Income Tax

INTRODUCTION TO SELF ASSESSMENT

Many people incur penalties for failing to submit their Self Assessment Tax Return on time.

The SA Tax Return is a comprehensive form, with a number of accompanying schedules – but You (or your adviser) must submit your SA Tax Return including the calculation of your tax liability by 31 January of the year following (e.g. the Return covering income for the year ended 5 April 20XX must be submitted by 31 January 20YY).

If you prefer, the Inland Revenue will work out your tax liability for you – but you only have until 30 September of the same year to supply all the necessary information and your completed Tax Return.

Other points to consider:

  1. There are random checks on completed Tax Returns
  2. There are automatic fixed penalties for late Tax Returns
  3. There are variable penalties for incorrect Tax Returns
  4. There are interest charges (and surcharges) for tax paid late

IF YOU’RE AN EMPLOYEE

The PAYE system itself was more or less unaffected by the introduction of Self Assessment but you are subject to SA rules if you need to complete a Tax Return.

If you want an underpayment of tax to be collected via an adjustment to your PAYE code rather than by direct payment on 31 January (and you are not filing your return electronically), please note that you must submit your Return by 30 September. In other cases, the deadline of 31 January of the year following applies.

Remember, it’s up to you to tell the Inland Revenue about anything that may have a bearing on your tax affairs – you cannot use the fact that you were not sent a Tax Return as an excuse. If necessary, you must ask for one.

If your tax affairs are not up to date, you should consider a complete review. Many people on PAYE never complete a Tax Return and never check their codings. As a result, some are paying too much tax. Others are paying too little and are building up a tax problem for the future.

IF YOU’RE AN EMPLOYER

You need to check the requirements to provide information to the Inland Revenue, your employees and your former employees.

You must also ensure that you are keeping adequate and appropriate records.

IF YOU’RE SELF EMPLOYED

Payments on account of tax liability are due on 31 January and 31 July, with a balancing payment (or refund) to be made on the following 31 January. It is worth remembering that any balancing payment must be made at the same time as the first interim payment for the following year, and that interim payments can be reduced where circumstances have changed.

Self Assessment has also led to more emphasis being placed on the ability to justify the figures included in the business accounts section of the SA Tax Return. You can face a fine of up to £3,000 if your accounting records are considered to be ‘inadequate.’

To avoid trouble with Self Assessment you need to have:

  1. No outstanding Tax Returns
  2. No outstanding business accounts
  3. Maintaining adequate records
  4. Paying all taxes on time

Please note: This guide is intended to provide basic information only. Where specific advice is required, we recommend that you seek proper professional help; either from this firm or other suitably qualified person or practice.