Do I need to complete a Self Assessment?

Tax season can be a stressful and confusing time for many people. And, for some individuals who are either self-employed or receive income not automatically deducted via your employer's payroll system, there may be uncertainty as to whether you need to complete a Self Assessment. 

Understanding whether you actually need to complete a Self Assessment is the first step toward demystifying the tax filing process and avoiding unnecessary stress.

In this guide, we'll break down the key factors that determine whether you should complete a Self Assessment, and provide you with insights, tips, and guidance to make the process as smooth as possible. Whether you're self-employed, a business owner, or simply unsure about your tax obligations, we’re here to help. 

Use HMRC’s tool to see if you need to submit a Self Assessment tax return. 

Self Assessment explained

A Self Assessment tax return is a system that HM Revenue & Customs (HMRC) uses to collect UK Income Tax and National Insurance. 

Most employed individuals have the convenience of having their taxes automatically deducted from their wages, pensions, and savings. However, the tax landscape becomes notably more complex when you venture into additional income streams, such as freelance work, self-employment, or side-hustles. 

In these cases, the onus is on you to report your income and expenses accurately through a Self Assessment tax return.

This process can be completed online or via traditional postal submission, but it's essential to be aware of the deadlines. The Self Assessment procedure, in its simplest terms, truly lives up to its name: you assess your earnings and expenses independently before sending the calculated tax owed directly to HMRC.

But, before you consider taking the steps to complete your Self Assessment, it’s important to assess whether you actually need to fill it out in the first place.

Am I required to submit a Self Assessment?

The need to complete a Self Assessment tax return hinges on various factors, and it's important to determine whether you fall within the categories of individuals who need to file one. 

With this in mind, here's a breakdown of the situations in which you might be required to file a Self Assessment tax return in the UK (rates accurate as of tax year 2022/23) :

• Self-Employment Income Over £1,000: If you earn income through self-employment, and the annual sum exceeds £1,000, you will typically need to file a Self Assessment tax return.

• Running a Small Business: Entrepreneurs and business owners must complete a Self Assessment if they run a small business, including being a registered sole trader.

• Corporate Partner Earnings: If you've earned more than £1,000 in a given tax year in your capacity as a corporate partner.

• High Earners: If you are employed but earn an annual income surpassing £150,000 (Increased from 2023/2024).

• Rental Income Over £2,500: If your rental income exceeds £2,500.

• Untaxed Income Over £2,500: Any income that remains untaxed, and exceeds £2,500.

• Capital Gains Tax Obligations: If you have capital gains tax to pay.

• Claiming Child Benefit with a High Income: If you're a high earner and claim Child Benefit, you may need to complete a Self Assessment.

• Trusteeship or Pension Scheme Responsibility: Being a trustee of a trust or a registered pension scheme.

• State Pension as Sole Income Above Personal Allowance: If you solely rely on State Pension income and it exceeds the personal allowance.

• Received a P800 from HMRC: If you receive a P800 notification from HMRC indicating that you didn't pay enough tax the previous year.

• Director of a Limited Company: If you are a director of a limited company, whether or not you need to complete a Self Assessment depends on how you receive your income and whether you're already taxed through PAYE.

Additionally, completing a Self Assessment can be a strategic move if you wish to make voluntary Class 2 National Insurance contributions. Doing so can help you qualify for benefits like the State Pension.

For property owners, it's important to note that if you've sold residential property in the UK with capital gains tax to pay after 5th April 2020, you must inform HMRC and settle the tax within 60 days. Non-residents selling any UK land or property, even when no tax is due, must also adhere to similar regulations.

Understanding these criteria and staying informed about tax rules is crucial in determining whether you need to undertake the Self Assessment process and meet your legal obligations as a taxpayer in the UK.

When should I fill out a Self Assessment Tax Return?

To avoid penalties, it's crucial to meet the submission deadlines for Self Assessment. In the UK, the deadlines are as follows:

• 31st October for postal submissions.

• 31st January for online submissions.

The UK tax year runs from 6 April to 5 April of the following year. For instance, the 2023/24 tax year covers the period from 6 April 2023 to 5 April 2024.

If, for any reason, you can't make your final payment by the 31st of January, you can explore the possibility of setting up a Time to Pay Arrangement with HMRC, as per the guidelines available on the Government website.

When to Begin Your Self Assessment Tax Return

Once you know when the respective deadlines are for submitting your Self Assessment, the earlier you start the process the better. If you haven't already registered for Self Assessment, do so now and ensure you store all your client invoices, business receipts, and bank statements securely. 

While paper copies are an option, they can be damaged or lost. Digital storage is safer, more space-efficient, and can help you stay organised, especially when using accounting software like QuickBooks. 

By maintaining your records throughout the year, you'll significantly reduce the workload when it's time to complete your Self Assessment tax return.

What happens if I miss the deadline?

Missing the Self Assessment deadline can lead to various penalties and financial consequences. Some of these ramifications may include:

• Automatic Penalty: If you miss the Self Assessment deadline, whether you owe tax or not, you'll incur an automatic penalty of £100 from HMRC.

• Three-Month Delay: If you continue to neglect filing your return and it remains overdue for three months after the deadline, an additional daily penalty of £10 will be imposed for the subsequent 90 days. This can result in a total penalty of up to £1,000.

• Six-Month and Twelve-Month Penalties: Further penalties come into play at the six-month and twelve-month marks. These penalties may vary based on the amount of outstanding tax. The specific penalties for these periods can be significant, and they can compound the financial consequences of missing the deadline.

• Interest on Unpaid Tax: In addition to late filing penalties, interest and additional penalties are charged on any unpaid tax that you owe. This interest will continue to accumulate until the tax is paid in full.

It's important to note that if you are submitting a paper tax return and miss the deadline, the same penalty regime applies to you. Regardless of the format of your submission, HMRC takes the deadline seriously, and it's in your best interest to file your Self Assessment on time to avoid these penalties and financial burdens.

What records do I need to complete a Self Assessment?

Completing a Self Assessment tax return requires the inclusion of various key financial details to enable HMRC to calculate the tax owed on your earnings. In addition to income details, you may also need to provide the following financial information:

• P60 Information: Your P60 information, which summarises your income, tax, and National Insurance contributions from your employment, should be included in your Self Assessment.

• 10-Digit Unique Taxpayer Reference (UTR): The 10-digit UTR provided to you by HMRC is essential for identification and communication purposes. Include this reference in your tax return.

• National Insurance Number: Your National Insurance number is a fundamental component of your tax records and should be provided on your Self Assessment.

• Expense Records for Self-Employment: If you are self-employed, you'll need to maintain records of any expenses related to your business. Keep copies of invoices for outgoing expenses and other relevant documentation throughout the year.

• Details of Untaxed Income: You should also report any untaxed income derived from self-employment, dividends, and interest on shares.

• Maintenance of Business-Related Expenses and Assets: It's crucial to keep track of other business-related expenses and assets that you've relied upon. For example, if you use company vehicles, maintain transportation logs for accurate expense reporting.

• Records of Rental Income (for Landlords): If you are a landlord, keep detailed records of rental income, including rental agreements and related documents.

It's important to collect and organise this information well in advance, rather than waiting until the end of January to search for these records. Proactive record-keeping throughout the year is key to simplifying the Self Assessment process.

These detailed records not only allow for the accurate completion of your tax return but also serve as evidence should you ever need to respond to HMRC inquiries or questions about your tax return. Keeping meticulous records is an essential part of fulfilling your tax obligations and maintaining financial transparency.

Make Self Assessments easy with QuickBooks

QuickBooks is your ideal partner in simplifying the often complex Self Assessment process. With our accounting and tracking software, you can effortlessly track expenses from various sources, ensuring a painless process when it's time to input them into your Self Assessment. 

You'll have a real-time view of your financial transaction, providing you with the necessary insights to prepare your tax returns efficiently.

What’s more, our software also automates calculations and expense categorisation, saving you valuable time and allowing you to concentrate on your core business activities. And, our AI technology takes it a step further by helping you optimise your tax savings. It tracks all business expenses and benchmarks them against similar enterprises, ensuring you're well-informed about the financial health of your business.

Our award-winning experts are always available through free live chat, seven days a week, to address any questions or provide assistance as needed. With QuickBooks, you can embark on your Self Assessment journey with confidence.

For full information on how Quickbooks can aid you in the Self Assessment process, explore our step-by-step tutorial.

FAQs

Will HMRC tell me if I need to do a Self Assessment?

HM Revenue and Customs (HMRC) takes a proactive approach when it comes to informing individuals about their Self Assessment obligations. Each year, typically in April or May, HMRC sends out Tax Returns or notices to file online to all individuals within the Self-Assessment system.

If you receive a Tax Return or a notice to file online, it is a clear indication that you must complete and submit a Self Assessment tax return to HMRC, even if you are an employee and all your income is already taxed under the PAYE system. The only exception to this rule is if you have legitimate grounds for requesting the withdrawal of the tax return.

It's important to note that you might not receive a paper communication from HMRC regarding the need to file a return. Instead, you could be alerted by email about this requirement if you've signed up for HMRC's digital self-assessment email reminders service.

What happens if I forget to fill out a Self Assessment?

If you forget to file your Self Assessment tax return, you will face penalties and interest charges. The filing deadlines are critical, and missing them incurs a £100 late filing penalty. If you file your tax return and pay your bill within three months after the deadline, you'll also be charged interest and a penalty on the late payment, in addition to the £100 fee. 

For longer delays or failing to pay on time, the penalties increase, and interest accumulates on the unpaid tax. You can appeal these penalties if you have a 'reasonable excuse' for not filing on time, such as a family member's death, unexpected hospitalisation, or technical issues with HMRC's portal.

Regarding VAT returns, businesses with a turnover of £85,000 or more must submit returns - typically every three months. 

How much can I earn before doing a self assessment tax return?

Whether you need to complete a Self Assessment tax return in the UK depends on various factors, primarily your income sources and financial activities. In general, if you earn over £1,000 of untaxed income during a tax year, you are required to file a tax return.

The actual tax you owe will depend on your total income, eligible deductions, and applicable tax rates. For the self-employed, this typically includes Income Tax and National Insurance. If your income remains below the personal allowance of £12,570, you won't be liable for Income Tax. 

Feel you’re better informed about completing your Self Assessment? The QuickBooks blog covers a wide range of business-related topics – it’s all part of our mission to help small businesses grow. Stay compliant with QuickBooks

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