Introduction -Self Assessment Tax Return Guide
Here is my handy Self Assessment (SA) tax return guide. It will help you understand what you have to do and what to think about when you complete your Self Assessment tax return.
As part of the SA process, you need to register for SA and complete a SA tax return each year if either:
- you are a director in a company;
- you are in self-employment;
- as an individual, you receive income upon which tax is due
What to think about
The process in brief
Most contractors do not have a complex tax return. Therefore, this is a fairly simple process. The majority will have a salary, dividends, and perhaps some personal bank interest.
If you have a good contractor accountant, they will usually prepare your SA tax return for you. If they do this, they should also submit your return to HM Revenue & Customs (HMRC) on your behalf. However, you ultimately have to make sure that you include all of your taxable income on your return.
To sum up, it is also up to you to:
- make sure that all other details on your return are correct; and
- you submit your return accurately to HMRC
Register for SA
You need to register for SA with HMRC before you can complete your tax return. If you are a director of your own company, your accountant will usually take care of this process.
Once you register, you will receive a Unique Taxpayer Reference (UTR). The reference is two sets of five digits. Please make sure that you keep this in a safe place.
Going forward, HMRC will send you a notice to complete a tax return through the post each year. You normally receive this in April or May, which is just after the tax year-end on 5 April. If you do not receive this notice, but you are under the SA system, or you should be under the SA system, you still need to complete your return.
Registration to file your SA return online
Today, most taxpayers file their SA tax returns online via the HMRC website. If you plan to do this yourself, you need to register for an online account with HMRC. As part of this process, HMRC will send you an activation code through the post. This code will go to your home address, and it normally arrives within seven working days. When you receive this, you need this to activate your account with HMRC. After you have done this, you can then file your return online.
Completing your SA return online
How complex your SA tax return is will depend on how complex your personal financial affairs are.
When you complete your SA return, there are various sections to fill in:
- Your primary employment gross salary and tax as shown on form P60. If you have your own business and pay yourself a salary, your accountant should have sent form P60 to you. Also, you will need a copy of the form P11D from your employer. This form will show any benefits in kind. If you have any benefits through your own company, your accountant should have sent a copy of form P11D to you in June or July. * As an aside, if you have worked at several different employers in the past and have various pension schemes from former employers, something that you may be interested in is pension consolidation.
- The pay and tax details that you receive from a second job. Or, the details of any income from previous employment. These details show on the end of year P60 form or your final payslip in the tax year. If this is the first year that you are to complete Self Assessment, it could be your salary and tax that show on your P45 form from your previous employer. You will have received A P45 form shortly after leaving your former employer.
- Redundancy lump payment from a former employer and/or any unemployment benefit.
- The details of any income (and expenses) that you receive from Self-Employment.
- Any details of income and expenses from any Partnerships.
Further items that may go on to your return
- Any income from investments, this includes pensions.
- Dividend income. It will include dividends from your own company. It will also include any other dividends that you may have received.
- If you are a landlord, the details for any property that you rent out, these details include the income and expenses.
- Any interest you receive on bank or building society accounts. This interest does not include any that you receive on ISAs.
- Any foreign income.
- Details of any Capital Gains transactions including any claims for Entrepreneur’s Relief -a gain or loss on the sale of a second home, a business or other chargeable assets.
- Child Benefit income -this may need to be paid back if you or your partner earned over £50,000.
- Any gifts to charities under Gift Aid -if you are claiming tax relief. Claiming for these will only affect your tax bill if your overall gross income is over £50,270.
- Any student loan repayments.
- Relief for investments under the Enterprise Investment Scheme.
As part of your personal tax return preparation, and on an ongoing basis where appropriate, you could consider making use of the transfer of the marriage allowance. This is only beneficial in certain scenarios but you could benefit from this.
Submit your return
When you complete your SA return yourself via the HMRC website, this will work out what tax you are due to pay or what refund you are due.
Alternatively, if you are to submit a paper return, HMRC will usually send you a tax calculation through the post.
If you have an accountant, they will usually provide you with backup schedules for the tax return, as well as a copy of your completed return. They will also submit the tax return to HMRC on your behalf.
The deadline when you file your SA tax return online with HMRC is 31 January that follows the end of the tax year. This date is also when you should pay any tax that is due.
What’s more, for the tax year ended 5 April 2021, the filing deadline is 31 January 2022.
You can still fill in a paper return (SA100), but the deadline to complete and file this by is 31 October. Please note this is also the date when you should pay any tax that is due.
Therefore, for the tax year ended 5 April 2021, the filing deadline is 31 October 2021.
Paying your tax bill
With regards to payments, the above means that HMRC should receive any liability in their bank account by the relevant date. When you make your payment, the reference that you quote is your UTR code with a capital `K’ at the end of this.
If you owe £3,000 or less, you are also able to ask HMRC to collect the tax you owe by adjusting your tax code. Please talk to your accountant if this is something that you would like to do.
Payments on account
As part of the personal tax system, you may also need to make what is called `Payments on account’ by 31 January and 31 July each year. These are payments on account of the next year’s tax bill.
If you miss the 31 October or 31 January deadlines, HMRC will automatically charge you a £100 penalty. This penalty is regardless of the reason why your return was delivered late.
The £100 penalty applies if you are up to three months late.
You have 30 days to pay your tax bill before 5% is chargeable on it.
Further to the above, you have 90 days to file your tax return in after which it will cost you £10 a day in fines (up to 90 days -£900).
There are further penalties every six months (£300) and twelve months (a further £300) if you are even later.
Furthermore, there are also penalties if you do not pay your tax bills on time. There is also interest too for late when you pay your tax late.
Thank you for taking the time to read this guide. I cover most of the aspects in this, and it should give you a good insight into how SA works.
As you can see, SA is quite a complex area, and it is relatively easy to get lost if you are not sure. Hopefully, my guide has given you a good insight into this. If you have any particular questions yourself, you should check with your accountant.
Link to Contractor Advice UK group on LinkedIn https://www.linkedin.com/groups/4660081/