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All about HMRC Self Assessment

Have you ever heard about income tax? Well of course! We all come across this word in our day-to-day life. We, being a citizen of our country, pay a l

Have you ever heard about income tax? Well of course! We all come across this word in our day-to-day life. We, being a citizen of our country, pay a little amount of our income to the government in the form of income tax. It is the product of tax rate times the taxable income. The tax we pay is used by our government for the development and welfare of our country. No matter where you live, you have to pay tax if your income is more than the set limit. Generally, a tax paid by us is not the same for all, rather it depends on your income. The more you earn, the more tax you pay.

Talking about the U.K, the government has its non-ministerial department which looks after the collection of the taxes like- income tax, Corporation Tax, Capital Gain Tax, Value added tax, Inheritance Tax, Stamp Duty Land Tax, and excise duty. It also looks after the payment of other forms of state support which include- The child Trust Fund, Tax Credit, etc; it also looks towards the insurance of national insurance members, looks after the management or enforcement of regulatory regimes like the national minimum wages, etc. This tax collection department was established on 5 April 2005. This non-ministerial department is composed of- A Chairman, Chief Executive, and Non-executive board members. It was established by the Commissioners for Revenue and Customs Act 2005) as a replacement for Island Revenue and Customs and Excise. 

 Let’s have a look at its key responsibilities- 

Key Responsibilities 

  • It thoroughly monitors the flow of money to the Exchequer.
  • Provides funds for the U.K public services.
  • They look after the protection of security before and at the border. 
  • Helps families going through financial crises.
  • Looks after the administration of child Benefits
  • It has customers in the form of UK individuals and businesses. 
  • Responsible for the collection of both direct and indirect taxes 
  • Responsible for looking after environmental taxes.
  • Custom duty
  • Excise duty
  • National Insurance
  • Tax Credits
  • Responsible for the recovery of the student loan

The above mentioned are some of the key responsibilities of HMRC. Till now you have become aware of the fact that HMRC is responsible for the collection of taxes but have you ever thought about how to collect these taxes? If not! Then think. In the coming paragraph, I will be discussing the HMRC tax collection method. So! Stay tuned.  

Since every governmental body works on a certain framework, so does the HMRC. HMRC uses a system known as the “Self Assessment” for tax collection. In this system, you send your tax return to HMRC every year. Your tax return file should contain all the information about your income, source, and the amount you pay as a form of tax which you need to submit at or after the end of the tax year that is- 5 April.  

Now the question may strike your mind: who should file the Self Assessment tax return? This is a very important question that needs to be answered before I tell you the procedure to file the Self Assessment tax return. 

The individual will be eligible to fill in the Self Assessment tax return only if- 

  • Their self-employment income is more than £1,000. 
  • Their renting out property income is more than £2,500.
  • Their untaxed income (including commission and tips) is more than £2,500.
  • The money they earn from their investments or savings is more than or equal to £10,000.
  • You are a director of a company or a trustee of a registered pension scheme or any trust.
  • The combined income of you and your partner is over £50,000.
  • The individual’s taxable income is more than £100,000.
  • The state pension is greater than the personal allowance, etc. 

If the individual satisfied the above mentioned criterias then he/she is eligible for filing “Self Assessment tax return”.  Filing a Self Assessment tax return is not a one step  an individual has to go through a series of processes. Let’s see the detail- 

Step 1- Registering for Self Assessment

To file the Self Assessment tax return successfully, the very first step that an individual goes through is the registering process. They need to register themselves with HMRC before the 5th of October (deadline) of the same year in which the tax year ended. The registration process is a one-time process, which means you need not register again and again.  

Step 2- Completing and Filing a Self Assessment Tax Return

The second step is completing & filing a Self Assessment tax return. This could be done in three ways- 

  • By going to the official website of HMRC
  • By using FreeAgent (a tax return software).
  • By downloading the form and filing it.

For sole traders and partners, completing and filing tax returns requires other pieces of information like- the UTR number, expenses record, invoices records and record of other business income whereas for limited company directors tax return filing requires information like- the UTR number, their P60 & P11D, proof of dividend received.

The individual can file their Self Assessment tax return to HMRC before the midnight of 31st January of the year next to that of the end of the tax year and for filing paper tax returns 31st October follows the end of the tax year. 

Step 3- Paying any tax and National Insurance owed- 

Now! Once the individual has completed and filed their Self Assessment tax return they can view their bill on- 

  • The “view your calculation” section on the official website of HMRC.
  • In the personal tax or business tax account respectively. 
  • In the case of filing through FreeAgent, the individual can view their bill by clicking on the “Self Assessment” option located in the taxes menu followed by selecting the tax year. After that, they have to click on the “Tax Breakdown” option to see their bill. 
  • In case of filing through offline mode, the individual will get their bill via post. 

The individual has to pay the required amount to HMRC before the deadline (31st January). It is always advisable to file your Self Assessment tax return to HMRC on time or before. There are many benefits of filing an early tax return. These are- 

  1.    Know your liability– Filing an early tax return helps you to know your liability. As a result, you will be able to claim for tax relaxation and could save yourself from paying huge penalties imposed by HMRC.
  2. Get your repayment in your account- in case your tax repayment is due then in that case submission of an early tax return will help you to get your tax repayment faster and earlier. 
  3. The July payment on account- You generally make payment based on the income tax liability you received the previous year. Therefore, if you calculate your tax liability before the time you will be able to know about your upcoming liabilities on tax. In case you earned less as compared to the previous year then you can deduct the amount on your final payment accordingly.
  4. More time for tax planning- early return will give you the opportunity and time to grab and implement your tax planning opportunities. 
  5. You can get a mortgage- You need to submit the income proof to HMRC through documents like SA302 and HMRC tax year overview. Providing all the information to the lender will help you to buy a new property for yourself. 

In case the individual has not submitted their Self Assessment tax return to HMRC on time then in that case they have to pay penalties to HMRC.

Given below is the list of penalties charged – 

Late Filing Late Payment Penalty
Miss filing deadline of 31st January Automatic £100
30 days late 5% of tax due
3 months late Daily penalty £10 / day for up to 90 days. 
6 months late 5% of tax due or £300, if greater.
6 months late 5% of tax outstanding at that date
12 months late 5% or £300 if greater, unless the taxpayer is held to be deliberately withholding information that would enable HMRC to assess the tax due
12 months late Based on behavior:

  • deliberate and concealed withholding 100% of tax due, or £300 if greater.
  • deliberate but not concealed 70% of tax due, or £300 if greater.

Reductions apply for prompted and unprompted disclosures and telling, giving and helping.

 

There are some frequently asked questions regarding the Self Assessment tax return. Read the below lines to get a clear vision of it.  

FAQ

Does HMRC remind us about Self Assessment?

Yes, HMRC does remind you about the Self Assessment tax return to check whether the information you provided is correct or not.

Is there any option of doing correction in case of mistakes?

Yes, since mistakes could be made by anyone, therefore individuals who have made a mistake while filing a Self Assessment tax return can correct it after 3 days (72 hours) of filing it. 

What are the documents needed while filing the Self Assessment tax return?  

Here is the list of documents needed to file the Self Assessment tax return to HMRC- 

  1. 10-digit UTR (unique taxpayer reference) number.
  2. Individual’s National Insurance number.
  3. Details of untaxed income.
  4. Records of expenses.
  5. Records of the charity you made.
  6. The record of income you did on previously paid tax. 

How to file the Self Assessment tax return? 

Filing for the Self Assessment tax return is a four-step process-  

  1. Register yourself.
  2. Complete and file the Self Assessment tax return.
  3. Pay the tax bill 
  4. Keep the record safe. 

How to track the tax return? 

To keep an eye on the current status of your tax return first you make a call on 0300 200 3300. 

Does HMRC charge penalties?

Yes, HMRC does charge penalties. To know more about it read the above-given table. 

What should I do if I am not able to pay my due tax?

In case you are stuck with paying your due tax then in that case you should immediately reach out to HMRC. HMRC could extend your period to a few months depending on your condition. 

What are the different Self Assessment tax return payment options? 

There are many options available to proceed your payment with. Some of them are- cheque, debit card, bank transfer. 

Do not forget to provide correct information about your reference number ( 10 digit UTR number).

Could I connect to HMRC via Twitter?

Yes, in case you have any queries you can contact or connect with HMRC via Twitter. All you have to do is to visit @HMRcustomers and ask your queries.

Final Words

This article will give you all the important information about the Self Assessment tax return to HMRC. If I have to summarize “Self Assessment” in one sentence then I will say that it’s a tax collection system used by HMRC. Being a responsible citizen you have to pay your tax on time and file for a “Self Assessment” tax return. Filing for a ‘Self Assessment’ tax return on time is very important as your carelessness will lead you to pay penalties or fines. These penalties imposed keep on increasing with time so, it’s better to file it before the due date and keep yourself updated and tension free. I will suggest you keep a check on the last submission date and submit your tax return before the due date. 

Thank You!