Paying taxes can be tedious, but it's an important part of running a business, as well as being a legal requirement. Individuals have to pay Income tax, National Insurance contributions and various other taxes on an annual and monthly basis.
One of the ways that HMRC charge taxes is using data collected from tax returns. The forms make sure that you have paid the correct amount of tax and will help you get a tax rebate if you have overpaid.
There are two ways that you can file a tax return. You can either fill out a form and post it to HMRC, or you can register for the government's online services and complete the form online.
In this article, we'll explain how you can file a tax return online and the advantages of using this method over postal forms.
Can I do my tax return online?
Doing a tax return online is easy and relatively quick. The software that HMRC has developed will update the tax return form so that the only sections that appear are relevant to you and your circumstances. This makes the process more efficient than if you were filling out every answer on a physical form.
There are different ways to register for Self Assessment tax returns depending on your situation. Those that are self-employed have to use a different method than people who aren't self-employed or are in a partnership.
Continue reading for advice on how to register for HMRC online services, the tax deadlines and the reasons why you should complete your tax returns digitally.
A tax return is a report that shows how much income or profit individuals or companies have made. It will detail how much tax should have been paid to HMRC (HM Revenue and Customs).
Usually, tax is automatically deducted from your wages and savings through the PAYE (Pay As You Earn) system. However, those that are self-employed or earn other income have to file their own report so that HMRC know how much to tax them.
You need to fill in a Self Assessment tax return if you are self-employed (sole trader) and earn an income over £1,000 before tax. You should also complete a Self Assessment if you aren't self-employed but earn an income through other means such as renting out a property.
Directors and partnerships of companies also need to file Self Assessments. You might also have to file tax returns if you earn other untaxed income such as commissions, tips, foreign income. Savings, dividends and investments could also be eligible for Self Assessment tax returns.
There are other reasons that you may choose to file a tax return. You can use Self Assessments to prove that you are self-employed and need the form as evidence to claim Maternity Allowance or tax-free childcare.
You will need to fill in a Self Assessment if have to send in a tax return but didn't send one the previous year.
To use the government's online services, you will need to log in using your Government Gateway ID or via the GOV.UK Verify. If you do not have either of these logins, you can register for Self Assessment. There are different ways to do this depending on whether you are self-employed, employed or registering as a partner in a partnership.
Firstly, you will need to sign in to your business tax account. You can add Self Assessment to the services on your account. Make sure to have your Government Gateway ID and password on hand as you will need this information to log in to your account.
After adding Self Assessment to your business tax account, you will be issued with a Unique Taxpayer Reference (UTR). You will need the code when you file a tax return. The first letter should come in the post within 10 days, although it can take up to 21 days if you are abroad. Following this, you will then receive a letter containing an activation code.
Alternatively, you can fill in this form online and then print it off and post it to HMRC.
Your tax return can be filed at any time leading up to the deadline.
If you have not filed your tax return online before, you will need to register using an SA1 form. Use this form if you are a company director, have a foreign taxable income that's annually over £300 or you have a yearly income over £100,000.
After you have completed and submitted your SA1 form, you will be sent a UTR. This unique reference will arrive within 10 days, or 21 if you are abroad. You can use the code to register for online services and sign up for Self Assessment.
As with the self-employed registration method, you will then receive an activation code in the post within seven days. You should use this code to complete the setup of your online services account. A replacement code can be sent if you lose the original letter.
Partner or partnership
To register for Self Assessment, you will need your company's UTR (Unique Taxpayer Reference). This is a 10-digit code that is also referred to as a tax reference. You should also register your partnership on the HMRC website so that you have access to the online services.
You will have three extra months to file your tax return if you do it online. Paper returns have to be filed by 31 October, whereas online returns can be filed the following year on 31 January.
The deadline to register for Self Assessment is 5 October of your company's second tax year. A second payment deadline on 31 July is usually given if you have already started making advance payments towards your tax.
Partnerships with limited companies that have an accounting date between 1 February and 5 April have different deadlines. The tax return deadline is 12 months after the accounting date for online forms and nine months for postal forms.
By filing your tax return online, the tax you owe will be automatically calculated. This means that you can see any tax discrepancies, such as tax that you have underpaid or overpaid. It's a lot faster to file your tax return online as you aren't reliant on the postal system.
HMRC has developed the software for the online services so that it will highlight any obvious errors that you have made on the forms. You can also save your progress if you need to go back to it at another time. HMRC will pre-fill in the tax return with information about you that the database already holds.
You will also receive confirmation as soon as you have submitted the form. This is immediate, compared with the wait that you will have if you send the form via post.
It's important you file your tax return on time, otherwise, you may receive a fine. HMRC will charge you a late fee penalty of £100, even if you didn't have any tax to pay. Penalties will be charged at three, six, and 12 months after the submission deadline if you still don't file your tax return. For example, if you're filing your tax return online the deadline is January 31st. Up to three months after this date, if you still haven't filed your return, you will be fined £100 unless you have a reasonable excuse.
You will also have to pay a penalty if you pay your tax late. Late payments will be charged interest. All partners in a partnership will be charged a penalty if there is a late tax return.
Filing a tax return online is an easy way to save time and make sure that you have sent all of the correct information to HMRC.