If you are self-employed, a company director, or earn over £100,000 per annum, you will most likely be familiar with the requirement to complete a self-assessment return. But these aren’t necessarily the only parameters. You may also need to file a return if you:
- are in receipt of a pension,
- receive child benefit payments,
- have overseas or investment income,
- have income from a trust,
- have letting income or if you have made capital gains,
- have underpaid or overpaid tax, or wish to claim for expenses.
In unusual circumstances, HMRC may simply request that you complete a return.
Once you are aware that you need to complete a self-assessment return for the first time, you must inform HMRC no later than 5th October following the end of the tax year in which the relevant income arose.
As the name suggests, a self-assessment return requires making a declaration of your taxable income to HMRC. This declaration needs to be made by 31st October following the end of the tax year, or if you file your return online, you are allowed an extra three months (i.e. 31st January).
A UK tax year runs from 6th April to the following 5th April and this is the period for which you will need to account for any income received on your self-assessment return.
The Process
When considering what income to include, you should start by looking at any monies received during the tax year and determine whether or not they should be included. Typically, any payments received from employment or self-employment must be declared, including any bonuses or overtime payments. You may also need to include repayment of expenses, but in most cases, you should be able to claim relief for these, which is explained later. Personal loans, which are repayable to your employer or company, may also need to be reported to HMRC, but only the interest element is taxable. You also need to include any other benefits you may have received, for example, company cars or health insurance.
Once you have included all employment income, now turn your attention to other unearned income, such as bank interest, dividends, letting income (net of expenses), pension payments and foreign income. Finally, you need to consider whether you have made any capital gains on the disposal of assets (including buy-to-let property, antiques, and investments). Generally, there are capital gains tax exemptions for selling your own home, but the situation gets more complicated if you have recently moved out (due to separation or divorce) or if you have been renting out the property at any time.
It’s good to know that there are various income tax reliefs available to you for business expenses incurred personally. You can also get relief for most pension contributions. These reliefs are deducted from your total income to work out your net income.
Working Abroad
The rules in relation to working overseas are especially complex and you will need to keep records of the time spent abroad, how much of that was spent working and details of amounts paid, as well as any tax withheld.
Provided your taxable income is below £100,000, you are entitled to a full personal allowance. You receive a reduced personal allowance for taxable income up to £123,700, but above this level there is no personal allowance.
There are further allowances for dividends (2018/19: £2,000) and for savings interest (depending on your other income). The total of your allowances are deducted from your net income to work out your taxable income.
UK Tax Rates
UK income tax rates are: 20% for taxable income up to £35,000; 40% for the next £103,649; and 45% for amounts above that.
Once the amount of tax due has been calculated, this must be paid by the 31st January of the following year.
You might also be required to make a payment on account in respect of the current tax year. This is normally calculated by reference to the tax paid in the previous tax year, although no payment on account is due if the amount is less than £1,000. It is possible to request a reduction in the payment on account amount if you believe your income will be lower than the previous year. Payments on account are paid in two equal instalments – the first on 31st January (with the final payment of the previous tax year) and the second on the 31st July.
Finally, it is important to include your taxpayer reference followed by the letter ‘K’ when making your tax payment – just to make sure HMRC credits the correct account!
We can provide you with all the help you require with your self-assessment returns and to take advantage of our Free Basic Self Assessment Offer for 2018/19, please contact us asap. Offer ends January 31st 2019.
Glossary of Terms
Tax year – this runs from 6th April to 5th April of the following year
Tax return – your statement of income and claims for reliefs made
Income – any payments received by you either from UK or overseas payers, plus potentially any entitlements from trusts
Business expenses – expenses which you can claim relief for against your income, thereby reducing the tax payable
Payment on account – tax payable in advance based on your previous tax liability
