Self assessment shouldnt be taxing
PUBLISHED: 13:33 18 March 2011 | UPDATED: 15:17 20 February 2013
Simon Michael with advice on how to respond to the annual missive from HM Revenue and Customs...
Simon Michael with advice on how to respond to the annual missive from HM Revenue and Customs
How does it work?
Self Assessment is a system that some people use to report their income and 'capital gains' (profits on the sale of certain assets) to HM Revenue & Customs (HMRC), or to claim tax allowances against their tax bill. It involves completing a paper or online form called a Self Assessment tax return.
Most people pay tax on their earnings or pensions through PAYE (Pay As You Earn). Under PAYE the employer or pension provider deducts tax on behalf of HMRC, and you don't usually get a Self Assessment tax return.
But if you're not on PAYE, and/or are due to pay additional tax because of other income not taxed through PAYE (for example from property or investments above a certain amount, or because you're self-employed) you have to account for this income through Self Assessment. HMRC uses the figures you supply on the tax return to work out your tax bill, or you can work it out yourself.
It's called 'Self Assessment' because you're responsible for making sure the details you provide are right.
Who gets a tax return and when?
Tax returns are usually sent out in early April, following the end of the tax year to which they apply. (A tax year runs from April 6 to April 5.)
They may also go out at other times, for example, if you want to claim an allowance or repayment or you want to register for Self Assessment for the first time.
The two types of tax return
If you have simple tax affairs including, employees, pensioners and the self-employed with turnover less than 15,000, you'll receive the short four-page return.
If your affairs are more complicated you'll receive the full return. This has 12 core pages and extra pages you may need to complete, depending on what sorts of income you get.
If you receive a return you must fill it in and send it back by the deadline even if you don't think you need one.
Reporting new income and gains
You only have six months from when the tax year ends to report any new income or capital gains. If you become self-employed you have three months after the calendar month in which you began self-employed work to let HMRC know.
Tax return filing and payment deadlines
There are key deadlines for filing (sending in) completed tax returns and paying the tax due. If you miss the filing deadline you may have to pay a penalty. You'll also have to pay interest, and sometimes an extra surcharge if you don't pay tax that's due on time.
If you file your tax return online the deadlines are more generous if you don't want to calculate the tax due yourself. It'll also be dealt with faster and you'll get any repayments due sooner.
How your tax return figures are checked
HMRC has 12 months from the filing deadline to check and make enquiries about your return. Some of these checks are random, while others may be triggered because figures need further explanation.
They can also correct any obvious errors within nine months of receiving your return. They'll usually let you know on your tax calculation, but in some cases may call to clarify a point. You can ask for a review of any such changes within 30 days.
New measures could lead to penalties
Taxpayers could pay penalties of up to 30 per cent of any unpaid tax if they mistakenly misstate their income in self-assessment returns, according to new measures introduced in the Budget.
HM Revenue & Customs (HMRC) will be allowed to levy the fines if taxpayers 'fail to take reasonable care' when preparing tax returns, the Budget documents have revealed.
The new penalties are initially for errors on returns and documents for VAT, PAYE, National Insurance, Capital Gains Tax, Income Tax, Corporation Tax and the Construction Industry Scheme. Self Assessment taxpayers are affected.
For these taxes, the new penalties apply to returns or other documents for return periods starting on or after April 1, 2008 that are due to be filed on or after April 1, 2009.
The penalties will not apply to basic errors, but HMRC has cast the net wider than before so that penalties will apply to most cases when money is income and has been understated.
? If people take reasonable care when completing their returns but still make a mistake, they will not be penalised
? If they do not take reasonable care errors can be penalised; the penalties will be higher if the error is deliberate
? Disclosing errors to HMRC early will substantially reduce any penalty due
? If not sure, get professional advice