How to fill out your self-assessment tax return
Tax does not have a reputation for generating excitement, but last year more than 385,000 taxpayers left it until January 31 — deadline day — to file their tax returns.
Roughly 10.4m self-assessment returns were filed on time, but 870,000 people missed the midnight cut-off for filing returns for the year to April 5 2015.
This year, it is likely that more people than ever will be required to file a self-assessment return because self-employment is at record levels. Over the next fortnight or so, millions of taxpayers will get to grips with the annual chore. However, there are many practical reasons not to leave self-assessment — and payment of any outstanding tax for the year — until the eleventh hour.
Who needs to self-assess online?
Individuals with straightforward tax affairs, who pay income tax directly through Pay As You Earn (PAYE), will not need to self-assess.
Taxpayers with more complex arrangements, including the self-employed and those with taxable gains to declare — such as property landlords — are obliged to submit a self-assessment return. So too must workers who earn more than £100,000 or directors of companies.
Taxpayers with an annual income of more than £50,000 who receive child benefit must complete a return for some of the benefit to be repaid. For couples where one income exceeds £60,000, the full child benefit is clawed back via self-assessment.
Those who missed the October 31 deadline for filing their paper return must now submit their details online to avoid penalties.
For those who filed self-assessment returns for 2014-15, the deadline to amend them is also January 31.
What are the first steps?
First, taxpayers need to be registered for HMRC online services. At least seven working days should be allowed to receive an activation code by post. For those who have yet to register, there is little time to delay.
To activate their online account, taxpayers will need their 10-digit “unique taxpayer reference” number. For those already signed up for self-assessment, this can be found on relevant HMRC correspondence.
For new filers, the formal deadline for signing up for self-assessment for 2015-16 was October 5. Anita Monteith, technical manager at ICAEW, the accountancy body, urged people in this position to phone HMRC as soon as possible to register for online filing, but said there was no penalty for late registration. “As long as you have submitted your return and paid your tax it doesn’t matter.”
What information is needed?
Advisers urge taxpayers to spend time collecting the relevant paperwork before starting the tax return. The documents relating to employment income are the P60 statement — a summary of income and tax deductions issued to taxpayers at the end of a tax year — and the P11D, which details expenses and benefits paid to employees.
Details of any other personal income and investments should also be to hand as well as the taxpayer’s national insurance (NI) number and employer reference, if relevant.
HMRC is starting to fill in some of the details on behalf of the taxpayer. It already inserts some information — state pension, underpayments and certain national insurance contributions — into the online self-assessment tax return.
This year, some taxpayers will find that details of their gross pay are filled in, while pensions and savings income are expected to be added over the next couple of years. Eventually, the plan is to include income from dividends, peer-to-peer lending and property as well. Ms Monteith said: “It is only just starting. They are beginning to pre-populate but it is not across the board.”
What needs to be included?
The return aims to paint a picture of an individual’s taxable income and gains for the 2015-16 tax year.
As well as income from an employer or self-employment, details of UK and foreign income must also be declared. This includes company dividends, bank account interest and income from a trust or settlement, plus any taxable benefits — from employers or the government.
Any capital gains from the disposal of assets, including shares, land and property, must also be disclosed, as well as rental income. The sale of a main residence is exempt from CGT under principal private residence relief.
In certain situations, such as reporting trust income, it is necessary to use commercial software. HMRC provides a list of recognised suppliers.
What about tax reliefs?
It is important to include details of savings and investments that qualify for tax reliefs, including payments into pension schemes other than your employer’s.
Investments into enterprise investment schemes and venture capital trusts — both government-approved schemes to encourage investment in small companies — qualify for income tax relief at a rate of 30 per cent, subject to the relevant conditions being met.
Gifts to charity should also be detailed. Higher rate relief on Gift Aid donations allows those who pay income tax at 40 per cent or above to claim the difference between the higher and basic rate on their gifts. A donation of £1,000 — worth £1,250 to the charity with Gift Aid — qualifies for a tax rebate of £250.
Gifts made in 2016-17 can be carried back to 2015-16 if they are made before the tax return is submitted. This may provide an incentive to those who are going to donate money this calendar year to give this month, before filing their return.
What happens if the deadline is missed?
A penalty of £100 is given to taxpayers who do not submit it by the deadline, with further penalties of £10 a day applied after three months. Late payment also incurs a penalty plus interest.
Ms Monteith said that a potential pitfall for those submitting after January 31 would be to file a return by post. Given that the deadline for paper returns was October 31, these taxpayers would incur higher penalties than if they filed online.
HMRC has announced that it will treat those with genuine excuses leniently, while penalties will be focused on those who persistently fail to complete their tax returns and deliberate tax evaders. But it says the excuse must be genuine and it might ask for evidence. It has rejected numerous excuses — ranging from “My dog ate my tax return . . . and all of the reminders” to “my internet connection failed” on the basis that they were either untrue or not good enough reasons.
How much longer will filling out these forms be necessary?
Taxpayers can notify HMRC if their circumstances have changed to take them out of the self-assessment system. Indeed HMRC is in keen to take people out of self-assessment, where possible. With its ambitious plans to make tax digital, this year will be one of the last times that some taxpayers will submit a return in its current format.
Ms Monteith said: “It won’t be an immediate end to the tax return and people with complex affairs will still need to do them. But fewer people will have to do them over the next few years.”
But even if there is no tax liability or outstanding tax has already been paid, recipients of a notice to submit a self-assessment return must still do so.
Official help and advice on completing a self-assessment is available online at gov.uk/self-assessment-tax-returns, and taxpayers can use Twitter to get general help from HMRC, starting tweets with @HMRCcustomers.
Taxpayers can also call the HMRC helpline on 0300 200 3310. This is open 8am to 8pm on weekdays, 8am to 4pm on Saturdays and 9am to 5pm Sunday.