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An Introduction to Self Assessment

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

Tax returns

Tax returns covering income for the year ending 5 April 2014 will be issued on or after 6 April 2014, and will consist of a main tax form and supplementary pages. Your tax office will send out what they think are the relevant supplementary pages. If you need other supplementary pages you will have to ask for them. The completed full return has to be submitted to HMRC by the ‘filing date’, which is 31 October 2014 for paper returns, and 31 January 2015 for online returns.

You should note that your return must be completed as far as the total income on which tax has to be paid. Figures must be given for every item, even if only estimates. It is not possible to enter question marks or leave the tax inspector to decide whether an item is taxable or not. The only section that can be left for the tax office to complete is the actual calculation of the tax due on your total income.

If you have taxable income or capital gains for 2013-14 and have not received a tax return, you must advise your tax office by 5 October 2014 at the latest.

There are automatic penalties for late filing of tax returns, as follows:

  • Day one - Individuals will be charged an initial penalty of £100, even if they have no tax to pay or have already paid all the tax owed
  • Over three months late - Individuals will be charged an automatic daily penalty of £10 per day, up to a maximum of £900
  • Over six months late - Individuals will be charged further penalties, which are the greater of 5% of the tax due or £300
  • Over 12 months late - Individuals will be charged yet more penalties, which are the greater of 5% of the tax due or £300. In serious cases people face a higher penalty of up to 100% of the tax due.

HMRC has made it known that it will cancel any outstanding returns and associated penalties where taxpayers call them and explain why they do not need to be in the self assessment system.

Amendments, enquiries, and record keeping

You have one year from the filing date to make any amendments to the return. HM Revenue & Customs may correct obvious errors or mistakes within nine months of receipt of the return.

Within a period of one year from the date the tax return is submitted, HM Revenue & Customs 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 one-year 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, HM Revenue & Customs can, within five 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.

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. Payments on account will not be required where each payment works out at less than £500,

Example

Tax year

Final liability

Payments on account

Balance due

2012-13

£6,400

£5,500

£900

2013-14

£7,200

£6,400

£800

2014-15

£7,800

£7,200

£600

 

 

Amount due

Payment date

On account

Balance

Total

31 January 2014

£3,200

£900

£4,100

31 July 2014

£3,200

-

£3,200

31 January 2015

£3,600

£800

£4,400

31 July 2015

£3,600

-

£3,600

31 January 2016

£3,900

£600

£4,500

Late payment penalties and interest

The penalties for paying tax late are:

  • 30 days late - Individuals will be charged an initial late payment penalty of 5% of the tax unpaid at that date
  • Six months late - Individuals will be charged a further late payment penalty of 5% of the tax that is still unpaid
  • 12 months late - Individuals will be charged a further late payment penalty of 5% of the tax that is still unpaid. The above penalties are levied on top of the interest that HMRC will charge on all outstanding amounts, including unpaid penalties, until payment is received.

There is a right of appeal against the penalties on the grounds of reasonable excuse.

In addition, interest will run on tax (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 comparatively straightforward. The PAYE system means most employees should pay the correct amount of tax at source. An employee with relatively simple tax affairs is unlikely to be asked to complete a tax return.

Tax codes

The main cause of under or over payments 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 underpaid tax of less than £3,000 to be carried forward in this way. For online returns you must file your return by 30 December following the end of the tax year.

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

Please note that the following dates relate to actions to be taken during the 2014-15 tax year.

6 April 2014 - tax return for 2013-14 or notice to complete a return will be issued
   
31 July 2014 - second payment on account of 2013-14 income tax and Class 4 NICs
  - second payment due date for 2013-14 Class 2 NICs
   
31 October 2014 - deadline for filing 2013-14 paper tax returns
   
30 December 2014 - tax return to be filed online if you want a tax underpayment of less than £3,000 collected via your 2015-16 PAYE code
   
31 January 2015 - online tax return for 2013-14 to be submitted
- payment of balance of income tax and Class4 NICs for 2013-14
- payment of capital gains tax for 2013-14
- first payment on account of 2014-15 income tax and Class 4 NICs (normally half the total 2013-14 liability, adjusted for tax deducted at source)
  - first payment due date for 2014-15 Class 2 NICs
   
... and so on.  

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

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