A Comprehensive Guide on the Basics of HMRC Self-assessment Tax Return

Welcome to the world of self-assessment, a realm that might feel more like an intricate maze than a straightforward path. If you’ve ever found yourself staring at HMRC’s website, wondering where to start or how to make sense of terms like “taxable income,” “personal allowances,” and “filing deadlines,” you’re not alone.

This blog is a complete guide that taps into the expertise of top accounting firms in the UK and offers insights that simplify tax compliance services to help you file your self-assessment tax return.

What is Self-Assessment Tax Return?

The Self-Assessment tax return is mandated by law. You cannot trade discreetly without informing HMRC. There are deadlines for submitting your Self-Assessment tax return and paying any owed taxes, and there are penalties for missing those deadlines. All of this can make Self-Assessment appear quite intimidating. However, it doesn’t have to be.

Most employees do not file their individual tax returns. This is due to their status as employees instead of being self-employed, and they receive their pay through PAYE (Pay as You Earn). Every week or month, their salaries will have income tax, National Insurance (NI), pension contributions, and other deductions taken directly from their pay, meaning the amount that goes into their bank account is entirely theirs.

If you are a sole trader, have various income streams (such as working a day job while also earning rental income from a property), or have profited from selling an asset (capital gains), the situation is quite different. The income tax and NI that you need to pay won’t be automatically taken out, as HMRC won’t be aware of what you owe. The purpose of a Self-Assessment tax return is just that.

A tax return is a document you must file with HMRC annually to report the income you receive that isn’t taxed through PAYE. Most self-employed individuals file the form digitally; however, a paper version can also be submitted. HMRC utilizes the details from your tax return to determine your total tax liability. HMRC may sometimes conclude that you are in fact entitled to a tax refund. Even if you pay taxes through PAYE due to working in one job, you will still have to file a tax return if you earn income from additional sources such as self-employment.

Who needs to complete a Self-Assessment tax return?

If you possess any income that isn’t taxed directly, it’s likely you will have to fill out a Self-Assessment tax return. If you are a sole trader, part of a business partnership, or a company director (as a director, you will pay personal tax in addition to the tax owed by your company), you will certainly need to complete one. You must also file a return if HMRC requests it. They will accomplish this through a ‘notice to file’, which is the intimidating letter that consistently comes in a brown envelope.

Income Categories You Need to Report on Your HMRC Tax Return

• If your annual income exceeds £100,000, even if it’s solely from employment (PAYE) or pensions, you’re required to file a Self-Assessment tax return.
• Earning £10,000 or more from savings and investments necessitates a tax return.
• If you have untaxed income, savings, or investments amounting to £2,500 or more (e.g., tips or commissions not included in PAYE), you must declare this income.
• Receiving £10,000 or more from property (before deducting allowable expenses) requires filing a tax return.
• If your property income is £2,500 or more after deducting allowable expenses, you also need to file.
• If you have income from abroad that you need to pay tax on, or if you live abroad but have UK income, a tax return is necessary.
• Income from trusts, settlements, or estates requires declaration.
• Being a business partner or a director of a limited company (unless it’s a non-profit organization, such as a charity) means you need to file a tax return.
• If your State Pension was your only source of income and it exceeded your personal tax allowance, you must file a tax return.
• Making capital gains on profits from selling assets like shares or a second home may require you to pay Capital Gains Tax and file a return.
• If you or your partner received Child Benefit and your income was over £50,000, the High-Income Child Benefit Charge applies, necessitating a tax return.
• Earning over £50,000 and making extra pension contributions may require completing a Self-Assessment to claim back additional tax relief.
• If you wish to make voluntary National Insurance contributions, perhaps to qualify for the full State Pension, you can do so via Self-Assessment.

Guide to Filing a Self-Assessment Tax Return

1. Registering for Self-Assessment

Before filing, you must register with HMRC for Self-Assessment if you are:

• Self-employed or a sole trader
• Earning untaxed income (e.g., savings, investments)
• A landlord receiving property income
• A company director or a business partner

Information Needed to Register:

• Personal details: Name, address, date of birth, and National Insurance (NI) number
• Business details: Start date, nature, address, and phone number
• Unique Taxpayer Reference (UTR), if previously registered

When to Register:

• You must register for Self-Assessment by 5th October following the end of the tax year in which you began earning taxable income.

How to Register:

• Online via HMRC’s website by creating a Government Gateway account.
• Alternatively, register by post using form SA1.
• You’ll receive your UTR (within 14–21 days) and an activation code to access your account.

2. Information Required for Filing a Tax Return

Personal Information:

• NI Number
• UTR
• Government Gateway User ID

Income Details:

• Self-employment income (invoices, bank statements)
• Employment income (P60, P45, P11D forms)
• Property income and expenses (tenancy agreements, receipts)
• Income from partnerships, savings, or investments

Other Details:

• Capital gains on assets like shares or property
• Charitable donations and Gift Aid contributions
• Pension contributions
• Employment benefits or redundancy payments

3. Filing Your Self-Assessment Tax Return

Structure of the Tax Return:

• SA100 (Main Section): Declare income from employment, pensions, charitable donations, and allowances.
• Supplementary Pages: Report self-employment income, property income, capital gains, foreign income, and company directorships.

How to Submit:

• Log in to HMRC’s online services and complete the relevant sections.
• Use compatible software for seamless data transfer and filing.

4. Record Keeping

• Retain records for at least 6 years from the Self-Assessment deadline (31st January).
• Ensure digital records are ready for Making Tax Digital requirements by 2026 (mandatory for VAT payers now).

5. Tax Payment Tips

• Save one-third of your profit for tax payments to avoid surprises.
• Calculate tax owed accurately using advanced tools

6. Additional Notes

• You don’t need a UTR to start trading but will require it to file your tax return.
• Find your UTR in letters from HMRC, your online HMRC account, or by calling the Self-Assessment helpline.

Self-Assessment Deadlines

Key Dates and What to Do

• 5th October

• Register for Self-Assessment if you’ve never submitted a tax return before.

• 31st October

Deadline for submitting paper tax returns (midnight).

• 31st January
  • Submit your online tax return for the previous tax year (midnight).
  • Pay any tax owed for the previous year.
  • Make the first “payment on account” for the following tax year, if applicable.
• 5th April

End of the tax year. HMRC will contact you to file your tax return for the year that just ended.

• 6th April

Start of the new tax year.

• 31st July
  Deadline for the second “payment on account,” if required.
• 30th December

Submit your online tax return if you want the tax you owe to be collected through your wages or pension using your tax code in the following year.

Conclusion

Getting ready for your self-assessment tax return might appear overwhelming, but with adequate planning and organization, it can be a feasible task. By grasping the fundamentals, collecting essential information, and using available resources, you can ensure a smooth and precise filing process, providing you with reassurance about your tax responsibilities.

Top Accounting firms UK and best Tax Compliance Services are there to help you get through these intricacies easily.

Taxation and Compliance Services in London, UK

For all companies, navigating the rough tides of taxation is critical. The worst part about handling tax is the ever-changing tax compliance rules. This is where the expertise of our professional accountants comes in. As a top accounting consultancy in London, we, at SS&CO Global offer comprehensive tax compliance services in the UK. With us, managing your company taxes will never be a problem.