Self Assessment is a system HMRC uses to collect Income Tax. Tax is usually deducted automatically from wages, pensions and savings. People and businesses with other income must report it in a tax return. If you need to send one, we fill it in after the end of the tax year (5 April) it applies to.
The administration of taxes in the UK is in the hands of The Commissioners for Her Majesty’s Revenue and Customs (HMRC). Self-Assessment is the regime by which HMRC assesses and collects direct tax in the UK.
Taxpayers who are self-employed must submit tax returns, as many individuals whose taxable savings income exceeds their savings allowance or taxable dividend income exceeds the dividend allowance. Taxpayers who have other untaxed income (for example property) also have to file tax returns.
Also, any taxpayer who has made a chargeable capital gain in the year, also has a duty to submit a tax return.
An individual becomes chargeable to income tax or capital gains tax for the first time, he has a duty to notify HMRC within 6 months of the end of the tax year in which he became chargeable.
If the taxpayer misses a deadline to notify HMRC, HMRC will charge a penalty.
Tax returns are typically issued by HMRC to taxpayers on 6 April immediately following the tax year. Every tax return requires the taxpayer to provide certain details. All taxpayers must give details of all income received from all sources in the tax year.
Certain allowances to be claimed by the taxpayer also need to be claimed within the tax return. For instance, a taxpayer who makes contributions to a personal pension are eligible for higher rate tax relief which will be claimed through the return. Similarly, higher rate taxpayers should claim relief for gift aid payments made. The election for marriage allowance is also made on the return.
As well as sending the taxpayer a basic return, HMRC add on supplementary pages to the end of the basic from depending on the particular source of income. For example, employees will receive employment pages, those with rental properties receive property income pages, and so on.
Individuals with many different sources of income therefore have to complete a number of separate supplementary pages, as well as the basic tax return.
An online return should normally be filed no later than 31 January following the tax year.
There are penalties for incorrect returns, penalties will apply where a tax return or claim for a relief contains in accuracy which leads to an understatement of tax, or a false or inflated statement of a loss; or a false or inflated claim to a tax repayment.
Penalties will be charged if the error occurred due to a careless action, i.e. failure by the taxpayer to take reasonable care. Careless behaviour can generate the following percentage penalties of potential lost revenue. 30% maximum penalty or 15% with prompted disclosure.