Tom Biggs ACA CTA explains the scenarios for exactly when you need to think about filing a tax return and what to consider.<\/h2>\n
As a firm of accountants and advisors, some of the most common questions we hear from new clients are:<\/p>\n
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- ‘Do I need to complete a tax return<\/a><\/span>?’<\/li>\n
- ‘Does this actually apply to me?’\u00a0<\/li>\n
- ‘What happens if I should’ve filed\u00a0a return, but didn’t?’<\/li>\n<\/ul>\n
If you’re asking yourself these questions then you’re not alone.\u00a0<\/p>\n
It’s common to many business owners, freelancers, and individuals.\u00a0<\/p>\n
The honest answer is that not everyone does but if you should and you then don’t, that will cause you financial headache’s and problems.\u00a0<\/p>\n
That’s why we’ve produced this blog post, so that you don’t have to rely on guesswork and can instead reference this tax return checklist<\/span> to provide you with a clear indicator as to what you need to do.\u00a0<\/p>\n
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<\/a><\/span><\/span>Quick links to sections covered in this blog post include:<\/p>\n<\/p>\n
1. What is a Self Assessment Tax Return? (A simple\u00a0explanation)<\/h2>\n
A Self Assessment Tax Return is what you use to tell HM Revenue & Customs (HMRC) about any of your income that hasn’t already been taxed automatically<\/span>. In simple terms this means if HMRC doesn’t already know about your income through Pay As You Earn (PAYE) then you’ll usually need to report it yourself.\u00a0<\/p>\n
Examples of this can include:<\/p>\n
Once you submit your tax return then HMRC calculates how much you owe and informs you as to when it needs to be paid, this is referred to as payments on account<\/a><\/span>.\u00a0
<\/p>\n2. Quick checklist: Do any of these apply to you?\u00a0<\/h2>\n
If you tick any of the below boxes, then there’s a strong chance that you’ll need to complete a Self Assessment Tax Return.\u00a0<\/p>\n
a) You’re self employed (even part-time)<\/span><\/p>\n
If you earn more than \u00a31,000 from self-employment<\/span>, you’ll usually need to file a tax return.\u00a0<\/p>\n
This is particularly relevant to:<\/p>\n
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- Influencers<\/a><\/span><\/li>\n
- Freelancers<\/li>\n
- Sole traders<\/li>\n
- Side hustles that generate additional income streams<\/li>\n<\/ul>\n
The above applies even if it’s not your main source of income.\u00a0<\/p>\n
b) You’re a company director<\/span><\/p>\n
If you run a limited company<\/a><\/span>, you’ll often need to complete a tax return and this is the case especially if you’re taking:<\/p>\n
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- Dividends<\/li>\n
- A combination of dividends and salary<\/li>\n<\/ul>\n
c) You have untaxed income<\/span><\/p>\n
This is a scenario that often catches people out. It’s important you understand and remember this, if HMRC\u00a0haven’t already taxed your income, then it’s your responsibility to declare it<\/span>!<\/span><\/p>\n
Examples of that income can include:<\/span><\/p>\n
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- Interest generated from savings<\/strong><\/span><\/li>\n
- Rental income<\/strong> from property<\/span><\/li>\n
- Dividends<\/span><\/li>\n
- Foreign income<\/strong><\/li>\n<\/ul>\n
If tax hasn’t been deducted then the onus is on you to report it<\/span>. <\/span><\/p>\n
If you’ve sold assets and made a gain then you’ll need to report this for Capital Gains Tax<\/a><\/span>. A gain refers to the profit made when you sell, gift, or exchange an asset for more than you paid for it. The increase in value is taxed. Assets can include:<\/span><\/p>\n
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- A second property<\/span> (you’ll also have to file a<\/span> CGT 60-day return<\/a><\/span>)<\/span><\/li>\n
- Shares and investments<\/strong><\/li>\n<\/ul>\n
e) HMRC requests one<\/span><\/p>\n
If you receive a notification from HMRC to complete a return<\/span> then you must do it. It has to happen even if you don’t think you owe anything.\u00a0<\/p>\n
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3. Scenarios where you might not need to complete a tax return<\/h2>\n
You may not need to file if:<\/p>\n
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- All your income is taxed through PAYE<\/li>\n
- You don’t have any additional income streams<\/li>\n
- HMRC hasn’t contacted you to file a return<\/li>\n<\/ul>\n
Just be warned, mistakes can easily happen based on assumption that you’re covered, when actually you’re not!<\/p>\n
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4. A reality check<\/h2>\n
As mentioned earlier, most personal tax issues don’t come from people deliberately ignoring matters. They come from people assuming, and not fully comprehending tax legislation<\/span> in relation to their personal finances:\u00a0<\/p>\n
‘I didn’t realise this applied to me’.\u00a0<\/p>\n
Examples of this can include:<\/p>\n
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- Starting a side hustle this year<\/li>\n
- Extracting dividends for the first time<\/li>\n
- Renting out a property<\/li>\n
- Enjoying a particularly strong financial year<\/li>\n<\/ul>\n
So, if this sounds familiar then review this post, consult a tax professional<\/a><\/span> if you’re not sure, but above all else, don’t just assume you don’t need to file a tax return.\u00a0<\/p>\n
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5. What happens if you should file, but don’t?<\/h2>\n
Unfortunately many people don’t consider this until it’s too late. If you fail to complete a tax return<\/span> when required then:<\/p>\n
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- You may receive an automatic \u00a3100 penalty<\/li>\n
- More penalties can build up over time<\/li>\n
- Interest can be applied to any unpaid tax amount<\/li>\n
- HMRC may also open an enquiry<\/a><\/span> into your financial affairs<\/li>\n<\/ul>\n
Furthermore HMRC increasingly has access to more data than people may care to realise. Don’t therefore rely on hoping you won’t be picked up would be\u00a0our advice.\u00a0<\/p>\n
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<\/a><\/span><\/span><\/p>\nCan I just ignore this?<\/span><\/p>\n
In short, no.\u00a0<\/p>\n
If you’re likely to need to be filing then ignoring it can lead to:<\/p>\n
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- Automatic penalties<\/li>\n
- Increasing fines<\/li>\n
- The stress of dealing with HMRC to then file a return subsequently<\/li>\n<\/ul>\n
As a rule it’s better to check early when it comes to tax<\/strong> than end up fixing things later.\u00a0
<\/p>\n6. When do you need to register?<\/h2>\n
If you need to complete a tax return then you usually have to register by 5 October<\/span> following the end of the tax year<\/a><\/span> in which you made your income.\u00a0<\/p>\n
Don’t leave it too late, this delays the whole process and can leave you at risk of penalties.\u00a0<\/p>\n
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7. A simple way to think about it<\/h2>\n
If you’re still unsure if you need to fill in a tax return then consider if the following apply to you:<\/p>\n
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- You earn money outside of PAYE<\/li>\n
- You have multiple sources of income<\/li>\n
- Your financial situation has changed significantly this year<\/li>\n<\/ul>\n
Here’s the thing, by the time you get to January:<\/p>\n
- \n
- The deadline is close meaning there’s not much time<\/strong> to prepare and file<\/li>\n
- Pressure<\/strong> then likely increases<\/li>\n
- Mistakes<\/strong> become more likely to occur<\/li>\n<\/ul>\n
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8. Getting clarity through professional advice<\/h2>\n
You may have ticked one of the bullet points from above. So, now you know a tax return may be needed, but you aren’t totally sure as to why. It’s sensible to pause and ask this question, better to double check than get things wrong.\u00a0<\/p>\n
That’s why we recommend a quick conversation with us<\/a><\/span> which can:<\/p>\n
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- Confirm <\/strong>if you really do need to file a return<\/li>\n
- Help you plan ahead and budget<\/strong><\/li>\n
- Provide you with peace of mind<\/strong> as to what needs to be reported<\/li>\n
- Ensure you don’t fall foul of late filings, missed payments, and penalties<\/li>\n<\/ul>\n
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9. What to do next?<\/h2>\n
If you think, or you’ve confirmed, that you need to file a tax return, the next step is to understand:<\/p>\n
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- How the process works<\/li>\n
- The information you’ll need to supply<\/li>\n
- The deadlines you need to plan around<\/li>\n<\/ul>\n
Here is a link to the tax return page and aide memoire<\/a><\/span> we supply to our clients shortly after the beginning of the new tax year. Whilst considerable, it’s an indicative but not exhaustive list of the kinds of items relevant to this process. \u00a0\u00a0\u00a0<\/p>\n
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10. A tax return summary<\/h2>\n
So remember, you’ll likely need to register and complete a tax return if you:<\/p>\n
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- Are self-employed<\/li>\n
- Receive any untaxed income<\/li>\n
- Are a company director<\/li>\n
- Have received a request to file by HMRC<\/li>\n<\/ul>\n
If none of the above is applicable, you may not need to apply but it’s most likely worth checking in with us<\/a><\/span> to make sure.\u00a0<\/p>\n
- Help you plan ahead and budget<\/strong><\/li>\n
- Pressure<\/strong> then likely increases<\/li>\n
- The deadline is close meaning there’s not much time<\/strong> to prepare and file<\/li>\n
- Shares and investments<\/strong><\/li>\n<\/ul>\n
- Rental income<\/strong> from property<\/span><\/li>\n
- Interest generated from savings<\/strong><\/span><\/li>\n
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