Self Assessment

Amit Kumar ACCA

10/15/20232 min read

person holding ballpoint pen writing on notebook
person holding ballpoint pen writing on notebook

In the United Kingdom, a self-assessment is a system for individuals, self-employed people, and some businesses to report their income, capital gains, and other financial details to Her Majesty's Revenue and Customs (HMRC) for tax purposes. Self-assessment is used to calculate and pay the appropriate amount of income tax and National Insurance contributions (NICs) each year. Here's a detailed overview of the self-assessment process in the UK:

  1. Who Needs to Complete a Self-Assessment:

    • Self-employed individuals.

    • Business owners (sole traders and partners in a partnership).

    • Company directors.

    • Individuals with substantial income from savings, investments, or property.

    • High-income earners whose income is not taxed at source.

    • People receiving foreign income or capital gains.

    • Individuals who are registered for VAT (Value Added Tax).

  2. Deadlines:

    • The self-assessment tax year in the UK runs from April 6th of one year to April 5th of the next year.

    • The deadline for filing your online self-assessment tax return is usually January 31st following the end of the tax year. For example, if you're reporting income for the tax year ending on April 5, 2023, your deadline is January 31, 2024.

  3. Registering for Self-Assessment:

    • If you are self-employed or have taxable income that requires self-assessment, you must register with HMRC.

    • You can register online on the HMRC website.

  4. Gathering Information:

    • Collect all the necessary financial records and information, including income, expenses, receipts, and any relevant documents.

  5. Completing the Self-Assessment Tax Return:

    • You can complete your self-assessment online using the HMRC's online system or by using commercial software.

    • You'll need to report your total income from various sources, including employment, self-employment, pensions, rental income, dividends, and interest.

    • You must also report any capital gains, if applicable.

    • Deduct any allowable expenses related to your self-employment or business activities.

    • Claim any tax reliefs or allowances you are eligible for.

    • You can save your progress and return to your return later if needed.

  6. Calculating Tax and NICs:

    • The system will calculate the amount of income tax and NICs you owe based on your reported income and expenses.

    • You may be required to make additional payments on account for the following year if your tax liability is above a certain threshold.

  7. Payment:

    • After you've completed your self-assessment tax return and know the amount you owe, you must pay your tax bill by the deadline, which is typically January 31st.

    • You can pay online, by phone, or by setting up a direct debit.

  8. Penalties for Late Filing or Payment:

    • If you miss the deadline for filing your self-assessment tax return or fail to pay your tax on time, you may incur penalties and interest charges.

  9. Appeals and Corrections:

    • If you discover an error or need to amend your return after submission, you can make corrections within a specified time frame.

    • If you disagree with HMRC's tax calculations or penalties, you can appeal their decision.

  10. Records and Documentation:

    • Keep records of your financial transactions and documents for at least six years, as HMRC may request to see them for auditing purposes.

It's essential to stay organized and plan ahead to meet the deadlines and avoid penalties. If you have a complex financial situation or are unsure about any aspect of the self-assessment process, it's advisable to seek guidance from a tax professional or accountant.

AMIT KUMAR ACCA