Whether you are an employee or you are earning income as a self-employed professional in the UK, you need to pay Income Tax and NI as per the UK tax laws. As an employee, your employer operates PAY As You Earn (PAYE) to work out your tax and NI directly from your wages and sends them to HMRC. On the other hand, self-employed professionals need to pay tax and NI Class 2 & 4 through the Self-Assessment Tax Returns System.
Let’s see what Self-Assessment Tax Return is, who needs to pay it, what to include in it, and the dates you need to remember. Read on to find out all!
What is Self Assessment Tax Returns?
It is a system used by HMRC to work out taxes on your income. If the tax on your wages, pensions or savings is not automatically deducted via the PAYE system and you earn income from other sources, you need to report it to HRMC through the self-assessment tax return once a year.
You include all your taxable income and any capital gains you earned by completing a tax return. In addition, you can also claim tax allowances or reliefs in it. You can either file it online or via a post. HMRC will work out your tax liability via this system.
Who Needs to Pay Self-Assessment Tax?
All people (self-employed) – who earn income from sources other than employment – need to submit a self-assessment tax return every year to pay the Income Tax and NI on their profits. You need to submit a tax return if you:
- Work for yourself (self-employed)
- Are a company director or partner in a partnership business and don’t pay tax on your income via PAYE
- Are a minister of religion, a trustee or the executor of an estate
- Earned £2,500 or more in untaxed income, like commission
- Need to pay capital gains tax by selling assets at a profit
- Earned £10,000 or more from savings interest, or investment income
- Claim child benefit if your or your partner’s income is over £50,000
- Earned £100,000 or more last tax year as an employee/pensioner
- Claim tax relief on pension contributions (if you’re a higher/ additional rate taxpayer)
- Receive taxable income from abroad, or lives abroad but receives an income in the UK
- Receive a P800 form from HMRC asking you to pay the outstanding sum
- Are named at Lloyd’s of London insurance market
HMRC may ask you to complete a self-assessment tax return, other than the above-mentioned reasons.
What To Include in your Self-Assessment tax return?
Amongst other things, you need to include:
- P60 form (summary of your income and tax deductions)
- P11D form (includes expenses and benefits)
- Capital gains earned by selling assets, shares, and property
- Details of other personal income and investments
- Your NI number and employer reference (if you have one)
- Any taxable benefits from an employer or the government
Remember that you don’t need to include any income that is tax-free. You might get information of your NI contributions, State Pensions, and underpayments on the HMRC website while filing an online return.
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7 Dates You Need to Remember For Filing you Tax Return
Filing your tax return is important. In fact, you need to file them before the deadline to avoid any penalties. As crucial as it is, however, it can be daunting to complete, especially when you already have a lot on your mind. If you haven’t filed your first Self Assessment tax payment on 31st January 2021 for the previous tax year (2019/20), then you may be fined by HM Revenues & Customs (HMRC)—unless you have a justifiable excuse for not paying.
Knowing the particular self-assessment tax dates are helpful for different individuals and businesses. Self-employed workers (who earned more than £1000), and anyone who entered a business partnership, are required to file their self-assessment within the tax dates. This also applies to individuals who received income outside of their PAYE during 2020. You may also need to pay tax for the year 2020/21 if you make income from renting out a property.
To avoid missing your tax payments, we created a tax calendar for 2021 with seven key dates that you need to remember. These calendars refer to the tax year 2020/21 and some refer to the tax year 2021/22. May this list help you in filing your taxes.
1. 5th April 2021 – Final date of the 2020-2021 tax year
Do note that you should file earnings before the 5th of April every year. This is the final date of the 2020/21 tax year and signifies the point at which you should start filing any earnings you made outside of PAYE during the previous tax year.
Remember that it is the same every year. So, when you submit your Self Assessment tax return, you will record the earnings you made between 6th April 2020 and 5th April 2021.
2. 6th April 2021 – Start date of the 2021/22 tax year
As mentioned earlier, the start of the 2021/22 tax calendar year is April 6. When you submit your Self Assessment tax return, you will record the earnings made between April 6, 2021, and April 5, 2022. For 2022, it will be April 6, 2022, to April 5, 2023.
3. 31st July 2021 – Second tax payment due
Your second payment should be paid on the 31st of July. This is the time to make your final contribution for the previous tax year, following your initial payment on the 31st of January. You can say that this is the last payment for the previous year.
4. 5th October 2021 – Deadline for self-assessment tax registrations
Once you are able to start earning money through self-employment or sole trading, it’s time for you to register with HMRC and National Insurance. This applies to self employed individuals or sole traders who are earning on or after April 6, 2020. Once you have registered, HMRC can notify you of the dates you needed to submit your Self Assessment return for the 2020/21 tax year.
5. 31st October 2021 – Deadline for self-assessment tax returns (paper)
Don’t forget to send your Self Assessment tax returns for the 2020/21 tax year before October 31, 2021 midnight. This is an important date for those submitting on paper. However, if it is an electronic submission, it will be on a later date.
6. 30th December 2021 – Deadline for automatic collections (online)
If you want the money you owe in tax to be deducted from your wages and pension contributions, it is possible. You just have to submit your Self-Assessment return online by this date. You can check if you are eligible to pay through tax code through the Gov.uk website.
7. 31st January 2022 – Deadline for self-assessment tax returns (online)
This is the last date for you to submit your Self-Assessment tax return for the tax year ending 5th April 2021. You must share with HMRC your financial earnings for this year. If you made a mistake on your 2019/20 tax return, you also have up until this date to correct the information.
Filing your personal tax returns can be stressful, especially if you are new to them. May this guide help you list the important dates you need to file your taxes and guide you through the next steps. It is still best to look for professionals to take the weight off your shoulders.
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Disclaimer: This blog is intended to provide general information on the topic.