A beginner's guide to self-assessment tax returns

For many people who have never been self-employed or had to declare some other income from different sources, tax returns are a necessary thing to understand. Unlike employees, tax isn’t calculated for you and taken from a salary each month if you are self-employed.

Self-assessment tax returns are a vital process for HMRC in making sure people are paying the correct amount of income tax and national insurance for each tax year, especially for those in self-employment.

Completing a tax return is the first step in working out your tax bill, and getting it wrong can lead to confusion, paying more tax than you owe, being liable for fines and penalties, as well as unnecessary stress.

Read this beginner’s guide to understand how to complete and submit a self-assessment tax return in greater detail.

What is a self-assessment tax return?

Put simply, a self-assessment tax return is a taxpayer completed tax return declaring your income and from that HMRC or your accountant can calculate how much income tax you owe for the previous tax year. This includes all untaxed income you may have.

Who needs to file a self-assessment tax return?

While a lot of HMRC tax collection is automatically deducted and calculated from your salary if you are an employee, there are still a lot of people who will need to submit a self-assessment tax return:

• You are self-employed or receive self-employed income.
• You earn property income. This could be as a landlord with a multi-property portfolio, or if renting out a single property.
• You are part of a business partnership.
• You qualify for paying the high income child benefit charge.
• You are a company director whose income is not covered under the Pay As You Earn (PAYE) system.
• You want to claim tax relief on employment expenses (for expenses in excess of £2,500 in a single year).
• You earn foreign income.
• You owe capital gains tax.
• You earn income via savings, investments or dividends.

It is best to be safe than sorry for all of the above, it never hurts to contact and accountant or HMRC and ask. For many of the above points, self-assessment tax returns are relevant for income over £1,000, namely from being self-employed, as a company director, or from property income. Any income that has been earned in the UK by a foreign national also needs to be declared to HMRC.

What to include in a self-assessment tax return?

As anyone who has worked with HMRC before will know that being detailed and precise is vital when submitting information. Everyone will need to provide their National Insurance number as part of the tax return application. The information required on a tax return may be different depending on your specific circumstances.

Tax returns are important documents and can be difficult to understand and complete. Here at dns accountants, we can complete your self assessment tax return for you to ensure all the information is correct, you pay the right amount of tax and you avoid unnecessary penalties.

Details of your total income for the relevant tax year

This one might seem obvious, but it’s important to know exactly what taxable income needs to be declared. Income from self-employment is arguably the most common and most important type that needs to be declared. However, it is not limited to this, and any money gained through dividends from savings and investments, or rental income, foreign income or capital gains should be fully detailed.

If you have an employer that pays you a salary, include a P60 for that tax year to declare that income and illustrate how much tax, national insurance contributions, pension contributions and so on that have been deducted automatically.

If you receive self-employment income make sure that any relevant documents are submitted. This includes bank statements, receipts and invoices, and details of your company’s annual turnover for that tax year.

Documents relating to employment

Submitting a P60 has already been mentioned, but other employment documents are required by HMRC in certain situations. If you have left a role in the relevant tax year, include the P45 your previous employer will have issued.

If you have received other taxable income that is not detailed on the P60, like bonuses or commissions, include details of that as well. If you have been issued any P11D or P9D documents for any benefits or expenses relating to your work, these should be submitted. A P2 coding notice may also be necessary if your PAYE code is not standard.

Details of tax relief

Some income or financial activity is eligible for extra tax relief. These include but are not limited to;

• Charitable donations.
• Pension contributions.
• Certain business expenses.
• Any Gift Aid you have received.

Methods of submitting a self-assessment tax return

First and foremost, anyone looking to submit their first self-assessment tax return needs to register with gov.uk. This will generate your Unique Taxpayer Reference (UTR), which is a key part of being able to submit a self-assessment tax return. Note that registration can take up to 20 days, and should therefore be done in good time for the submission deadline. Have your National Insurance number ready and double check it is correct. After that, choose whether to submit your tax return online or by post.

Paper tax return

The traditional method of submitting a tax return is still available to anyone that wishes to use it. You can download and print the SA100 from gov.uk, complete it, and post it to HMRC. A guidance document is also available to download to help fill out your self-assessment. Be careful to complete all aspects of the form, as some taxpayers will need to fill out supplementary pages depending on the type of business owner they are, for example, if you are declaring capital gains.

Be mindful of the deadline for a postal self assessment tax return - October 31st - make sure to send it off in good time.

Online tax return

HMRC has developed a robust and reliable system to submit your tax return online, which is available to all taxpayers filling out a self-assessment. Once you have received your Unique Taxpayer Reference, set up a Government Gateway account using the activation code sent to you. This activation code is a one time use and should not be needed again.

Next, use the HMRC Self-Assessment Online Service to complete your self-assessment tax return or get an accountant to complete it for you. Make sure to be careful of the need to complete supplementary pages as mentioned previously. Check everything before submitting, though it is worth noting that one can amend a self-assessment return within a certain window of submission. This can most easily be done online.

The online service has some real benefits over the traditional method of self-assessment.

• HMRCs system automatically calculates your tax bill when you have input your information. No system is faultless, so ensure that you double check the calculations.
• The self-assessment deadlines for online tax returns is later - January 31st - later than the postal deadline, giving you a better chance of avoiding late returns.
• There is no risk of your self-assessment tax bill being lost in transit, as online submissions are immediately received by HMRC.
• The online tax return portal is a quick and helpful way to access and amend information if needed.
• You are able to save the progress when filling out a self-assessment online, and easily change any information that may have been entered incorrectly before submission.

How to pay the owed tax?

Once the application process has been finished, and the full tax bill has been generated, it is time to pay HMRC the calculated national insurance contributions, income tax, student loan repayments. Payment must be made by January 31st following the submission of your self-assessment. Before sending payment, make sure your unique taxpayer reference is input correctly to avoid later confusion.

Physical payments

There are various methods available to pay tax that is due. You can post a cheque to HMRC for the full amount of the tax bill, or by giving your local bank branch a pay-in-slip provided bt HMRC. Digital payment methods are also available and widely utilised online.

Digital payments

Paying tax using a bank transfer, direct debit or debit card is the quickest and most accessible method. The Clearing House Automated Payment System (CHAPS) is accessible through HMRC’s self-assessment online portal. It is worth noting that credit cards are no longer accepted.

Advance payments

Depending on the amount of the tax bill, some people will opt to pay the tax owed through a budget payment plan. This can be set up online, be paid weekly or monthly, and works as an advance payment towards the next tax bill. Depending on the amount you choose to pay, and how often, the accumulated sum will be deducted once the self-assessment form for the next tax year. If you overpay via the budget payment plan, you will be eligible for a refund. This option may be especially helpful for the self-employed, as spreading out the cost instead of paying as a lump sum limits the financial impact, one which could jeopardise your ability to remain in self-employment.

Payments on account

Payments on account’ are advance payments towards your tax bill (including Class 4 National Insurance if you’re self-employed).

You have to make 2 payments on account every year unless:

• your last Self Assessment tax bill was less than £1,000
• you paid more than 80% of the previous year’s tax you owed, for example through your tax code or because your bank had already deducted interest on your savings

Each payment is half your previous year’s tax bill. Payments are usually due by midnight on 31 January and 31 July.

If you still have tax to pay after you’ve made your payments on account, you must make a ‘balancing payment’ by midnight on 31 January next year.

If you know your tax bill is going to be lower than last year, you can ask HMRC to reduce your payments on account. You can do this either online or by post.

Late payments

If you fail to pay your tax bill before the tax year deadline, a fine of £100 will be issued immediately. You will then also be liable to pay interest on your tax bill. Further fines and higher interest will be applied if you continue to pay income tax, national insurance, or do not submit your self-assessment. HMRC can charge penalties of up to 100% of your tax bill, and they will suspect you of attempting to hide untaxed income, even if the mistake was benign.

Conclusions

For anyone who is a self-employed worker, receives taxable benefits, has a rental property, earns income from other sources completing a tax return is necessary. Failure to declare income to HMRC can lead to penalties and fines. Such fines could be devastating to your finances. Considering that early submission is an option, there is no excuse for failing to complete and submit your self-assessment.

As much as this process might seem confusing for newer taxpayers, making sure to keep all your records up to date, referring to a beginner’s guide like this, and asking specialists like dns accountants for help can all help to make self-assessment submission much easier.

Experienced and knowledgeable accountants such as dns can advise on the whole process of self-assessment, solving issues if they arise and advising you on all your financial needs.

For self-employed workers especially, the assistance dns can provide is invaluable. We will make sure every detail is accounted for; child benefit, allowable expenses related to your business, other income you may receive, we have expertise with everything and have ensured thousands of self-assessments have gone smoothly.

Simply, call us today on 03330603066, or you can also e-mail us at enquiry@dnsaccountants.co.uk. to get help and advice on all your self-assessment tax return needs.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.