January is one of the most important times of the year as far as tax is concerned because the main deadline for filing self-assessment returns falls on the 31st.
Officials have tried to make the process of completing and submitting tax returns simpler and more convenient – it can all be done online now, for example – but self-assessment can still be daunting for a lot of people.
Four key things to remember when you pay your tax return
Do you have to fill in a tax return?
Not everyone has to complete a self-assessment form – indeed most people don’t.
If you do, you will sometimes get a letter from HM Revenue & Customs informing you of the fact. But you can’t rely on this: instead, it is up to you to work out whether you need to submit an annual return.
If you fail to fill out a return when you should have done so, you could face penalties on top of any tax due.
Self assessment tax myths dispelled
What self-assessment is for
The self-assessment system exists to ensure that people pay the right amount of tax on the income they earn.
In most cases, tax is deducted “at source” – so for workers, their employer takes off income tax and national insurance contributions, while payments from a pension fund are typically taxed by the pension company itself.
But for people who have significant income from other sources, such as self-employment, rent on buy-to-let property, or gains from the sale of assets such as shares or a second home, self-assessment is the only way to pay the tax they owe.
In the past, workers who were in the higher-rate income tax bracket often had to fill in a return even if all their income was taxed at source, but this is generally no longer the case.
This government web page can help you work out whether you need to fill in a return.
Self assessment checklist
Common reasons for filling out a tax return
According to HMRC, you need to fill out a self-assessment return if:
• You were self-employed - you can deduct allowable expenses
• You got £2,500 or more in untaxed income, for example from renting out a property or savings and investments.
• Your savings or investment income was £10,000 or more before tax.
• You made profits from selling things like shares, a second home or other chargeable assets and need to pay capital gains tax.
• You were a company director (unless it was for a non-profit organisation and you didn’t get any pay or benefits).
There are other reasons you might need to fill out a return – check on the link above.
If you have any new sources of income that are not taxed at source, it is up to you to inform HMRC: this should be done by the October 5 that follows the end of the financial year in which the new income started.
Leaving the self-assessment system
If you have filled out a return in the past but now no longer need to – for example, if you have left self-employment – you can get in touch with HMRC and ask for your return to be withdrawn. Call its helpline on 0300 200 3310.
Avoid a late tax return penalty
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