HM Revenue & Customs will ask people in certain circumstances to complete and return a self assessment tax return, either a paper copy or online. This is so that HMRC can be sure that you are paying the right amount of tax and receiving the correct tax reliefs and allowances. It is crucial to check whether you are required to complete a tax return, as failure to comply with HMRC could result in a fine.
There are a number of reasons why a person should complete a tax return through self assessment. Anyone with straight forward affairs, like being employed with just one employer and having no other income, will be dealt with through the Pay As You Earn system. If you are self employed as an individual or a partner in a business, you will have to complete a tax return. Company directors and people who earn over £100,000 are required to complete a tax return so that HMRC know that the correct amount of tax is collected. Pensioners may have to register for self assessment if they have complex tax affairs. This may include having several sources of income and investment income, or perhaps having income above a specified threshold which results in reduced personal allowances. The threshold for income may change annually.
Income from property, investments or savings above a specified amount will require the completion of a tax return. Foreign income which is liable to income tax in the UK is another reason to complete a tax return, ensuring that the income is taxed at the correct level and you don’t pay too much tax. If you want to claim tax reliefs or allowances, they can usually be included in your PAYE tax code. However, if tax reliefs or allowances are above £2,500 you will have to complete a tax return. There may be occasions when you haven’t paid enough income tax and the underpayment of tax would normally be collected through the tax code where possible. If this isn’t possible, you will have to complete a self assessment tax return and pay the underpayment of tax directly.
Residency status is a complex issue and there are some aspects of residency which require a person to complete a self assessment tax return. This may be if you are non resident and not ordinarily resident in the UK, or if you are a dual resident of the UK and another country.
Any changes to income must be reported to HMRC as these changes could affect your taxable income and the amount of tax you should pay. Changes to income include any increases to income if you are a pensioner, changes to income which could make you a higher rate taxpayer, or receiving redundancy payments or gains on a life insurance policy which is also known as a chargeable event.
If you are registered with HMRC for self assessment you will receive a Unique Taxpayer Reference number which should be used on all communications. If you elect to complete a paper tax return, you will receive a tax return for each year this is necessary in April. This tax return has to be completed by 31st October each year. If you received a letter asking you to complete a tax return after 31st July, you will have three months from the date on the letter to complete and submit your tax return. If you believe you may owe tax of £3,000 or less you may ask for it to be collected through your PAYE tax code. However, in this case the deadline for submitting your tax return is 30th December. The deadline for filing online tax returns is 31st January unless you want ant outstanding tax collected through your tax code which means you have to submit your return before 30th December.
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