You have a tax liability if you earn a taxable income from your wages, savings or pension. The amount of tax that you have to pay will vary, which is why HMRC uses a system to help them calculate how much you need to pay each tax year (which runs from 6 April to 5 April).
It's a legal requirement to submit a Self Assessment if you are a sole trader and earn over £1,000 each tax year — before you subtract tax relief. You must also submit it if you are a partner in a partnership.
You may also want to submit a Self Assessment if you want to claim Income Tax relief or to use as evidence to show that you are self-employed when claiming for other types of allowances.
In this article, we'll look at when you should complete your Self Assessment tax return and how you can pay the tax bill on time so that you aren't faced with any penalties.
HMRC use the Self Assessment system to collect Income Tax from self-employed individuals. The tax is deducted automatically from pensions, savings and wages. Other types of payment must also be recorded in a tax return. A Self Assessment notifies HMRC of earnings that they might not previously be aware of. It will show where the money originates from and how much you have made in a single tax year.
Your Self Assessment should record the various sources of your income, as well as your outward payments. It will help ensure that you are paying the correct amount of tax — HMRC will issue you with a refund if you have overpaid or tell you how much money you owe if you have underpaid.
If you haven't previously submitted a Self Assessment, you will have to register by 5 October. You must file your Self Assessment tax return after 5 April, which is the end of the tax year. The deadline varies depending on the type of form you submit. Paper forms must be sent to HMRC by midnight on 31 October, whilst online forms have a deadline of midnight on 31 January. You must pay the tax that you owe by midnight on 31 January.
There may also be a second payment deadline on 31 July if you have made advance payments. You can also submit an online return by 30 December if you would prefer your taxes to be automatically deducted from your pension and wages by HMRC. This option is only available to individuals who owe less than £3,000, have previously paid tax through PAYE and have met the tax deadline of 31 October for paper tax returns or 30 December for online returns.
Trustees of registered pension schemes or non-resident companies must submit their paper tax returns by 31 January. They cannot send a paper form.
HMRC will contact you directly if they need to give you a different deadline. This will be done either via post or email. The rules are also slightly different for individuals involved in partnerships. If your partnership has an accounting deadline that falls between 1 February and 5 April, but your partner also owns a limited company, the deadlines are as followed:
- 12 months from accounting date for online forms
- nine months from accounting date for paper returns
You should still submit your Self Assessment, even if you have missed the deadline. However, you will have to pay a penalty for missing the deadline.
HMRC will issue you with a penalty if you miss the assigned deadline for submitting your Self Assessment or for failing to pay your bill by the deadline. You will be fined £100 if you haven't registered and paid your tax bill within three months of the deadline. This charge will increase if you still do not complete your Self Assessment or pay the tax. The late payments will also have interest added to them until you pay the required tax.
It is possible to appeal against your penalty if you think that you have a reasonable excuse. This could include reasons such as:
- a close relative dies shortly before the Self Assessment submission or payment deadline
- you were hospitalised after an unexpected illness
- there were service issues with HMRC
- a natural disaster prevented you from filing the tax return or making the payment
- unexpected postal delays
- delays resulting from a disability that you have.
There are also certain situations that aren't considered a reasonable excuse. These include:
- trusting someone else to send the return and they failed to
- the payment bouncing because you didn't have sufficient funds
- not understanding the HMRC website
- you made a mistake on the tax return
- you didn't receive a reminder from HMRC
You won't have to pay the late filing penalty until your case has been settled after you have raised the dispute. All partners may be charged a penalty if the partnership tax is paid late.
Self-employed 'sole traders' who earn over £1,000 before claiming tax relief must submit Self Assessments. Partners in business partnerships also have to submit Self Assessment tax returns.
It's not usually required to send a Self Assessment if your only income is from your pension or wages. However, if you have any of the following untaxed income, it may mean that you have to submit a Self Assessment tax return:
- money from rental properties
- commission and tips
- savings
- dividends
- investments
- foreign income
You may also choose to send a Self Assessment if you want to claim Income Tax relief or so that you can use it as evidence to prove that you are self-employed so that you can claim benefits such as Marriage Allowance or Tax-free Childcare.
You may need to send a tax return if you or your partner earned over £50,000 as you will have to pay the High-Income Child Benefit Charge. Alternatively, you can opt out of Child Benefits so that you don't have to pay tax charges on the benefits at the end of the tax year.
You will need to register for Self Assessment if you did not send a tax return in the previous year. There are different methods for registering, depending on if you are self-employed, not self-employed or registering as a partnership. You have until the tax return deadline to file your Self Assessment.
Self-employed
You will jointly need to register for Self Assessment and Class 2 National Insurance. The deadline to register is 5 October in the second tax year of your business. You may face a fine if you fail to register by this deadline. You'll need a Government Gateway and a password to register. You can register for an account and user if you need to create a business account.
After creating an account, you will be given a Unique Taxpayer Reference (UTR) number within 10 days if you are based in the UK, or 21 days if you live abroad. You will need your UTR to file a tax return.
Not self-employed
You will need to complete an SA1 form to register for Self Assessment. This can be done online or by printing and filling out the form to send to HMRC through the post.
HMRC will send you a Unique Taxpayer Reference (UTR) number 10 days after receiving the form if you live in the UK, or within 21 days if you live abroad. You can use this code to sign in to your personal tax account and register for Self Assessment. The activation code can be replaced if you lose it before you are able to register.
Partner or partnership
The deadline to register as a partner or partnership is 5 October. You will need the partnership's Unique Taxpayer Reference (UTR) number. You must register the partnership if you are the 'nominated partner'.
Limited company partnerships have a different registration process, as do partners who aren't individual and form part of a company or trust.
You can pay your Self Assessment tax bill online via the HMRC website. This can be done in weekly, monthly or annual payments, depending on your preference. It's no longer possible to pay your tax bill at the Post Office. However, you can make the payment on the same or the next day through your online bank account. You can also use telephone banking, CHAPS, or at your bank or building society.
If you have previously set up a Direct Debit to HMRC, the payment can take up to three days. BACs and cheques through the post will also take approximately three days to arrive and get processed by HMRC. You can expect the payment to take approximately five days to process if you have not previously set up a Direct Debit with HMRC before.
Cheques should be made payable to 'HM Revenue and Customs only' at the address HMRC, Direct, BX5 5BD. You will need to write your 10-digit UTR on the back of the cheque, followed by the letter 'K'. The envelope should also contain the payslip that was sent by HMRC if you still receive paper statements. The payment may be delayed if you have written the cheque incorrectly.
To make monthly or weekly payments, you will need to set up a Budget Payment Plan. You will have to be up to date on previous payments to qualify for this. The amount in your plan will be used for your following tax bill, which means that you will pay less at the payment deadline.
You can choose how much you want to pay and the frequency of payments when you set up your Budget Payment Plan. It's also possible to pause payments for up to six months if required.
You can set up your Budget Payment Plan by visiting your online account on the HMRC website and setting up a Direct Debit. Your reference for the Direct Debit is your UTR number, followed by the letter 'K'.
Alternatively, you may be able to pay your Self Assessment tax bill through PAYE if your tax bill is less than £3,000 or you already pay tax through PAYE because you currently receive a company pension or because you are otherwise employed. You must also have set up a paper return by 31 October or an online return by 31 December.
Through this method, HMRC will automatically collect the payment if you meet the conditions, unless you have specifically requested them not to. You won't be able to pay this way if you are not eligible.
Self Assessment taxpayers must register by 5 October. This includes self-employed individuals, those that are not self-employed and partners or partnerships. You can submit your tax returns through the post or online.
The deadline to submit the paper tax returns is midnight on 31 October or midnight on 31 January for online submissions. You must pay your Self Assessment tax bills by midnight on 31 January. There may be an additional deadline on 31 July if you make payments in advance.
You may face penalties if you miss the Self Assessment tax return deadline or fail to make the payment. You will also have to pay interest on the outstanding tax bill. The penalty starts at £100 if you are more than three months late paying your tax bill or submitting your Self Assessment. This will increase if you still do not pay your tax bill.
However, you can appeal the penalty if you missed the Self Assessment tax return deadline or failed to make the payment on account of a reasonable excuse. You will need to write to HMRC to explain your case and you will not have to pay the penalty whilst your case is reviewed.