“Self-assessment time” is a phrase that’s guaranteed to make self-employed people throughout the UK groan, but it really doesn’t have to be a burden.
If you’ve never had to fill out a self-assessment tax return before but have a feeling you may need to soon, you’ve probably got lots of questions.
Can you do it yourself? Do you even need to complete one? More importantly – are self-assessment tax returns really the pain that most people suggest they are?
Welcome to our simple guide to something which isn’t as bad as you might think it is.
Who needs to file a self-assessment return?
It’s thought that roughly 11.5 million people filed a self-assessment tax return last year.
If you’re self-employed (or about to become self-employed), you’ll number among that crowd. The reason you’ll need to do this is to ensure that you pay the relevant amount of income tax and National Insurance on the profits you make.
There are lots of other people who fall into the self-assessment bracket. They include:
- earners of £100,000 or more as employees or pensioners;
- people who have earned £10,000 or more from savings interest or investment income;
- people who have earned £2,500 or more on untaxed income such as tips or commission;
- those who need to claim higher rate tax relief on pension contributions;
- people who owe capital gains tax from selling assets at a profit; and
- claimants of child benefit, if they (or their partner’s) income is above £50,000.
That list isn’t exhaustive, but it illustrates how wide the self-assessment net is.
In certain circumstances, you may need to file a return even if you’re already on PAYE. This would be the case if, for instance, you receive a private pension or investment income from a property.
How do I register for self-assessment?
Registering for self-assessment is super-easy, when you know how.
Step 1: Register with HMRC online. If you have become self-employed, you should also sign up for Class 2 national Insurance contributions at the same time.
Step 2: Receive your Unique Taxpayer Reference (UTR) number, which HMRC will send you via letter after the registration process.
Step 3: Activate your Government Gateway account.
Step 4: Complete the account setup by logging into the Government Gateway account, which will enable you to submit your first return.
The process above can take up to about 20 working days, so it’s important not to leave it until the last minute.
How do I know if I have to send a return?
HMRC will usually issue a request for a self-assessment return in the form of a one-page document, sent to your home address.
However, they may not do it that way, depending on your circumstances. Instead, they might send you an email asking you to file a return, although this will only happen if you’ve previously signed up for their digital self-assessment reminder service.
Of course, if you filed a return last year, you’ll still be expected to file one this year, unless you asked to be taken out of self-assessment. Similarly, HMRC won’t withdraw a return if you have been self-employed at any time during the tax year (even if it was only for a short period).
If your salary has recently gone over £100,000, HMRC will probably have issued you with a return, and the same goes if you’ve become a company director within the last tax year.
Unsure? Just give them a call! By calling 0300 200 3310 (make sure you have your National Insurance number and UTR (if you have one) handy), you can speak to HMRC and find out exactly what your status is with self-assessment. Never assume that you don’t need to file a return – particularly if your circumstances have changed in one of the ways mentioned above.
How much are the penalties?
It’s thought that around one-million people miss the self-assessment deadline each year.
The penalties start at £100 for missing the January 31st deadline, and rise up to an additional £300 or 5% of the tax due after six months. In some circumstances, HMRC will even charge 100% of the tax due as a penalty.
Read our guide on late filing penalties, here.
Should I do my self-assessment myself?
There’s no reason you can’t, but it requires patience, an eye for detail, and experience.
Some people are admittedly better at the accounting side of their business than others. If you fall into that bracket, you may even enjoy completing your self-assessment. But if not, you’ll understandably fear getting it wrong.
This is why, if you’re self-employed, own a limited company or have rental income, you’ll probably benefit from having an expert undertake your self-assessment. Speak to the Chandlers team to find out more.