Self assessment

Self assessment means that you, the taxpayer, ‘need to fill in your return giving full details of all taxable income and gains you received in the year, and claim any allowances as well. This means that you are responsible for ensuring that you pay the right amount of tax, even if you do not actually work out the tax yourself’ (Inland Revenue).

Very few are excluded

The annual self assessment timetable

The benefits of staying on top

Very few are excluded

If you are an employee and pay income tax under the PAYE system, you might reasonably expect to have the correct tax deducted from your pay by your employer and might think you have no need to complete and submit a tax return every year.

But the system isn't as simple as that. For example, there are additional taxes to be paid if you derive benefits from your employment (if you use a company car, or if you are provided with private healthcare, or certain expense payments, or other benefits on a long list). Your employer declares these benefits to the Inland Revenue every year and keeps you informed of the details - usually by the end of June - on a P11d form. You have to include information about the benefits you received in your tax return which the Inland Revenue will cross check with your employer's declaration, so you need to ensure you include the correct amounts.

If you are self-employed, you probably will be familiar with the requirement to provide figures from your accounts in your tax return. But you may not be aware of the Revenue's drive to investigate more and more tax returns for error and omission. How confident are you that your return will stand up to scrutiny? Most taxpayers place significant value on submitting valid data which has been properly prepared and not left until the last minute. And most businessmen prefer figures without surprises: clearly quantifying your tax liabilities allows you to plan your personal finances with confidence.

Even if you are neither employed nor self-employed, you may have savings or investment income, or be entitled to claim children's tax credits, and all adults have allowances to offset against their income. Very few are excluded from the self assessment system. [top]

The annual self assessment timetable

Every year certain key dates define the annual timetable for the submission of self assessment tax returns and on account income tax payments. The normal timetable follows these dates:

6th April: First day of the new tax year: the Inland Revenue mails out tax returns for the tax year just ended on 5th April.

31st July: deadline for the Revenue to receive taxpayers' second payment on account (the first payment on account was due by the previous 31st January: see below).

30th September: if you submit your tax return to the Inland Revenue by this date they guarantee to calculate your tax liability for you and advise you how much tax to pay in time for you to make the correct payment by the next 31st January.

31st January: final deadline for you to submit (a) your tax return, (b) the payment calculation, (c) the final balance of tax due for the previous tax year, and (d) the first payment on account for the current tax year.

Sometimes the Revenue are late issuing the documentation to taxpayers and on those occasions they may extend their deadlines. But for the majority of taxpayers the penalties for missing the deadlines are:

£100 penalty if your tax return is submitted after the 31st January deadline and a further £100 penalty if you still haven't submitted it by 31st July.

If you miss your first on account income tax payment by 31st January, and still haven't paid it by 28th February, you'll have to pay a 5% surcharge on the unpaid total. A second 5% surcharge is levied if you still haven't paid your tax by 31st July. And interest will also be charged on tax paid late.

In addition to these deadlines and the automatic penalties for being late, there are further charges that can be applied by the Inspector of Taxes if you become seriously late and fail to sort out your tax affairs. The charges are designed to become increasingly burdensome with time, so the sooner you can resolve outstanding tax matters, the better. [top]

The benefits of staying on top

The individual who is invariably on top of their affairs, with paperwork in order and tax returns submitted punctually is likely to receive sympathetic treatment. Equally importantly, they will find it easier to quantify their liabilities and pay the correct tax on the due date.

They can also benefit from planning opportunities which arise from being on top. That includes investing in advice appropriate to their circumstances, with the opportunity to legally and properly minimise tax liabilities. [top]