Self Assessment Tax Returns
What are self assessment tax returns?
Self assessment tax returns inform HMRC about what income you have and are designed to be as simple as possible. However, they are very easy to get wrong.
How are self assessment tax returns different to PAYE?
The Pay As You Earn system is very different, as under PAYE tax is deducted automatically from wages, pensions and savings. A person or business with other sources of income need to file a self assessment tax return to report it to HMRC.
Who needs to file a self assessment tax return?
Even if your income is already taxed by PAYE (Pay As You Earn), you might still need to file a UK tax return to declare other income.
It’s not just self-employed people who need to submit a self assessment tax return. You’ll also need to submit one if:
– Your savings or investment income was £10,000 or more before tax.
– You received £1,500 or more in untaxed income, for example income from renting out a property or savings and investments.
– You made profits from sales of shares, a second home, or other chargeable assets and need to pay Capital Gains Tax (CGT).
– You lived abroad and had a UK income.
– Your income was over £100,000.
– Your income (or your partner’s) was over £50,000 and one of you claimed Child Benefit, as you may be subject to High Income Child Benefit Tax Charges.
– You are a nominated business partner, in which case you are responsible for managing the business partnership’s tax returns. When you set up the Partnership with HMRC, one of you was chosen as the ‘nominated partner’.
– You were a company director (unless it was for a non-profit organisation or charity) and you didn’t get any pay or benefits.
– You were a trustee of a trust or registered pension scheme.
– You received a P800 from HMRC stating that you didn’t pay enough tax last year.
– You make a substantial amount of money from selling things online.
There are a few other cases (such as religious ministers or Lloyd’s underwriters), so it is worth checking with a tax professional.
Can I file my self assessment tax return online?
Yes, almost 90% of people filing their self assessment tax returns do it online. You need to register in advance to use the online system. You will be sent an activation code that can take a long time to set up – so make sure you get it sorted well in advance.
You cannot file your self assessment tax return online:
– For a partnership
– For a trust or estate
– If you lived abroad as a non-resident
– To report chargeable gains, such as from life insurance
– you have received income from a trust, you’re a Lloyd’s underwriter or a religious minister
How do I register for a self assessment tax return?
To be able to submit it online, you can register on the HMRC website, and will need your 10-digit UTR (Unique Taxpayer Reference number) and your National Insurance number or Post Code.
How do I know if I am employed or self-employed?
It is so important to know your employment status, and whether you are employed or self-employed, as the two are treated very differently by HMRC.
You can’t just choose your employment status that best suits you, and tax officials keep a watchful eye on ‘false self-employment’. Whether you are employed depends entirely on your circumstances.
If you are working under a contract for a company you don’t own, then you are likely employed. Employed individuals:
– Usually work set hours for a single company
– Get pay at consistent times (weekly or monthly) which is already taxed
– Receive paid benefits such as holidays and sick leave
– Usually work for several clients at the same time
– Often own their own business and can choose how, where and when they work
– Usually invoice for each job and pay their own taxes through self assessment
What do I need to know if I am self-employed filing a self assessment tax return?
When setting up a small business, you need to decide between being a Sole Trader or forming a Limited Company. Either way, you will need to know HMRC’s self assessment tax system.
Qualifying expenses for self-employed individuals
Qualifying or ‘allowable’ expenses for self-employed individuals are the costs of doing your work and running your business. These expenses are included when you fill out your self assessment tax return, and reduce your taxable profit.
These expenses include:
– Travel costs
– Tools, equipment or materials you bought for your work
– Any stock you buy to sell on
– Any spending on marketing or advertising
– Bills – although you can only claim for the proportion of business use, not personal use. For example, if you work from home you may be able to claim a percentage of your household bills as expenses, but not the full thing.
What if I’m way behind on my U.S. tax returns?
There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties
It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.
Get a quote here.
The SEISS (Self-Employment Income Support Scheme)
The SEISS has been implemented to help self-employed individuals get through the difficulties of the COVID-19 pandemic.
The 4th SEISS grant pays out 80% of your average profits over a period of 3 months. This is capped at £7,500 and is calculated using your last 3 years of profits. With the 4th round, you should be able to claim if:
– You filed a self assessment tax return for 2019/2020 by the 2nd of March 2021.
– You’ve been making under £50,000 a year on average over the last 3 years.
– Over half of your earnings are from self-employment.
– Your business has suffered greatly as a result of the pandemic.
If you are eligible, you should be contacted by HMRC with instructions and a personal claim date.
What happens if you are late to filing a self assessment tax return?
Even if you don’t owe HMRC anything, you must file your self assessment tax return by the deadline. If you miss the deadline, there are a number of penalties including:
– £100 automatic fine for filing late, even by a single day
– This amount can increase to £900 in the next three months
– £3,000 for each year you can’t provide the necessary records
What documents are needed to file a self assessment tax return?
The most important documents that you will need to complete a self assessment tax return are:
– Form P45 if you stopped working for a given employer during the tax year.
– Form P60 which shows what tax you’ve paid.
– Form P11D if you have received any benefits, such as a company car.
– Any records of Tax Award Schemes or redundancy payments.
– Any records of extra income such as untaxed tips or incentive payments.
Will I need a UTR to file a self assessment tax return?
Yes, you’ll need a UTR (Unique Taxpayer Reference) number when you complete a self assessment tax return.
How do I complete the supplementary pages of a self assessment tax return?
If you have extra income to declare from self-employment, property or capital gains, you will need to complete a supplementary page.
If you are self-employed, complete SA103.
you will need to enter your turnover under the business income section – this is the grand total of everything you had during the tax year, before any expenses are deducted.
If you received the SEISS, you will need to declare this under the optional question in the ‘Other tax adjustments for your business trading name’ section. The first three grants (paid before April 2021) should be included on your 2020/2021 tax return. The final two grants will need to be included on your 2021/2022 tax return.
As a self-employed individual, there are two ways to declare expenses:
- If your annual turnover is under £85,000 you just enter your total expenses without needing to itemise them.
- If your annual turnover is more than £85,000 you’ll need to enter the individual amount for each kind of expense, plus a total.
The expenses you can include are:
– Costs of work equipment
– Costs of stock bought for resale
– Wages, salaries and other staff costs
– Travel and vehicle expenses
– Payments to any subcontractors
– Work building costs, including rent, power and insurance
– Office costs
– Interest on loans
– Repairs and maintenance
– Accountancy, management, legal and other professional costs
Although you won’t need to send in receipts for proof, you will need to keep records of expenses for the next five years after submitting your self assessment return, in case HMRC ask you to produce them.
If you are reporting property income, complete SA105.
As a landlord, you will need to declare your income from rental properties in two separate sections.
In section 1:
– Enter the total income from all furnished holiday lettings in the UK. You will need to enter the total income for any furnished holiday lettings in the EEA on a separate page.
In section 2:
– Enter the total rent and income from other properties.
You can claim expenses for:
– Rates, insurance and ground rent
– Property repairs and maintenance
– Loan interest and other financial costs
– Legal, management and other professional fees
If you are declaring capital gains, complete SA108.
You will need to declare your ‘disposal proceeds’ (income from capital gains), and fill in separate totals for:
– Residential property
– Non-residential property
– Shares and securities
You can claim for allowable costs, including:
– The price paid to buy the asset
– Costs of any improvements which are reflected in the asset when it is sold
– Other costs in buying or selling the asset, such as Stamp Duty when buying a property
What if I make a mistake in my self assessment tax return?
If you realise that you’ve made a mistake after you’ve submitted your self assessment tax return, you can amend the return until the filing deadline of the next year. For example, if you submitted your return by 31 January 2022, you are able to make changes to it up until 31 January 2023.
Payment on account
You’ll be asked to make ‘payments on account’ towards your next tax bill, unless:
- Your self assessment tax bill was less than £1,000, or
- You’ve already paid over 80% of all the tax you owe
Payments on account are two payments made up of half of your previous year’s tax bill. These payments are due by 31 January and 31 July. For example, if your 2019/2020 tax bill was £1,500, you would make two £750 payments during the 2020/2021 tax year.
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