Self-assessment is a useful way for HM Revenue and Customs (HMRC) to get people to file tax returns and disclose any taxable earnings they have, so tax may be charged accordingly without having to invest in some complicated way to collect the data from each individual.
Of course, in order to ensure tax is paid on time, a number of deadlines have been set along with penalties for late submission of returns or payment of taxes.
Registering for self-assessment
If you have taxable income that makes you eligible for self-assessment, you will need to register with HMRC by the 5th of October following the end of the tax year that your eligible income falls into. For example: If the income was between the 6th of April 2013 and the 5th of April 2014, you will need to register with HMRC by the 5th of October 2014.
If you are unsure of whether or not you need to register for self-assessment, you can click this link. Alternatively, you can call HMRC on 0300 200 3310.
The penalty for failing to notify HMRC that you should complete a self-assessment tax return is calculated from a percentage of the potential lost revenue or how much tax you would be charged if you notified them on time and completed your tax return. This can range from 0% to 100% depending on factors such as if it was deliberate and how much you help in trying to resolve the matter.
For more information about penalties on failure to notify about tax please see this link.
Completing your self-assessment tax return
There are two ways to complete a self-assessment tax return, either a paper form or electronically.
If you complete the paper form and mail it, the deadline will be by the 31st of October following the end of the tax year. This means for the tax year ending on the 5th of April 2014, you will need to file your tax return by the 31st of October 2014.
If you plan to file electronically you have a late deadline of the 31st of January following the tax year. In the above example, it would be the 31st of January 2015. This means if you can file electronically, you can have three additional months to complete and file your tax return. Most accountants (including ourselves) opt to file electronically to help reduce the likelihood of our clients having a penalty for late filing.
If you are late with filing your tax return, even if you have no tax to pay and are only a day late, you will end up with a penalty of £100. If you are later than three months the penalty will increase by £10 per day up to £900. If the return is still not filed by six months another £300 or 5% of tax due (whichever is greater) will be added. After being twelve months overdue, another £300 or 5% of the tax due will be added on top. This means the total penalty for twelve months would be at least £1,600.
The above penalty can be further increased if it is twelve months late and you are found to be deliberately not completing and filing your tax return, by up to 100% of any tax due or £300, whichever is higher.
Paying your self-assessment tax
Regardless of whether or not you complete your return by paper form or electronically, you will need to pay any tax due by the 31st of January following the end of the tax year. This is the same deadline as for the filing electronic tax returns.
If your tax is high enough, you will also have a payment on account for next year due at the same time, followed by a second payment on account due on the next 31st of July. Using the example of the 5th of April 2014 tax year this would be the first payment on the 31st of January 2015 and the second on the 31st of July 2015.
If you do not pay your tax on time you will receive a penalty. After thirty days then you will have to pay an additional 5% of the total tax amount due. When the tax due becomes six and twelve months late a further 5% of the tax due will be added to the penalty.
These penalties are in addition to the late filing penalties which means failure to file on time can soon build up to a substantial cost for you and your business.
If you would like any further advice or assistance with the above, or with helping to ensure your tax return is completed on time, please do not hesitate to contact us.