Updated 20 September 2019
If you are self-employed, freelance or have multiple sources of income (e.g. from property or investments), then you will most likely have to submit an annual self-assessment tax return. Even if you are an employee paying tax through PAYE, HMRC may still require you to submit a tax return to confirm your tax affairs are in order.
Self-assessment can be daunting if you’re coming to it for the first time – and even if you do it every year, you probably dread it coming around. However, with a bit of a preparation you make the process quicker, easier and less of a chore.
What is self-assessment?
Self-assessment is the process by which you tell HMRC how much money you've earned that year, and certain other details about your financial situation, so that HMRC can work out how much tax and/or National Insurance (NI) you need to pay. It's otherwise known as 'filing your tax return', and usually you'll do this online. Despite the term 'self-assessment' you don't have to do it yourself, as you can hire an accountant to do it for you. An accountant is almost more likely to complete it accurately and minimise the tax you have to pay.
Who needs to submit a self-assessment?
If you earn a salary that’s paid through a PAYE payroll system or you’re only drawing pension income, you don’t usually need to fill in a self-assessment tax return because your income tax is already deducted at source.
Here are some examples of people who usually do have to carry out self-assessment (though it’s not an exhaustive list).
- Self-employed people
- People with more than one job
- People drawing a pension while continuing to work and earn
- Directors and partners of limited companies
- Anyone earning a certain amount from investments (including property)
- Ministers of religion
- People claiming child benefits who have earned above a certain amount
- Anyone who receives a P800 form (this comes from HMRC and explains that you didn’t pay enough tax)
Check on the government’s website if you’re unsure about whether you need to fill one in.
When do I need to submit my self-assessment tax form?
If you submit your self-assessment tax form online, you must do so no later than the 31st January. This is also the date your tax payment is due, so you should aim to complete it at least a few days before, and preferably much sooner (so you can make sure you have the funds available to pay the tax that is due). You can in fact submit your tax return at any time after the end of the tax year (5th April), so if you get into the habit of doing it early, you can forget about it for the rest of the year.
If you are sending your tax return through the post, it must be with HMRC no later than 31 October. Again, this is a good reason to tackle it as early as possible.
Do I have to pay all my tax in one go?
If you earn a similar amount each year, you may be able to spread out the cost of tax into two payments (this is called ‘payment on account’). The first payment is due on 31 of January, and settles your bill for the previous tax year. The second payment is due on 31 July and pays in advance for the next year based on how much you’ve paid in the past. It’s helpful to have an accountant to organise these for you, at least for the first year, to make sure you pay the correct amounts.
How to register for self-assessment
If you didn’t submit a form for the previous tax year, you’ll need to register before you can submit a self-assessment tax form. The deadline for registration is 5 October (after the end of the tax year).
One way is to register with gov.uk Verify. This creates an account that you can use for multiple gov.uk services. You’ll need to prove who you are with a government-approved organisation, such as the Post Office, Barclays, Experian and a few others. Eventually, gov.uk Verify will be the main way people can register and submit self-assessment tax forms.
When you register for self-assessment you’ll receive a Unique Taxpayer Reference (UTR) number, which you will need for every tax return.
How do I fill in my self-assessment tax form?
If you’re filing your tax return online, you’ll log in with your Verify or Government Gateway account. You fill in the form section by section, and this is usually straightforward – provided you have all the necessary figures from the past tax year. So make sure you have:
- Your P60 or P45 (if you were employed for that tax year)
- Your P11D (if you had one)
- Records of all your other income (earnings, rent etc)
- Details of any
- work-related expenses (if you are self-employed)
- investments you hold (or have sold in this tax year)
- interest earned
- gifts you’ve made to charity
- benefits claimed (including child benefit)
- pension / State Pension income
- student loan repayments
- redundancy payments
You’ll also have to provide details of any tax avoidance schemes in which you participate (so that HMRC can confirm that these are legitimate).
As you can see, it’s a good idea to keep careful track of all these details throughout the year and keep the information in a safe place, so that when you come to fill in your self-assessment, you just open the file and get going.
If you’re submitting a paper form by post, you’ll need to download it and print it off from the government website. However, with a paper form it’s easier to make a mistake and accidentally leave a box blank, so online filing is recommended.
Claiming pension tax relief via self-assessment
If you are a basic rate taxpayer, then your 20 per cent tax relief on pension contributions will be added automatically. However, if you are a higher rate (40 per cent) or additional rate (45 per cent) taxpayer, you will need to claim the additional 20 or 25 per cent through your tax return. This money won't be paid directly into your pension pot, but will be repaid to you in one of three ways:
- a tax rebate
- a change in your tax code (so you pay less tax next year)
- a reduction in this year's tax bill
You'll need to do this for every year that you pay tax at these higher rates, so if you haven't previously completed a self-assessment, you may have unpaid tax relief in arrears. You can make claims for up to four previous tax years, which may total many thousands of pounds of unpaid tax relief. This will allow you to pay more into your pension without affecting your take-home pay.
What else do I need to watch out for?
The two main risks of self assessment are:
- missing the deadline for submission and/or payment
- entering inaccurate information
Either mistake can result in a fine. To avoid the first error (lateness), set reminders in your calendars and allow plenty of time to prepare your accounts. HMRC may make allowances in exceptional circumstances (such as bereavement), but each case is judged on its merits.
If you are late paying the tax you owe, you’ll be charged interest on what you owe from the date the payment was due (31st January). However, the penalty for late payment is less than the payment for late filing, so even if you don’t have the cash available to pay your bill, you should still submit your tax return on time. (Find out here how to deal with cash flow problems.)
The other hazard (inaccurate information) can be a bit trickier to overcome. The best defence against this is good preparation, all year round: keep rigorous track of all income and outgoings, expenses, profits and losses etc. – in short, have good bookkeeping in place. At the same time, keep physical or electronic copies of invoices and receipts so you can confirm your books are accurate in the event of a tax inspection.
How do I pay self-assessment tax?
Once you have submitted your tax return, HMRC will calculate how much tax you owe them. They will then send you your tax bill, which you can access by logging into your account on the government's website. You can then pay this bill, usually online by debit card (credit cards are not accepted). Cheques through the post are also accepted.
If you are in an employment where you pay tax via PAYE, and you owe less than £3,000 via your self-assessment, then you will be offered the choice to pay your tax bill through your tax code. This will spread the payments out over the year by increasing the amount you pay through PAYE each month. If you qualify for this then it will be set up automatically, unless you specifically state on your tax return that you would rather pay as a lump sum.
Can someone help me complete my self-assessment tax return?
Self-assessment is simple enough to do yourself if your finances are relatively simple and you know what you are doing. However, it can be time-consuming, and you may end up paying more tax than necessary if you aren’t sure about all the expenses and allowances you can claim. In the worst cases, you may make mistakes that result in penalties.
This is why it’s often more economical to engage an accountant to take care of your tax returns if your finances are more complex. Best of all, the cost of getting an accountant is itself a tax-deductible expense – which can make it even better value for money.
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