An Introduction to Self-Assessment Returns

Self-assessment began in 1997, with the idea that taxpayers can complete their tax returns. The reality has turned out to not be quite so simple. The tax year runs from 6th April to 5th April in the following year.

Under self-assessment, it is up to the individual taxpayer to calculate their tax liability and pay the tax due by the due date.

Who Has to Fill In a Self-Assessment Return?

The majority of people in the UK are taxed under PAYE and do not have to complete a self-assessment tax return. However, if you have income that is not taxed at source or may be liable to higher rate tax on income that has only had basic rate tax deducted, you may need to complete a self-assessment return. It is your responsibility to notify HMRC of any tax liability.

The following people usually have to complete a return:

• Anyone self-employed?
• A company director.
• A trustee.
• Pensioners with an annual income of £100,000 or more.
• Employees or pensioners with an annual income from savings or investments of £10,000 or more.
• An employee or pensioner with an untaxed annual income of £2,500 or more.
• A landlord who rents out property or land.

Filing the Self-Assessment Return

If you need to complete a return, HMRC issues it to you at the beginning of April each year. The basic return is 10 pages, but many sources of income require supplementary pages to complete as well.

Some people receive a short tax return of only 4 pages. In addition to income, it addresses allowances and reliefs you can claim.

• Paper Returns: Must be filed by 31st October following the end of the tax year. HMRC will calculate your liability if submitted on paper.
• Online Returns: Must be filed by 31st January following the end of the tax year. If filed online, HMRC’s system will calculate your tax liability.

Penalties for Late Self-Assessment Returns

• Initial Penalty: £100 for late filing of the tax return, irrespective of tax due or if tax is paid on time.
• After 3 Months: Daily penalties of £10 per day, capped at £900.
• After 6 Months: A further penalty of 5% of the tax due or £300, whichever is greater.
• After 12 Months: Another 5% or £300 charge, whichever is greater. In serious cases, the penalty after 12 months can be up to 100% of the tax due.

The penalties apply even if no tax is due.

Due Dates of Payment

Payments on account are typically made as follows:

• 31st January during the tax year.
• 31st July following the tax year.

These are based on the net income tax and Class 4 NIC liability of the previous tax year.

A final payment (or repayment) is due on 31st January following the tax year. There is a 5% surcharge on any taxes remaining unpaid after 28th February and a further 5% surcharge on unpaid taxes after 31st July.

Example:

If your total tax liability for 2022/23 was £5,000 and for 2023/24 is £10,000, you would make payments for 2023/24 as follows:

• 31st January 2023: £2,500 (half of the 2022/23 total)
• 31st July 2023: £2,500 (half of the 2022/23 total)
• 31st January 2024: £10,000 (the £5,000 balance due for 2023/24 and £5,000 on account for 2024/25)

Payments on account are not required if:

• Income tax and NIC liability for the previous year (net of tax deducted at source) is below £1,000, or
• More than 80% of the income tax and NIC liability for the previous year was tax deducted at source.

You can also apply to have the payments on your account reduced if you expect your liability for the current tax year to be lower than the previous year.

Amendments to Returns and Enquiries

HMRC can correct a self-assessment return within nine months of the filing date to correct obvious errors. Individuals can amend their self-assessment at any time within 12 months of the filing date.

For returns filed by the statutory deadline, HMRC has one year from the 31st of January to inquire. If the return is filed late, HMRC’s inquiry window extends to one year from the date the return was submitted.

Filing your return early may reduce the time HMRC has to inquire, as the inquiry period is fixed by the deadline or submission date, whichever is later.

Inquiries can be aspect inquiries (targeting specific sections) or full inquiries (covering the entire return). In the case of a full inquiry, it’s advisable to seek professional guidance.

Keeping Records

By law, you must keep all records in support of the tax return for at least 22 months after the end of the tax year. If you are self-employed or have rental property income, records must be kept for five years and 10 months after the end of the tax year. Failure to maintain adequate records can result in fines of up to £3,000.