Help With Self Assessment Tax: What You Need to Know

Filing a self-assessment tax return can be daunting, especially for first-timers. Mistakes or missed deadlines can result in penalties, so understanding the process is crucial. Whether you’re self-employed, earning additional income, or required to file for other reasons, staying informed ensures compliance and may reduce your tax bill.

This guide covers key aspects of self-assessment tax, including who must submit a return, what income to declare, allowable deductions, deadlines, payment methods, and penalties for non-compliance.

Who Must Submit

Not everyone needs to file a self-assessment tax return, but certain individuals must based on their income sources. Self-employed individuals, including sole traders and partners, must report earnings and pay tax and National Insurance. Even if profits are low, a return is required if earnings exceed £1,000 due to the trading allowance.

Landlords earning rental income must file if rental profits exceed £2,500 after expenses. Those receiving dividend income above the £1,000 allowance for 2023/24 or capital gains exceeding £6,000 (dropping to £3,000 in 2024/25) must also report these earnings.

Higher earners may need to file as well. If total income exceeds £100,000, HMRC generally requires a return, even if tax is deducted through PAYE. Additionally, those earning over £50,000 who receive child benefit must file due to the High Income Child Benefit Charge, which reduces or eliminates the benefit for incomes above this threshold.

Income to Declare

All taxable income must be reported, including employment earnings not fully taxed through PAYE. This includes bonuses, commissions, and benefits-in-kind such as company cars or private medical insurance. Any shortfall must be settled through self-assessment.

Foreign income must also be declared, including overseas rental earnings, foreign pensions, and investments. Tax treaties may prevent double taxation, but these earnings still need to be disclosed. Non-domiciled individuals claiming the remittance basis must report any income brought into the UK.

Savings and investment income, such as bank interest, must be included if it exceeds the personal savings allowance. The allowance is £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers, and zero for additional-rate taxpayers. Tax-free accounts like ISAs do not need to be reported.

Deductible Expenses

Allowable expenses reduce taxable income. For the self-employed, only costs incurred wholly and exclusively for business purposes can be claimed. These include office expenses like stationery, phone bills, and software subscriptions, as well as professional services such as accounting and legal fees. If working from home, a portion of household costs—such as rent, utilities, and broadband—can be deducted, either by calculating actual expenses or using HMRC’s flat-rate method.

Business travel costs, including fuel, vehicle maintenance, insurance, and road tax, are deductible. If using a personal vehicle for work, HMRC mileage rates (45p per mile for the first 10,000 miles, 25p thereafter) can be applied instead of tracking actual expenses. Travel by train, bus, or plane is also deductible if it’s for business purposes. Accommodation and meals can be claimed for overnight work trips.

Marketing and advertising expenses, such as website hosting, online ads, and promotional materials, are deductible. Training courses related to an existing business trade qualify, but education for starting a new business does not. Pension contributions also reduce taxable income, with tax relief available on contributions up to £60,000 annually or 100% of earnings if lower.

Filing Deadlines

The UK tax year runs from 6 April to 5 April. For the 2023/24 tax year, paper returns are due by 31 October 2024, while online submissions must be filed by 31 January 2025. Late submissions incur a £100 penalty, with additional charges applied after three, six, and twelve months, potentially reaching thousands of pounds.

For those making payments on account—advance tax payments toward the next year’s liability—two deadlines exist. The first payment is due by 31 January, alongside any outstanding tax for the previous year, while the second installment is due by 31 July. These payments are based on the prior year’s tax bill but can be adjusted if income is expected to be lower. Underpayments result in interest charges, currently 7.75% as of June 2024.

Payment Options

Once a return is submitted, payment must be made on time. HMRC offers several methods. Bank transfers via Faster Payments, CHAPS, or Bacs are among the quickest, with Faster Payments typically clearing within hours. Debit card payments through HMRC’s online portal are also available, but credit cards are not accepted. Direct Debits can be set up for one-off or recurring payments, though initial setup takes at least five working days.

For those unable to pay in full, HMRC offers a Time to Pay arrangement, allowing tax liabilities to be spread over monthly installments. Eligibility depends on the amount owed—generally up to £30,000—and the taxpayer’s financial situation. Interest accrues on outstanding balances at 7.75% as of June 2024. Missed payments can lead to enforcement action, including debt collection or legal proceedings.

Penalties for Non-Compliance

Failing to meet self-assessment obligations results in financial penalties and interest charges. Late filing incurs an automatic £100 fine, even if no tax is owed. If unfiled after three months, daily penalties of £10 apply, up to £900. At six months, an additional penalty of 5% of the outstanding tax (or £300, whichever is greater) is imposed, with another 5% added at twelve months. Deliberate non-compliance can lead to penalties of up to 100% of unpaid tax.

Late payments also incur penalties. A 5% surcharge applies if tax remains unpaid 30 days after the deadline, with further 5% charges at six and twelve months. Interest accrues daily on overdue amounts, making prompt payment necessary to avoid escalating costs. HMRC can recover unpaid tax through wage deductions, bailiff action, or court orders, so addressing outstanding liabilities quickly is advisable.