travel expenses, or utility bills.
Tax Reliefs to Consider
Tax reliefs on pension contributions, donations, and investments in businesses will help reduce your liability.
Paying Your Tax Bill
HMRC provides several choices of payment, from a bank transfer to a direct debit. If you can’t pay, you can arrange a time to pay.
Penalties for Missing Deadlines or Incorrect Information
Missing a Self-Assessment deadline is very expensive:
- £100 penalty: If submitted up to 3 months late.
- Per day fines: £10 for each day after three months, up to 90 days.
- Interest: Charged on unpaid tax
How to Appeal a Penalty
You can appeal through HMRC’s online portal if you believe you’ve received a wrongly imposed penalty.
Benefits of Filing Accurately
File properly and with complete accuracy. Accurate filing ensures peace of mind, prevents HMRC audits, and you can take full advantage of the available tax reliefs and allowances.
Planning for Payments on Account
Payments on account are advance sums toward your next tax bill, based on the previous year’s liability. Key points:
- Payments are due on 31 January and 31 July
- Exemptions: If your most recent bill was less than £1,000 or if you have already paid 80% of your tax.
Reserve funds every month to take care of these costs and avoid putting yourself in a financial strain.
Should You File Your Tax Return?
You can file your return, but retaining a professional accountant guarantees accuracy and potentially makes your taxes as efficient as possible. COVID-related support claims and work-from-home deductions have made recent returns even more of a challenge. If in doubt, enlist the professionals.
Final Tips for Stress-Free Tax Filing
- File Early: Know your liability or refund sooner, so you can plan.
- Stay Organized: Keep detailed records of income, expenses, and deductions.
- Seek Expert Advice: Consulting a tax professional can help you avoid costly errors and penalties.
Conclusion
When you are reading this, a Self-Assessment Tax Return seems daunting but it is a requirement with full financial responsibility. When adequately prepared, informed, and equipped, it can be a smooth process.
Let the Experts Help
However, the UK’s tax system is complicated. We prepare self-assessment tax returns at Reflex Accounting and make sure that they are accurate, comply with the rules, and are submitted on time. Whether you’re self-employed, a landlord, or you have several income streams, we make things slick and simple, helping you avoid penalties and optimize your tax position. Reach out to us for a consultation with the experts!
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