For those who know about the system of self assessment, a Tax Return can soon become an unwelcome reminder of tax to pay and of time that has to spent satisfying the need of the Chancellor.
Although subject matter that can easily fall to the bottom of a list of interesting things to learn about, most of us are well served to know at least the basics of the tax system.
So, for those less familiar with the system, or for those who could benefit from a refresher, responses to the following ten frequently asked questions should provide a basic overview.
Do I need to complete a Tax Return?
You are required to complete a Tax Return if during the tax year:
- You are self employed;
- You are a company director;
- Your overall annual income is over £100,000,
- You receive foreign income;
- You receive income from property of more than £10,000; or have profits from a rental property of over £2,500. If you have a rental loss, it is nevertheless advisable to record this on a tax return;
- You receive income from savings and investments of over £10,000, or untaxed savings and investment income;
- You have capital gains tax to pay, such as if you have disposed of shares or a second home;
- You wish to claim tax relief on employment expenses or on certain tax efficient investments such as Venture Capital Trusts or Enterprise Investment schemes;
- You prefer to pay tax you owe to HMRC direct (as opposed to through your tax code);
- You are non-resident or non domiciled and wish to claim the remittance basis;
- You receive income from a trust or from the estate of a deceased person;
- You are a trustee or personal representative.
My income comes from my employment or my pension, do I need to complete a Tax Return?
You do not normally need to complete a Tax Return if you do not fall into one of the above categories, and you are an employee or pensioner. In this case your employer or pension provider will deduct the tax you owe at source from your pay. It may still be worthwhile checking with your accountant to ensure that the correct amount of tax has been deducted at source.
How do I obtain a Tax Return?
If you are already in the self-assessment system then you should receive a Tax Return or notice to file a Tax Return in April. If you are self employed you should first register with HM Revenue & Customs, using the form CWF1. If you are not self-employed then you should complete the form SA1.
I think I need to complete a Tax Return, when do I need to let HM Revenue & Customs know?
If HM Revenue & Customs consider that you need to complete a Tax Return then they will send you one shortly after the 5 April year end. If you file your Tax Return online, then you will receive a notice to file rather than a Tax Return.
If you have a new source of income or chargeability and you have not received a Tax Return then you must notify HMRC of your chargeability to tax by 5 October following the tax year end.
What will happen if I do not notify HMRC of my chargeability to tax in time?
The maximum penalty for not notifying HMRC in time is the tax still unpaid by 31 January following the tax year. This means that there is no penalty if all tax is paid by the due date. The £100 penalty for failure to notify chargeability to national insurance no longer applies if your self employment started after 6 April 2009. The penalty can be reduced if a full disclosure is made within 12 months of the 31 January deadline.
When does the Tax Return need to be filed?
The deadline for submission of the paper Tax returns is 31 October following the end of the tax year. The time allowed to submit a Tax Return is lengthened to the following 31 January if you file online. If you have not received a tax return or notice to file a Tax return, then the deadline is extended by three months from the notice to file.
If you do not want to work out your own tax, then the Tax Return must be submitted by 31 October or within two months of the issue of the Tax Return. This applies whether the Return is sent by paper or online.
What records do I need to keep to support the entries on my Tax Return?
You must keep records relating to the tax you pay and to your incomings and outgoings. You may be required to support any entry on your tax return if HM Revenue & Customs select that Tax Return for an enquiry.
How long do I need to keep records?
If you sent your tax return to HM Revenue & Customs before the 31 January after the 5 April tax year end, then you should keep your records for 12 months following the 31 January. This is one year after the filing deadline.
If you sent your Tax Return in after the 31 January following the tax year end, then you will need to keep your records for 15 months after you submitted your Tax Return.
As an exception, if HM Revenue & Customs have started an enquiry in to your Tax Return you must keep your records until the enquiry has been closed.
If you are self-employed, or in a partnership or run a property business as a landlord, you must keep records for five years and ten months from the end of the tax year to which they relate.
You can receive a penalty of up to £3,000 for failing to keep proper books and records for the prescribed period.
What will happen if I do not send my Tax Return in by the deadline?
There is an automatic penalty for failure to submit a Tax Return by the deadline of £100. There is a further penalty of £100 if the Tax Return is more than 12 months late.
The penalty is reduced to an amount equal to the tax liability for the relevant tax year.
By when do I need to pay self-assessment tax?
Tax is due by 31 January following the end of the year. If you have a larger liability you may need to make payment on accounts. These are due on 31 January during the tax year on 31 July after the end of the tax year. Any difference between your liability and the payments on accounts is worked out in the amount payable or repayable by the following 31 January.
What will happen if I pay my tax late?
Interest is charged from the due date until the date of payment. Any tax which is not paid by the 28 February following the tax year end will suffer a 5% surcharge. A further 5% surcharge will apply if the tax is paid later than the following 31 July. If the tax is a year or more late, then there is a penalty equal to the amount of tax that has been unpaid. In rare cases, HMRC can appeal to the Commissioners to have a £60 daily penalty imposed.
How long do I have to correct a Tax Return that I have already sent in?
You may amend a Tax return up to 12 months after the 31 January following the end of the tax year.
Up to 6 April 2010, an error claim may be made for errors in a return within 5 years from 31 January following the year of assessment.
From 5 April 2010, you may make an error claim up to four years after the end of the tax year
Until when can HMRC enquire into my Tax Return?
The period that HMRC have to raise an enquiry into your Tax Return is known as the enquiry window. Previously if a return was filed on time, HMRC had twelve months from the filing date regardless of the actual date that you sent in your Return.
As an incentive for sending in a Tax Return early a new system was introduced. From 2008/09, HMRC can enquire into a return filed on time within 12 months of receiving it.
If the Return is filed after the due filing date, HMRC has until the quarter day following the first anniversary of the actual filing date. The quarter days are 31 January, 30 April, 31 July and 31 October.
If you have amended the return after the filing date, the enquiry window extends to the quarter day following the first anniversary of the date the amendment was filed. The enquiry is limited to matters covered by the amendment.
Coman & Co Tax Accountants help individuals and business owners with their taxes and accounting and business requirements. Please contact us for a free, one hour consultation.
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