Tax season can be stressful and confusing, especially when faced with closing deadlines. One of the first things to figure out is whether you even need to complete a Self Assessment tax return. Understanding your tax obligations early can save you time, money, and avoidable hassle later on.
This guide will help you determine if you need to file a Self Assessment, outline the steps to make it easier, and explain the process in detail. Whether you’re self-employed, a landlord, or earning from multiple sources, this guide is here to clarify your obligations and make the process less daunting.
Let’s Begin…
If you’re unsure whether you need to file a Self Assessment, HMRC provides an online tool to help you decide.
What Is a Self Assessment Tax Return?
A Self Assessment tax return is the system HM Revenue & Customs (HMRC) uses to collect Income Tax and National Insurance from people whose income isn’t automatically taxed. Unlike employees whose taxes are deducted through PAYE (Pay As You Earn), anyone earning untaxed income is responsible for reporting it through a Self Assessment.
What Types of Income Require a Self Assessment?
Here are common examples of untaxed income that may require reporting:
- Self-Employment Income: Money earned from freelance work, running your own business, or a side hustle.
- Rental Income: Earnings from letting out property, whether as a landlord or through platforms like Airbnb.
- Investment Income: Dividends, interest, or profits from selling assets like shares.
- Miscellaneous Income: This includes earnings from hobbies, competitions, or other sources exceeding £1,000.
You can complete the Self Assessment online or by post. However, each method has its own deadlines (discussed later), so staying organised is crucial. Filing late could result in penalties, even if you don’t owe tax.
Before You Start, Ask Yourself:
- Do I meet the criteria for a Self Assessment?
- Am I earning from multiple sources that HMRC may not be aware of?
- Have I kept all necessary records to report accurately?
Who Needs to Complete a Self Assessment?
The list of people who need to file a Self Assessment is extensive. Below, we break down the most common scenarios that apply to the 2024/25 tax year:
1. Self-Employment Income Over £1,000
If you’re self-employed, even part-time, and your earnings exceed £1,000 annually, you must file a return. This also applies if your side hustle or freelance work is supplementary to a full-time job.
2. Running a Small Business
Sole traders and small business owners must file a return to report profits and claim allowable business expenses. Keeping detailed records of your income and expenditures is key.
3. High Earners
Anyone earning over £150,000 in a year must file a Self Assessment. Additionally, those earning over £100,000 should note that their tax-free Personal Allowance is reduced by £1 for every £2 over this threshold.
4. Rental Income Over £2,500
Landlords with rental income exceeding £2,500 must file. If your rental earnings are below £2,500, you must still inform HMRC but may not need to complete a full return.
5. Untaxed Income Over £2,500
If you earn over £2,500 from untaxed sources like dividends, casual work, or consultancy, a Self Assessment is required.
6. Claiming Child Benefit While Earning Over £50,000
If you or your partner claims Child Benefit and one of you earns over £50,000, you’ll need to file a return and potentially pay the High Income Child Benefit Tax Charge.
7. Capital Gains Tax
If you’ve sold property, shares, or other investments and owe Capital Gains Tax, a Self Assessment is required to report the gains.
8. Directors of Limited Companies
Company directors are often required to file, especially if they’re paid through dividends or receive additional untaxed income.
9. Trustees or Pension Scheme Managers
Trustees or individuals managing registered pension schemes must file to report the trust’s income or pension contributions.
6. Voluntary Filers
Some people voluntarily file, such as those making Class 2 National Insurance contributions to qualify for benefits like the State Pension.
What Records Do You Need?
To accurately complete a Self Assessment, you’ll need to keep the following records:
Employment Income
- P60 or P45: Summaries of income and tax deducted through PAYE.
- P11D: Details of taxable benefits like a company car.
Self-Employment
- Invoices and Receipts: Proof of income and expenses.
- Bank Statements: Transactions from business accounts.
- Expense Records: For deductions like travel, equipment, and marketing.
Rental Income
- Tenancy agreements and rental receipts.
- Proof of expenses, such as repairs, maintenance, and letting agent fees.
Capital Gains
- Records of the purchase price, sale price, and associated costs (e.g., solicitor fees).
Other Documents
- Dividend vouchers for investments.
- Gift Aid donation records.
- Pension contributions.
When Should You File Your Tax Return?
- Register for Self Assessment: 5 October 2024
- Submit paper tax return: 31 October 2024
- Submit online tax return: 31 January 2025
- Pay tax owed: 31 January 2025
Remember, the UK tax year runs from 6 April to 5 April. Missing the deadlines could result in penalties.
What Happens If You Miss the Deadline?
Missing the filing deadline has consequences, including:
- £100 Fine: Applied immediately for missing 31 January.
- Daily Penalties: £10 per day after three months, up to £900.
- Six-Month Penalty: 5% of the tax owed or £300.
- Interest Charges: On unpaid tax balances.
If you have a valid excuse (e.g., serious illness), you can appeal penalties, but proof is required.
Why We Recommend an Accountant for Your Self Assessment
If you’re interested in saving time, money, and mistakes. An accountant ensures your return is accurate, filed on time, and takes full advantage of deductions and allowances, potentially reducing your tax bill.
Beyond just filing, they provide tailored advice for your unique situation, helping you plan ahead and avoid unexpected costs. With an expert handling your taxes, you can focus on what matters most to you, knowing your finances are in safe hands.
FAQ's
HMRC usually sends notices in April or May to people required to file. If you don’t receive one but believe you should file, use their online tool or contact them directly.
If your circumstances change and you no longer meet the criteria, you can ask HMRC to remove you from the system.
If you overpay, HMRC will automatically refund you or allow you to claim it.
Yes, if you’re self-employed, a landlord, or have other income, you can claim allowable expenses to reduce your tax bill. Examples include business costs, repairs on rental properties, and certain professional fees. Velocity specialises in this.
Yes, you can seek assistance from HMRC’s online guidance, use commercial tax software, or hire an accountant or tax adviser, which is what is recommended.
