One of the most important aspects of tax compliance in any country is the preparation and filing of income tax returns each year and the payment of applicable taxes. An income tax return, as we know, is a form or a legal document which states out the information about a taxpayer’s taxable income and the tax payable. It also reports the different deductions and tax reliefs that he claims in any given year.
In the United Kingdom, the authority of HM Revenue and Customs may ask you to provide a income tax return at the end of each financial year. Many taxpayers earning as employees are not obligated to file a separate income tax return in the UK. In such cases, their taxes and national insurance contributions are directly collected from their income under the PAYE (Pay as you Earn) Scheme. However, many others need to submit a self assessment tax return with the HMRC.
Many self-employed individuals and taxpayers not covered under the PAYE scheme have to file a self assessment return. More than 11 million taxpayers filed a self assessment tax return in the UK in the previous financial year. Are you also responsible for filing a self assessment tax return? Join us to know about the relevant details about the same. Here we are elaborately explaining some frequently asked queries related to the filing of self assessment tax returns. It will help you garner a more in-depth insight into the tax filing compliance.
What is the meaning of a Self Assessment Tax Return?
The self assessment tax return is a type of tax return that many individuals and business owners in the UK have to submit with the HMRC every year to disclose their earnings along with the sources from which they are earned. The term “self assessment” is used to denote that an individual taxpayer has the responsibility to calculate and pay his taxes with the self assessment tax return. As per legal requirements, a tax return should contain complete information about any income source earned in a year and state the amount of tax deducted at the source.
Who is obligated to prepare and file a Self Assessment Tax Return in the UK?
In the UK, the onus of determining whether an individual is required to file a self assessment return is on the taxpayer itself. A person needs to file a self assessment tax return with the HMRC if he falls under any of the following conditions:
- A self-employed individual has to comply with the self assessment tax return regulations if he earns more than £1000 in a year. He has to file the return irrespective of whether he is making a profit or a loss from his self-employment venture. Hence, you need to file the Self assessment return once you are registered as a self-employed tax payer.
- Any person who has income other than salary and pension that is not covered under the PAYE (Pay as you earn) system by their employer must file the return.
- A person who has income or gains outside the UK may have to file a self assessment return.
- Any individual who is earning more than £100,000 in a financial year
- A person is having capital gains from the sale of any property. An individual earning taxable income from investments, dividends, and savings beyond £10,000 is also liable.
- Any individual earning rental income more than £2500 from renting out his property in the tax year. A person with income from tips and commissions above £2500 is also liable to file.
- A person who is a director in any company other than a non-profit organisation. A partner of a firm registered with the HMRC. Any trustee of a registered pension scheme or trust.
- Any taxpayer who is obligated to pay any foreign income tax due to his overseas income
- A person living in another country having earnings from the UK.
- Any taxpayer who received a P800 form stating that he has an outstanding tax liability did not pay his full liability in the previous tax years.
What is the relevance of Self Assessment Tax Returns for Self-Employed Taxpayers?
A self-employed individual must include not just his self-employment income in his tax return. He must report all the earnings and gains from different sources. Make sure to mention income from additional employment, savings, capital gains, and abroad. Also, state out the details related to business income and expenses.
As per the disclosures related to the self-employment taxable income, a person must determine his income tax liability and Class 4 national insurance contribution payment. A taxpayer’s Class 2 tax liability is calculated separately. However, both the contributions are payable at the same time. Any person who is filing an online return will get access to an online system for tax calculation.
What are the due dates and deadlines to keep in mind related to Self Assessment Tax Return filing?
Any taxpayer required to file a self assessment tax return in the UK must stick to the HMRC’s deadlines. A fiscal year covers the period between 6th April to 5th April.
- A person who is filing his return online should submit a complete self assessment tax return related to a given year by the 31st January of the succeeding year. The tax payable must also be paid to the HMRC by 31st January.
- Any taxpayer, who has not filed an online return, should physically submit the same to the HMRC on or before 31st October from the end of the relevant tax year.
What is the process of filing the Self Assessment Tax Return online?
Filing an online return is the most rapid and reliable method to submit an income tax return. Any individual taxpayer who is a sole proprietor or a company director can submit an online self assessment return to the HMRC. A person filing an online return for the first time must register and obtain a Unique Tax Reference number. Most taxpayers need to fill up and file form SA100. The return must cover all information related to income, pensions, benefits, charitable donations, pension contributions, loan repayments, and allowances for a given fiscal year. It is advisable to maintain appropriate records of all the expenses and contributions.
One must be aware that HMRC has a system of charging automatic interest and penalties when someone fails to file his income tax return duly. The laws are stringent against taxpayers who file delayed tax returns even when they have no tax payment obligations or are eligible for a refund.
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