What do you remember 1996 for? The European Football Championship in that glorious Summer? A competition between “Macarena” and “Wannabe” for the most annoying tune of the year? Or “Trainspotting” – a film you just couldn't take your eyes off?
On April 6th 1996, when the Internet hadn't really taken over the world yet, self-assessment was introduced – "one of the largest changes in tax administration for decades", according to the National Audit Office.
It's still with us and, very soon, you will have to file your annual personal tax return via the Making Tax Digital system (which VAT has just moved over to).
In this article, Sunny Accountants shares with you everything you need to know about self-assessment including:
- do you have to fill out a tax return?
- how do you register for self-assessment if you do?
- what records should I be keeping?
- what expenses can you claim back to reduce your tax liability?
- what income do you actually declare via self-assessment
- why you should double-check everything before you send your information off
- should you do it yourself or use an accountant?
- self-assessment submission and payment deadlines
- how do you pay the tax you owe
- sign up for our newsletter
Will I have to fill out a tax return?
You will have to complete and submit a self-assessment form if one or more of the following apply to your personal and financial situation:
- Capital Gains Tax on profits from selling assets like a buy-to-let property or shares
- directors of companies must register (unless your directorships are for non-profit organisations like a charity)
- an earning of £2,500 or more in income which has not been taxed (for example, commissions and tips)
- earnings of more than £46,351 in the 18/19 tax year making pension contributions for which you have to complete an assessment to claim back additional tax relief owed
- if you live abroad but you have a UK income
- if you were sent a P800 stating that you owe tax from previous years
- overseas income from abroad you need to pay tax on
- rental property income of more than £2,500 (although you do still need to let HMRC know if rental income was between £1,000 and £2,500)
- savings or investments income was £10,000+ before tax.
- the State Pension you receive is greater than your personal allowance and you have no other source of income
- trustees of a trust or registered pension scheme
- you earned more than £1,000 from self-employment income
- you or your partner's income is higher than £50,000 and you're in receipt of Child Benefit
- your taxable income is in excess of £100,000 for that period
If you wish to top up your National Insurance Class 2 payments so that you qualify for benefits (including the state pension), you should also use a self-assessment form. Please contact us for more details.
If you need to register for self-assessment, please click here.
Do I need anything to hand before I fill it in?
When you're getting ready to fill out your self-assessment form either on paper or online, you should have as many of the following documents and paperwork in front of you as possible:
- as many receipts for expenses as possible would be very helpful (and make sure you hang on to them somewhere safe for 6 years)
- charity or pension contributions which might be eligible for tax relief
- expenses (and records of them) relating to self-employment
- National Insurance number
- P60 or other records displaying income received and tax already paid
- P45 if applicable
- PAYE notice of coding if possible
- Student loans annual payment statement
- Unique Taxpayer Reference (UTR) (10 digits)
- untaxed income from April 6 2018 to April 5 2019 (including income from interest on shares, dividends, and self-employment)
“I can't find my UTR”
If you don't have a UTR yet for your personal taxation affairs, call HMRC on 0330 200 3310 or click here. When applying, have your personal details, company details (if applicable), and NI number ready. You'll receive your UTR number in the post three or so days later.
If you can't find your UTR number, call the same number – the advisor will ask you a few security questions to verify your identity before they'll send you your number in the post.
“I can't find my P60”
P60s are sent by employers at the end of the year – you'll need them so that you can inform HMRC about the amount of tax you've paid on your other work during the tax year.
You can alternatively ask your employer for a statement of earnings or by contacting HMRC for a written statement.
“Where have all my receipts gone?”
You can never have too many receipts however don't be overly concerned if a few have gone missing. Receipts provide absolute proof of expenditure should you be investigated by HMRC at a later date. You should hang on to your receipts for at least 6 years however please bear in mind that some HMRC investigations may go back as far as 20 years into your past.
Bank statements are, in many cases, a suitable substitute for regular payments. If you are claiming mileage, you don't necessarily need receipts but you will need to keep an accurate and up-to-date log of your journeys.
What expenses can I claim back to reduce the tax I have to pay?
You only pay income tax on the income you earn – likewise, if you have a limited company, you only pay corporation tax on profits.
Income or profits is the sum which remains once you have subtracted the total amount of money you've spent on your business from its revenues.
If the sum is zero or less, you pay no income tax (although you have to pay National Insurance if you are a sole trader). Legitimate expenses which you can claim to reduce your level of profitability include:
- advertising and marketing expenses (including social media campaigns, leafleting, allowable entertainment expenses, and website costs)
- allowable clothing expenses (click here for HMRC's guidance)
- business premises costs including business rates, lighting, heating and rent
- financial costs including bank charges, interest on loans, and insurance
- goods or services that you buy in to sell on
- office costs including phone bills, furniture, and stationery
- professional costs including accountancy and legal fees
- staffing costs including wages, commissions, subcontractor costs, and payroll fees
- travel charges including some train or bus fares, parking, and fuel
You're also able to claim on assets, plant, and machinery bought for your business under the Annual Investment Allowance up to the value of £1m a year until 31st December 2020.
You can also claim expenses when working from home – click here to read a Sunny Accountants article on the subject. If you're working full-time from home, a simplified living expenses statement may save you time and money – please ask us about it when you get in touch.
“Can I claim business lunches as expenses?”
Don't wine and dine Don't assume that all of your expenses can be deducted from your income says Emma James from The Number Ninja. Generally speaking, food and drink can't be claimed, but there are exceptions.
What do I declare on my self-assessment form?
The self-assessment form is, by its nature, complicated. It's used by HMRC so that it gains an overall and in-depth understanding of the many types of income a taxpayer can earn during a year.
You will have to declare all of the below on your self-assessment form:
- Blind person's allowance (if applicable)
- Capital gains from the sale of any of your assets including property and shares
- Foreign income
- Gift Aid on your charitable donations
- High income Child Benefit charge
- Income from employment
- Marriage allowance
- P11D (benefits and expenses)
- P60 form (income and tax deduction summary)
- Partnership income
- Payment on account
- Pension income
- Pensions contributions
- Redundancy lump payment or unemployment benefit
- Rental income
- Self-employed income (details of your invoices and business expenses)
- Student loan repayments
- Taxable benefits (received from the government of from any employer)
You may also need to complete one or more supplementary forms in addition to your standard self-assessment.
If you're self-employed, you will need to complete SA103. Landlords declaring property income will need to complete SA105 whereas, if you are declaring capital gains, you need to fill in SA108.
Double-check before you press the button or send off the form
When getting ready to fill out the form (either online or the paper version), go through every single section carefully and enter the information required when needed.
Some sections require you to tick a box to confirm that the information you're sharing is correct. If you forget to tick the boxes, HMRC may declare that your return is incomplete and issue a fine.
When you've filled in all of the form, go through it again to make sure that everything is in order.
What if I make a mistake on my self-assessment?
Given its complexity, HMRC are tolerant of correcting a previously submitted self-assessment declaration as long as the correction is done before the following year's deadline.
In other words, if you make a mistake on your 2018/2019 return which you have submitted to HMRC by January 31st 2020, you have until January 31st 2021 to make amendments.
DIY versus accountant
Should you complete your self-assessment yourself or should you get an accountant to do it?
There is, of course, a cost to using accountants.
What needs to be included on your self-assessment form could be so simple that it doesn't actually require an accountant to complete it for you.
However, the more complex your working life, the more prone to errors someone completing their own self-assessment form will be.
What are the most frequently occurring types of errors on self-assessment returns?
- inputting incorrect figures
- not declaring all sources of income
- not making full use of your tax-free allowances
- donations to charities
- private pension contributions omissions
- signing and dating (for paper forms)
- failure to include supplementary pages (like SA103)
- taking money out of or putting money into a business
Over many years, errors on your self-assessment may mean that you're paying thousands of pounds in tax more than you need to. Even worse, it could mean that you're underpaying leaving you open to an investigation by HMRC and potential fines and penalties.
Submission and payment deadlines
Remember that self-assessments reflect tax years and not calendar years. For the next self-assessment, this is for the tax year 6th April 2019 to 5th April 2020.
If you're filing a paper tax return, you need to submit it by 31st October following the end of the tax year. So, for the tax year ending on 5th April 2020, your form has to be submitted by 31st October 2020 by midnight.
For online/digital returns, you have until midnight 31st January 2021 to submit your self-assessment.
The deadline for the payment of any tax you owe is 31st January 2021 whether you use a digital or paper return.
Missing the deadline will mean that you incur a £100 fee. For the 2016-2017 tax year, 331,000 people were late – late fees are a significant source of revenue for the government.
If you've never registered for self-assessment before, you would need to register by 5th October 2020 for the 2019-2020 tax year.
How do I pay?
You can pay online or by using telephone banking using a BACS payment, CHAPS payment, debit card, corporate credit card, or in person at your bank of building society.
You may also set up a Direct Debit with HMRC so that payments are collected automatically – there's more on how to do that here.
However, if you're submitting your return close to the deadline, we'd recommend that you choose one of the faster payment methods just to be sure it gets there on time.
Can I pay in instalments?
You can pay your tax in instalments using a budget plan however any payments you make are towards your next tax bill, not any outstanding current tax bills you have.
You can contribute towards it weekly or monthly and you can also choose to stop payments for six months.
To join the scheme, you must be up to date with all past self-assessment payments.
What are payments on account?
Many people believe that, when they submit their self-assessment form by the 31st January, they also have to make full and final settlement of their tax bill at the same time.
That's not always the case. We've written about payments on account before – click here for our article.
What if you can't afford to pay?
HMRC do offer taxpayers (people and companies) a “Time To Pay” scheme allowing you to pay off in instalments any current outstanding tax.
The HMRC officer who deals with you will want to know about why you're finding it difficult to pay the tax you owe, what you've done so far to try to raise that money (including taking out a loan), your current income levels, how much you spend, the value of your assets (including investments and savings), and what you're doing to get out of your current financial predicament.
They'll also ask you how much tax you can pay now and how long you think you'll need to clear the remaining tax. If they agree to a plan, they'll ask you to pay what you can afford now and then, in most cases, collect an agreed sum every month by direct debit from your bank account.
HMRC are generally understanding and sympathetic towards “Time To Pay” requests but, whatever you do, please make sure that every direct debit payment is made in full and on time.
Help with your self-assessment
To get ready for self-assessment this year and to lighten the load of submission and payment in coming years, talk to your Sunny accountant today. Call us on 01623 559 362 or email us on [email protected] for professional tax advice and guidance.
For a free chat on how we can help you, please complete the contact form below and we will be in touch.