The self assessment tax year can be a source of confusion and stress for many individuals, particularly those who are self-employed or have income from multiple sources. In this article, we will take a closer look at what the self assessment tax year entails, how it works, and what you need to do to stay on top of your tax obligations.
The self assessment tax year runs from 6 April to 5 April the following year, with tax returns typically due by 31 January following the end of the tax year. During this period, individuals are responsible for reporting their income, gains, and deductible expenses to HM Revenue & Customs (HMRC) and paying any taxes owed.
Who needs to complete a self assessment tax return?
Not everyone is required to complete a self assessment tax return. Generally, you will need to complete a tax return if you fall into one of the following categories:
– You are self-employed
– You are a company director
– You have income from savings, investments, or property
– You earn over £100,000 per year
– You receive income from abroad
– You have income from a trust
– You have capital gains tax to pay
– You have claimed expenses or tax reliefs
– You are a higher rate taxpayer
If you receive a notice to file a tax return from HMRC, you must do so even if none of the above apply to you. Failure to file a tax return when required can result in penalties and interest charges.
How to complete a self assessment tax return
Completing a self assessment tax return may seem daunting at first, but it can be broken down into several manageable steps. Here’s a general overview of the process:
1. Register for self assessment: If you have not already done so, you will need to register for self assessment with HMRC. You can do this online or by calling HMRC’s self assessment helpline.
2. Gather your records: Before you start filling out your tax return, make sure you have all the relevant records and documents to hand, including invoices, receipts, bank statements, and P60 forms.
3. Complete the tax return: You can fill out your tax return online using HMRC’s self assessment portal, or you can opt to file a paper return. The tax return will ask you to report your income, gains, expenses, and any tax reliefs or allowances you are entitled to.
4. Calculate your tax liability: Once you have entered all the necessary information, HMRC will calculate your tax liability for the year. You may need to make payments on account if you owe more than £1,000 in tax.
5. Pay any taxes owed: You must pay any taxes owed to HMRC by the deadline, which is typically 31 January following the end of the tax year. Failure to pay on time can result in penalties and interest charges.
6. Keep records: It is important to keep accurate records of your income and expenses for at least five years after the tax year in question. This will help you in case HMRC decides to investigate your tax affairs.
Common mistakes to avoid
Filing a self assessment tax return can be tricky, especially if you are new to the process. Here are some common mistakes to avoid:
– Missing the deadline: Failing to file your tax return by the deadline can result in penalties and interest charges. Make sure you give yourself plenty of time to complete your return and submit it on time.
– Mixing up personal and business expenses: If you are self-employed, it is important to keep your personal and business expenses separate. Make sure you only claim expenses that are directly related to your business.
– Forgetting to declare all sources of income: HMRC has access to a wealth of information about your financial affairs, so it is important to declare all your sources of income on your tax return. Failure to do so can lead to penalties and interest charges.
By understanding the self assessment tax year and following the steps outlined above, you can stay on top of your tax obligations and avoid any unnecessary penalties. Remember, if you have any doubts or questions about filing your tax return, it is always best to seek advice from a professional tax advisor.