An introduction to self-assessment

It is a fundamental part of the self-assessment system that responsibility lies with you, the taxpayer, to file tax returns and pay the right amount of tax, at the right time - you must not wait for HMRC to ask.

Tax returns

Tax returns covering income for the year ending 5 April 2018 were issued on or after 6 April 2018, and will consist of a main tax form and backing schedules, but only if you are one of the minority of taxpayers who still uses paper returns.

If you need other schedules you will have to ask for them or you can download them in PDF format. The completed full return has to be submitted to HMRC by 31 October 2018 for the paper return or by 31 January 2019 for the online return.

Most taxpayers now receive a single sheet of paper, which is a "notice to make a return", setting the requirement to complete a return and therefore triggering the penalty legislation if the return is filed late. If you prefer to file on paper, you can download the relevant forms from the HMRC website.

If you have taxable income or capital gains for 2017/18 and have not received a tax return, you must advise your tax office by 5 October 2018 at the latest. There is a fixed penalty if you fail to do so.

There are automatic penalties for late filing of tax returns. Failure to submit the tax return by 31 January incurs a £100 penalty, even if you have no tax to pay, or you have paid any tax owed on time. After 3 months, a penalty of £10 is charged for each additional day, up to maximum of £900 for 90 days.

Returns that are filed 6 months late are then charged the higher of £300 or 5% of the tax due, this penalty is repeated again if the return is then filed 12 months late.

In serious cases you may be asked to pay 100% of the tax due as a penalty for returns that are 12 months late.

Amendments, investigations, and record keeping

You have one year from the due filing date to make any amendments to the return (that is 31 January after the return was due to be filed). HMRC may correct obvious errors or mistakes within nine months of receipt of the return.

Within a period of 1 year from the date the tax return was submitted, HMRC will have a right to make enquiries to check that the tax return has been correctly completed. No reason for the enquiry need be given.

All records relating to the return should be kept during this period. If trading or rental income is involved, all records should be kept for a further four years.

Determinations

If a return is not submitted by the due date, HMRC can, within 5 years of the filing date, make an estimate to the best of its information and belief of the amount of tax due.

This amount of tax will be payable without appeal, but will automatically be superseded when the return and self assessment are sent in within 12 months of the date of the determination.

Otherwise the amount on the determination becomes final and can no longer be appealed against, even if no tax proves to be due on the income of the year.

Payment of tax

Payments on account of income tax (and class 4 national insurance contributions) for a particular tax year will be due on 31 January in the tax year and 31 July following the end of the tax year.

These payments will be based on one half of the total income tax liability (less any tax deducted at source) for the previous tax year.

You have the right to reduce payments on account if you believe the income tax for the current year will be lower than that for the previous year.

However, you may be charged interest if the reduction is more than it should be and penalties can be charged if you did not take care with the application to reduce.

Payments on account will not be required where each payment works out at less than £500 or where 80% of the tax is collected at source.

Example:

Tax year Final liability Payments on account Balance due
2017/18 £6,400 £5,500 £900
2018/19 £7,200 £6,400 £800
2019/20 £7,800 £7,200 £600

 

  Amount due
Payment date On account Balance Total
31 January 2019 £3,200 £900 £4,100
31 July 2019 £3,200 - £3,200
31 January 2020 £3,600 £800 £4,400
31 July 2020 £3,600 - £3,600
31 January 2021 £3,900 £600 £4,500

Surcharges and interest

An automatic surcharge of 5% will be levied on any 2017/18 tax outstanding at 2 March 2019 and any 2018/19 tax outstanding at 2 March 2020, and a further surcharge of 5% will apply to any tax still outstanding at 31 July 2019 and 31 July 2020 respectively. There is a right of appeal against the surcharge on the grounds of reasonable excuse, although lack of funds is not regarded as a reasonable excuse.

In addition, interest will run on tax (and surcharges and penalties) paid late, from the due date of payment to the actual date of payment. HMRC will pay interest on amounts overpaid, from the date of payment (or the due date if later) to the date of repayment.

If you know that you will have difficulty paying a tax liability, you can ask HMRC for a "time to pay" agreement, which although attracting an interest charge, will remove any late payment penalties if agreed before the payment becomes due.

In addition, interest will run on tax (and surcharges and penalties) paid late, from the due date of payment to the actual date of payment. HMRC will pay interest on amounts overpaid, from the date of payment (or the due date if later) to the date of repayment.

Self-assessment for employees

For employees, self-assessment is not too drastic. The PAYE system means most employees should pay the correct amount of tax at source. An employee with relatively straightforward tax affairs is unlikely to be asked to complete a tax return.

Tax codes

The main cause of under or overpayments of PAYE is actual benefits in kind being different from the estimates included in the tax code.

If there are underpayments of tax, they may be collected by direct demand or, if modest, carried forward as an adjustment to their tax code for the next tax year, but one.

Self-assessment allows up to £3,000 to be carried forward in this way, provided HMRC is given all the relevant details by 30 December following the end of the tax year if the return is filed online.

Information deadlines

So that employees can complete their tax returns properly, information deadlines are imposed on employers:

  • Forms P60 must be provided to employees by 31 May following the end of the tax year
  • Copies of forms P11D and P9D must be provided to relevant employees by 6 July following the end of the tax year
  • Form P45 has a part for the employee to retain

Online filing

There is now an established procedure for filing tax returns online.

Over the next few years, HMRC are expected to roll out Making Tax Digital (MTD).

Under this, businesses will be required to keep digital accounting records and file information about their transactions (in total) on a quarterly basis.

This will not commence before April 2020, except for VAT-registered businesses with turnover of more than £85,000; they will be required to file their VAT returns through MTD from April 2019.

Table of key dates

Please refer to our key dates and deadlines for filing and payment dates.

Please contact us if you would like help with your self assessment returns.

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