Self-assessment was introduced in the 1995/1996 tax year in an attempt to simplify taxation matters. Previously, the burden of ascertaining a taxpayer's liability rested with HM Revenue & Customs (HMRC) and the introduction of self-assessment shifted the onus to the taxpayer.
Do all taxpayers fall within the self-assessment tax regime?
There are specific criteria that determines whether a taxpayer will require to complete a self-assessment tax return or not.
For the majority of taxpayers, their income will be taxed through the Pay As You Earn (PAYE) system. For example, those who are employed or in receipt of occupational pensions (and even state pensions) can have their income tax liability deducted by adjustment to their coding notice. This is done by allocating a taxpayer's personal allowance (currently £12,570) against their income with the balance of income being taxed at the appropriate income tax rates over the various tax bands and collected equally, throughout the tax year.
Where a taxpayer's income is not solely taxed through the PAYE system, it is normally necessary for them to complete an annual self-assessment tax return.
What are the self-assessment criteria?
Broadly, if a taxpayer is in receipt of gross untaxed income, then it is likely that this requires to be disclosed on a self-assessment tax return. The following are examples of such income:
- income from renting property;
- self-employed as a ‘sole trader’
- a partner in a business partnership;
- specific COVID-19 grant or support payments;
- tips and commission;
- income from Royalties;
- income from savings, investments and dividends;
- foreign income.
Please note the above list is not exhaustive.
Other self-assessment criteria:
- making a claim for certain tax reliefs;
- Directors of a company of any size;
- High Income Child Benefit Charge;
- disposal of chargeable assets.
Having determined that I fall within the self-assessment tax regime, when should I register for self-assessment?
A taxpayer should register for self-assessment no later than 5 October following the end of the tax year in which the income or gains first arose, otherwise penalties may be applicable. For example, if a taxpayer starts to receive rental income from May 2022, the latest date for registering for self-assessment would be 5 October 2023 with the first self-assessment tax return covering the 2022/2023 tax year.
How do I register for self-assessment?
Self employed taxpayers require to register for self-assessment as well as Class 2 National Insurance. For first time registration, taxpayers will require to set up a Government Gateway account and will then receive their Unique Taxpayer Reference number (UTR) which is required for submitting self-assessment tax returns. Taxpayers can then set up a business tax account and register for self-assessment and National Insurance through this.
Alternatively, taxpayers can fill in an online form, print this and post it to HMRC.
For taxpayers who are not self employed registration can be done by completing an online SA1 form, with the option to submit the form SA1 online, or print and post it to HMRC. Again, a UTR will be issued.
For taxpayers registering for self-assessment as a partner of a partnership, the partnership must also be registered for self-assessment.
What tax return filing timescales apply to self-assessment?
A taxpayer has until 31 January following the end of the tax year in which they are completing their tax return to submit their self-assessment tax return online. For example, a tax return for the year to 5 April 2023 will require to be submitted online to HMRC by 31 January 2024.
If the taxpayer is not submitting their tax return online and is instead, completing and sending in a paper tax return, the deadline is 31 October following the end of the tax year.
What are the due dates for settling tax liabilities?
Any tax due and payable for a specific tax year will also require to be paid by 31 January following the end of the tax year. Depending on a taxpayer's situation, tax payments on account may also be required if the liability, for example, exceeds £1,000 and is derived from an untaxed income source. Payments on account due for a current tax year are based on the liability for the previous tax year and are held as a credit towards settling the resulting liability for that tax year.
For example, if a liability of £2,000 arose on untaxed rental income received in the year to 5 April 2023, the liability of £2,000 would become due and payable on 31 January 2024 and at the same time, a first payment on account of £1,000 towards the 2023/2024 current tax year liability, would require to be made. A further £1,000 second payment on account would require to be made by 31 July 2024.
When the actual liability for the tax year in which payments on account have been made is determined, there may be additional tax due if the tax payments on account were insufficient to satisfy the liability. Alternatively, there may be a repayment of tax due should the tax payments made exceed the actual tax liability.
As mentioned, there are prescribed deadlines for submitting tax returns and settling tax liabilities and if these are missed, automatic penalties will be applied for late submission of tax returns and late payment of liabilities, with penalties accruing until matters are brought up to date. There are also penalties levied on taxpayers who fail to notify HMRC of their self-assessment status. It is therefore extremely important that taxpayers are aware of these deadlines and ensure that these are adhered to.