What is Self Assessment?
Self Assessment is a system used by Her Majesty’s Revenue and Customs (HMRC) to collect Income Tax that isn’t deducted at the source, through PAYE (Pay As You Earn).
When people submit a Self Assessment tax return they are required to declare taxable income. This includes both earned and unearned income such as for example, short-term capital gains. They are also able to claim relevant tax allowances and reliefs.
Self Assessment tax returns are most commonly completed digitally, via HMRC’s online portal. It’s also possible to supply a paper return. However, HMRC stopped automatically sending out paper tax returns in April 2020. Going forward, only people who have been identified by HMRC as unable to file online will be allowed to use them.
Who needs to submit a Self Assessment tax return?
All individuals must report untaxed income to HMRC. The majority of people in the United Kingdom pay taxes on their earnings at source, through the PAYE system.
People with the following types of income must file a Self Assessment tax return:
- Employment income and benefits in kind (BIK) received from companies incorporated in the United Kingdom.
- Dividends obtained from companies in the United Kingdom and overseas.
- Self-employment income:
- If the income earned is more than £1,000, it needs to be reported to HMRC.
- The first £1,000 will be considered a ‘Trading allowance out of the total revenue earned.
- Income earned through savings and investments: £10,000 or more (before tax).
- Capital gains are earned through selling assets such as shares or a second home.
Rental income received from properties within the United Kingdom:
- The first £1,000 of rental income received is tax-free.
- If the income received is in the range of £1,000 to £2,500, landlords should contact HMRC.
- The following income ranges should be reported as part of a Self Assessment tax return:
- After allowable expenses, between £2,500 and £9,999.
- Before allowable expenses, £ 10,000 or more.
- Untaxed income, such as tips and commission: more than £2,500
Taxable state benefits are as follows:
- Carer’s Allowance.
- Contribution-based Employment and Support allowance: this provides financial support to people who can’t work due to sickness or disability, but the support is only given to those who paid sufficient National Insurance Contributions (NICs) when they were working.
- Incapacity benefits: this is provided for people who can’t work due to sickness or disability.
- Jobseeker’s Allowance: this is provided to people who are unemployed or seeking work.
- Pensions paid by the Industrial Death Benefit scheme.
- State Pension: this is paid to people on reaching the qualifying age, provided they have either paid or are credited with sufficient NICs.
- Bereavement Support Payment: paid to eligible people whose husband, wife or civil partner died in the previous 21 months.
In addition, people should submit a return if:
- They are a trustee of a trust or registered in a pension scheme.
- Their or their partner’s income exceeds £50,000 and they received Child benefits.
What is the procedure for Self Assessment registration?
You need to register for Self Assessment by 5 October after the end of the tax year for which you are required to file a tax return.
There are different methods for registration based on the way an individual earns income.
The methods are as follows:
Self-employed people need to register online through their HMRC business tax account to get a Government Gateway ID and password. They’ll be sent a letter containing their Unique Taxpayer Reference (UTR), then an activation code for the new account. Once the account is activated, they’ll be able to file a Self Assessment tax return.
- Not Self-Employed
These people need to register for Self Assessment using the SA1 form. Once the registration has been completed, HMRC will post out their Unique Taxpayer Reference (UTR), then an activation code for the new account. Once the account has been activated, they’ll be able to file a Self Assessment tax return.
- A partner in a partnership
Partners should be registered for Self Assessment by 5 October after the end of the tax year for which they are required to file a tax return. Once registered, a ten-digit Unique Taxpayer Reference (UTR) will be sent. Once the UTR has been received, they can file their Self Assessment tax return.
HMRC has specific deadlines and penalties related to filing tax returns.
Assuming the tax year runs from 6 April 2021 to 5 April 2022, the deadlines are as follows:
- Registering for Self Assessment – 5 October 2022.
- Submission of paper tax returns – 31 October 2022 (midnight).
- Submission of online tax returns – 31 January 2023 (midnight).
- Payment of tax owed to HMRC – 31 January 2023 (midnight).
A partner in a business needs to submit their online return within twelve months of the accounting date or a paper return within nine months of the accounting date.
Penalties are imposed for the following:
- Filing a Self Assessment tax return after the deadline.
- Late payment of the tax due.
HMRC will impose a penalty of £100 if the deadline is missed by up to three months. Following that, up to six months, further penalties and interest payments will be imposed.
All the partners in an organisation are liable to pay the penalty if they fail to submit a partnership return on or before the deadline.
When can I submit my Self Assessment tax return for 2022?
Self Assessment tax returns may be submitted at any time after the relevant tax year has ended.
For example, the tax year 2021/22 ends on 5 April 2022, so the tax return can be submitted from 6 April 2022 onwards.
How does a Self Assessment tax return work?
Self Assessment tax returns are used to report an individual’s annual income to HMRC. Tax is deducted at source for income such as pensions, savings and salaries, via the PAYE system.
Self Assessment tax returns are prepared to report sources of income other than those.
How long does it take HMRC to process online Self Assessment tax return submissions?
Generally, HMRC can take between five days and eight weeks to process an online Self Assessment tax return. The timing can vary due to factors such as necessary security checks, etc.
How much can you earn self-employed before paying tax?
If your annual income is less than £12,570 (the current amount of the Personal Allowance) you will not be required to pay tax on your income. However, you may need – or wish – to pay NICs.
Will HMRC tell me if I need to complete a tax return?
No, it is an individual’s responsibility to report their annual income. However, if you have previously submitted a tax return, they will prompt you to complete a current submission.
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