Do I need to complete a self-assessment tax return?

A majority of UK taxpayers do not have to complete a self-assessment tax return because they are taxed at source. This means that their tax is automatically calculated and deducted from their main source of income (for example salaries from employment or pension received from the state pension) and paid directly to HMRC. Despite this, a substantial number of people still need to complete a self-assessment tax return each year. For the 2022/23 tax year, over 12 million people were required to submit a personal tax return. This article aims to provide clear guidance as to when you may need to do a self-assessment tax return.

What is a self-assessment tax return?

A self-assessment tax return is a form that people must complete to declare any income they receive which has not yet been subject to tax. Officially, the form is referred to as the SA100 tax return. The self-assessment tax return is also known as a personal tax return because it describes the taxes that a personal individual is liable for, as opposed to taxes derived from a company’s earnings or VAT (value added tax).

By completing a self-assessment tax return, you are declaring all your untaxed earnings so that an income tax bill can be generated, and unpaid taxes can be paid. Once you have submitted your tax return, HMRC will use the information supplied to calculate how much tax you owe, so you do not have to calculate it yourself. 

Why do I need to complete a self-assessment tax return?

It is a legal requirement to complete a self-assessment tax return should you have any untaxed income. Income includes any earnings made from trading, such as running your own business, extra money earned through a hobby or a side hustle, rental income, investment income, and also capital gains (where you sell an asset and make a profit).

This is because, unlike any PAYE (pay as you earn) income, tax is not collected by an employer or pension provider automatically on your behalf. Ensuring you have transparently declared your own personal tax liability through the self-assessment system is a legal obligation. Doing so enables you to pay the correct amount of income tax as well as National Insurance contributions (which would ordinarily also be automatically collected by an employer on your behalf).

How will I know if I need to submit a self-assessment tax return?

One way you can check to see if you need to submit a self-assessment tax return is by using HMRC’s online tool. Unfortunately, it is not completely comprehensive and does not cover every instance where you may need to file. Other times, HMRC will write to you with a “notice to file a return” letter, but again this is not always the case. Here are the 10 most common reasons that you will need to complete a self-assessment tax return: 

1.       You have self-employed income. If you work for yourself as a sole trader, then you will not have an employer to collect your income tax for you on your behalf. Instead, you’ll receive 100% of your income directly from your customers or clients and so will therefore be responsible yourself for declaring your income tax and NI owed.

2.       You are a partner in a business partnership. Similar to sole traders, if you are a partner in a business partnership, you’ll have no employer to collect your taxes for you. Effectively, you are two (or more) sole traders working together in the same business. Unlike sole traders however, each individual partner will have to complete a self-assessment tax return and the partnership (the business) will have to submit a partnership self-assessment tax return as well.

3.       You are a shareholder in a limited company and receive dividends. This will often be the case if you are a director of your own limited company as well as an investor. Shareholders are entitled to receive dividends, which although considered as income, they are taxed at a separate dividend rate. You will need to declare these through a personal tax return. 

4.       You have PAYE income of £150,000 and over. Even where the only income you receive is from an employer who deducts your tax directly from your salary, you may still be responsible for filing a self-assessment tax return where your salary is £150,000 or over per year. The good news is that it will be very straightforward to complete and will usually not mean any further tax to pay.

5.       You receive P11d benefits. P11d benefits, are also known as benefits-in-kind which you may receive in addition to your salary if you are an employee or company director. Although the employing company is responsible for declaring your P11D tax to HMRC, and deducting the tax due from your salary, you will still need to complete a personal tax return and include this so that HMRC has a full record of your earnings.

6.       You are a landlord with rental income. Owning property which you rent out to generate an income is subject to income tax and must therefore be declared through a self-assessment tax return. This will include renting out a room in your own residence where you exceed the Rent a Room scheme threshold of £7,500 per year. Although rental property is rarely considered as a trading activity, you’ll nevertheless be able to claim for allowable expenses and can do this through the tax return form.

7.       You need to pay the High Income Benefit Charge (HIBC). All parents are entitled to claim child benefits, but those households where one or both parents earn over £60,000 a year will be subject to the HIBC. This means that although you are still able to claim and receive child benefit payments, you must start to pay 1% back for every £200 over £60,000 you earn.

8.       You have foreign income. If you are a UK tax resident, but have overseas income, they will be subject to UK income tax and capital gains tax (CGT). This means you will have to file a personal tax return to declare this, but you may not necessarily have to pay additional taxes on your foreign income depending on any double taxation agreements between the countries.

9.       You are a trustee or beneficiary of a trust. Trustees are responsible for declaring the income or gains for the trust that they manage, which must be done through a self-assessment tax return. Beneficiaries who receive any income from a trust must also declare this through their own personal tax return. Where the trustee has already paid trust income tax, they will provide the beneficiary with a form R185 which may allow the beneficiary to receive a tax refund so that tax is not paid twice on the same income.

10.  You owe more taxes due to exceeding certain tax relief thresholds. This can occur in numerous different situations, but one example would be where you made charitable donations and allowed the charity to claim gift aid. If the amount of gift aid received by the charity is more than your own personal tax liability, you will be responsible for paying the difference. Another example is where you make pension contributions. Each year, you’re allowed to make up to £60,000, but any amount over will be subject to income tax at your income tax rate which you should declare through a self-assessment tax return.

What do I need to do to complete a self-assessment tax return?

The first thing you must do if you need to complete a self-assessment tax return is to register with HMRC. This lets them know that you are entering into the self-assessment tax system, so that they can provide you with a Unique Taxpayer Reference (UTR) number. You will need this to submit your personal tax return and pay your tax bill.

To complete your tax return, you will need to keep organised records of your earnings and expenses. Allowable expenditure in the case of where you are trading or receiving rental income will mean you can claim for these against your earnings to reduce your tax bill. As a rule of best practice, you should keep your financial records for at least 5 years in case HMRC decides to retrospectively raise a tax investigation against a previous year’s tax affairs. 

When you have a complete tax years’ worth of records you can start completing the SA100 form (alongside any other supplementary pages that may apply). The form will tell you where to enter specific information and figures, as well as provide sections to complete if you need to claim any additional tax relief. Once the end of the tax year has passed, you can submit the tax form. This means that the earliest you can submit is 6^th April and the latest you must complete by is 31^st January.

We recommend that you submit your tax return online. Once you have submitted your figures for your tax calculation, HMRC will tell you how much tax you owe. You must pay this by the tax deadline which is 31^st January. Be aware that you may be asked to make payments on account if your tax bill is over £1,000 and more than 20% of your total income is not taxed at source. If you are worried about being able to pay your tax bill in full, then you should consider different ways you can split your tax bill into more manageable sums or make special arrangements with HMRC.

What happens if I miss the self-assessment tax deadline?

If you have realised too late that you were required to complete a self-assessment tax return and so have missed the tax deadline, then you should be prepared to receive two types of penalties. First, you will receive an automatic £100 penalty for late filing from 1^st February. Secondly, you receive a penalty of 5% of the tax you owe if you are late paying your tax bill. You should strive to both submit your personal tax return and pay your tax bill to prevent fines from increasing.

What to do if you no longer need to complete a self-assessment tax return

Sometimes, personal circumstances change which may mean that you are no longer required to complete a self-assessment tax return. However, this does not include instances where you have no tax liability for the year. For example, if you are a sole trader and have broken even, it will mean you have no tax to pay. Nevertheless, you will still be required to complete a tax return to HMRC to declare this. On the other hand, if you have chosen to no longer work as a sole trader and instead will be going into employed work with no other income streams, then you can contact HMRC to withdraw from the self-assessment system. You may still have to complete one last tax return depending on when in the year you stop becoming a sole trader.

Where a person who was previously in the self-assessment tax system passes away, they will remain in the system. This means that their executor (the person responsible for their estate) must complete their self-assessment tax return for them on their behalf. This needs to be done until the estate has been redistributed as per the deceased’s will or according to the rules of intestacy.

What to do if you no longer need to complete a self-assessment tax return

If this article has helped you understand that you need to complete a tax return, or you are still unsure as to whether this applies to you and you need help, get in touch with us using the online form. If you need to file a tax return for the first time it can be a bit daunting, but don’t worry, our team of friendly accountants is here to help with their expertise, experience, and knowledge. We can support you with registering for self assessment, file your tax return online, and provide tax advice on how to reduce your tax bill too.