Self Assessment Return FAQ’s
Self Assessment Return FAQ’s Answered by Havenhursts Accountants of Cardiff
It’s that time of year when if you are self-employed, own a business or are a limited company you should be planning or submitting your Self Assessment Tax Return.
Self Assessment is what HM Revenue and Customs also known as HMRC, collect Income Tax using an online system. If you are employed by a company and are paid via PAYE then your tax is deducted automatically from your wages compared to a business owner or being self-employed when you pay your UK taxes after you have completed your Self-Assessment with HMRC.
You are classed as self-employed if you run your business yourself and are responsible for its success or failure.
By completing a Self-Assessment tax return, it is your way of paying tax that you owe. HMRC don’t always tell you if you need to complete a Self-Assessment return and it is your responsibility to tell them if you think you need to complete one.
When completing a Self-Assessment tax return it should include all of your taxable income and any capital gains tax. Capital gains tax is the tax payable on the profit when you sell, or ‘dispose of’ an ‘asset’ that has increased in value. In summary, it is the gain you have made that you are taxed on not the total amount of money you make when you sell it.
If you are self-employed and you run a business in the UK you will need to complete an HMRC tax return every year. When you have done this you then make a payment for the tax you owe on your personal income. This includes sole traders and those in a business partnership. Unlike people who are paid on a PAYE basis, you pay tax on your historical income rather than monthly so you should always have a separate account in which you save your estimated monthly tax that you will owe and need to pay.
As an example, you have to complete your Self-Assessment by 31st January of each year. In January 2021 you would be submitting your taxable earnings for March 2019 up to March 2020 so your tax payments are always behind.
Limited company directors may need to pay tax on salary and dividends paid through your company, however, you may not be required to file a Self Assessment if your only income is already taxed through PAYE. You should always check this with HMRC or your qualified accountant.
If you submit your tax return after the deadline of midnight 31st January, or you are late paying your tax you will receive a penalty from HMRC. The penalty is £100 for it being up to 3 months late, and more it is later. You will also be charged interest on late payments.
HM Revenue & Customs State:
You need to send a tax return and pay your tax bill through Self Assessment if in the last tax year you were:
- a self-employed sole trader earning more than £1,000
- a partner in a business partnership
They also say you may need to file a Self-Assessment return if you have untaxed income from:
- renting out a property
- tips and commission
- savings, investments and dividends
- foreign income
There is an HMRC tool you can use to check if you need to file a Self-Assessment tax return and this can be found here.
How much do you have to earn before you pay tax in the UK?
You should always file a Self-Assessment tax return however much you have earned if you don’t pay tax monthly via a PAYE (Pay As You Earn) payroll system. You should also file a Self-Assessment tax return if you have exceeded £1,000 from self-employment or £2,500 from other untaxed income. As an example this can be from tips you have received or by renting out a property.
How much can you withdraw from your pension before you start paying tax in the UK?
You can earn or receive up to £12,500 in the 2020-21 tax year (6th April 2020 to 5th April 2021) and not pay any tax as this is classed as your Personal Allowance. If you earn or receive more than this then you have a responsibility to pay tax on anything above this amount and you need to do this via a Self Assessment submission.
How much can I take from my pension tax-free every year?
You can take up to 25% of your pension pot tax-free every year and you only pay tax on the other 75%. Your 25% tax free amount doesn’t include your £12,500 Personal Allowance.
When does a Self-Assessment need to be filed by?
You have to file your Self-Assessment by 31st January but you can do it in the months prior to this as long as it is after the end of the tax year it applies to. The UK tax year runs from 6th April to 5th April.
If you are employed and completing a Self-Assessment you can complete and submit your Self-Assessment as soon as you have your P60 Form from your employer.
When should you register for your Self Assessment tax return?
You must register with HMRC to advise them you need to submit a Self Assessment tax return by 5th October of each year. As an example, if you need to make a submission for the 2019/20 tax year, you must have registered by 5th October 2020.
What happens when you register for a Self Assessment submission?
When you have registered with HM Revenue and Customs (HMRC) they will send you your 10-digit Unique Taxpayer Reference (UTR) and an activation code by letter, within 8 weeks. This enables you to set up your account for the Self Assessment online service. You should always keep a note of the references for future submissions and any changes you may need to make.
When do you pay your UK tax after your Self Assessment submission?
You pay your tax for the previous tax year in 2 payments, this is usually by midnight on 31st January and 31st July. Each payment is half of your previous year’s tax bill. Because of the coronavirus pandemic (COVID-19), the government made an allowance so you were able to delay making your second payment with no interest or penalty charges being made if you pay before midnight on 31st January 2021 deadline.
How and can I stop doing Self-Assessments every year?
If you are issued with a notice by HMRC to file a tax return and you feel you no longer need to complete an assessment then you can call HMRC and ask for your tax return to be withdrawn and for it to be removed from Self Assessment in the future.
If I am on PAYE, do I need to do a Self Assessment tax return?
Most taxpayers who are paid via PAYE (Pay As You Earn) do not have to fill in a tax return. There are some reasons why you should still complete a Self Assessment even if you are paid via PAYE and these can be found here: https://www.gov.uk/self-assessment-tax-returns/who-must-send-a-tax-return
Do I have to complete a Self Assessment every year?
If you have submitted a Self Assessment tax return in previous years then you should continue to do so to show your income, capital gains, as well as to claim allowances and tax reliefs. If you think you no longer need to complete one then you should call HMRC to let them know the reason why and they will remove you from the system.
Can HMRC view my bank account?
HMRC has the authority to check personal information about taxpayers they are investigating and they do this by issuing a ‘third party notice’ to banks and other institutions.
If I am owed a refund from tax I have paid via my Self Assessment how do I claim it?
You can claim a refund by logging into your HMRC online account and going to ‘Request a repayment’ from the left-hand side menu. You should always allow 4 weeks for your refund to be credited into your bank account. If you have tax due to be paid in the next 35 days you may not get your refund and this will be deducted from what you owe.
Do I include my running costs on my Self Assessment submission?
If you are self-employed you should detail the running costs of your business in your return as long as they are ‘allowable expenses’. These are then deducted to calculate your taxable profit.
Example of Turnover, Allowable Expenses and Taxable Profit
£40,000 – turnover
£10,000 – allowable expenses
£30,000 – taxable Profit
You should be really careful to only claim business expenses that are allowable otherwise HMRC can investigate your Self Assessment return for the year as well as previous years if they think you are making inaccurate or fraudulent claims.
What are allowable expenses?
Some examples include:
- Office costs like stationery or phone bills
- Travel costs, which can be fuel, parking, transport fares
- Clothing expenses if a uniform
- Staff costs such as salaries or subcontractor costs
- Items you purchase to sell which can include stock and, or raw materials
- Financial costs such as insurance or bank charges
- Business premise costs, including heating, lighting, business rates
- Costs for advertising or marketing, including website, flyers and, or digital marketing costs
- Training courses for you or your team if they are related to your business
You are unable to claim expenses if you use your £1,000 tax-free ‘trading allowance’.
What costs are you able to claim as capital allowances?
If you use traditional accounting you are able to claim capital allowances when you buy an item that you use within your business, examples are:
- Business vehicles – cars, vans, lorries
Be aware that if you use something for business as well as personal use you are only able to claim allowable expenses for the business costs.
As an example:
Your mobile phone costs for the year are £300, however, £150 of this is for personal use and calls. This means you can claim £150 of business expenses.
If you work from home you can sometimes claim a proportion of your costs for:
- Council Tax
- Mortgage interest or rent
- Internet and telephone use
You do, however, have to find a way of demonstrating how you have proportioned your costs to both your business and home. This can be by the number of rooms you use for business or the amount of time you spend working from home.
What are simplified expenses?
Simplified expenses are flat rates that can be used for:
- Working from home
- Living on your business premises
Simplified expenses removes the need of using complex calculations to work out your business expenses for your Self Assessment.
What happens if I don’t pay my tax in the UK?
The maximum penalty for income tax evasion in the UK is seven years in prison or an unlimited fine, for submitting false documentation and a deliberate and inaccurate Self Assessment to HMRC
How far back are HMRC allowed to investigate your tax returns?
In normal cases, HMRC investigation time limit is 4 years and this means they are able claim back money owed from incorrect tax returns for the last 4 years. If a person has been careless and submitted tax returns with mistakes then HMRC can go back 6 years. If HMRC suspect tax evasion that is deliberate they can investigate as far back as 20 years.
It is your responsibility to ensure that you submit accurate and true Self Assessments every year.
What happens if you don’t declare income on your self assessment tax return?
If HMRC investigates and finds income has not been declared they will charge interest and penalties, as well as any tax owed. In more serious cases of tax evasion, prosecution and imprisonment is a possibility.
Do I need an accountant to complete my Self Assessment return?
You don’t legally have to have an accountant to complete your tax return, however, business owners and anyone self employed often do as it removes a task they are unfamiliar with doing, enabling them to focus on their business. It also allows a professional accountant to do it accurately and efficiently, as well as them looking at the financial performance of your business and how things could be improved.
How complicated is a Self Assessment tax return?
If you have never done it before it can be daunting, however, if you spend time to understand the process some people find it relatively simple.
Hayvenhursts Accountancy Services pride themselves in offering a professional and personalised service to each one of their clients. We are experts in all types of accountancy services and can help you and your business with your annual Self Assessment Tax Return to HMRC. We don’t just offer a standard accountancy service, we get to know you and your business and will work with you to ensure your business has all the accountancy and expert business services that you need now and in the future.
For Hayvenhursts your business accounts are more than a set of numbers that have to be submitted as your annual return to HMRC. We support you to see your financials clearly and help you understand how your company is performing, as well as where any opportunities are which will minimise your tax burden.
Accounts preparation is a fundamental part of our business and it doesn’t matter if you are a sole trader or a multi-national organisation we will provide an account preparation service to meet your needs.
- Prepare accounts to help complete your Self-Assessment tax return
- Produce financial statements to file at Companies House and abridged accounts to ensure the minimum amount of your financial information is made public
- All accounts are prepared to agreed timescales and deadlines
By looking at your company’s financial history we can:
- Identify areas where we can assist in minimising your tax liability
- Identify areas of the business that give you the most opportunity to make improvements
- Use the accounts to help you measure where you are in meeting your goals and any actions you need to take
- We take the time to explain your accounts to you so that you understand what is going on financially within your business, helping you to plan for the future
We provide joined-up thinking across all of your account preperation and HMRC returns ensuring your financial statements are clear and presented in a way that makes it easy for HMRC to process.
Contact us today and we can answer any questions you may have or arrange a call with one of our accountants who will assist you in your account preparation and Self Assessment Tax Return submission wherever you are in the UK.