Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group, comments: “The deadline for filing self-assessment tax returns is fast approaching, with paperwork needing to be submitted online by midnight on 31st January. So, if you’re one of the categories of people who needs to send a tax return - for example if you’re self-employed or earning a taxable income of over £150,000 from employment or other sources – then now is the time to act. Tax returns aren’t known for being fun, but it’s important to understand what’s required and file it on time to avoid any penalties which can be costly – last year, HMRC collected a record £220 million in late-filing fines1. This year, make sure to avoid falling into the Child Benefit gap – from the current tax year, you’ll need to earn £60,000 to pay the High Income Child Benefit Charge but for the 2023/24 year it’s still £50,000. Make sure to avoid any nasty tax surprises further down the line.”
Dean Butler outlines the key things to be aware of when it comes to self-assessment:
What is self-assessment and who needs to submit?
“Self-assessment is a system HM Revenue and Customs (HMRC) uses to collect Income Tax. If you are employed, your income tax is usually automatically deducted from your wages by your employer, but if you are self-employed or receive any other income, you will need to submit a self-assessment tax return each year to pay income tax and National Insurance.
“You’ll need to file a self-assessment if, in the last tax year (6 April 2023- 5 April 2024):
• You were self-employed as a ‘sole trader’ and earned more than £1,000 (before taking off anything you can claim tax relief on)
• You were a partner in a business partnership
• You earned £150,000 or more
• You had to pay Capital Gains Tax (CGT) when you sold an asset that had increased in value
• You had to pay the High Income Child Benefit Charge
“Make sure to check you tax code is correct before submitting your self-assessment. If you need assistance with your self-assessment, then you can contact HMRC, or find an accountant accredited in the UK to help, which can be relatively inexpensive. You can also appoint a relative or friend to fill in and send your tax return on your behalf.
I claim Child Benefit – do I need to do anything?
“If you earnt over £50,000 in the 2023/24 tax year and you or your partner claim Child Benefit, you have to declare this on your self-assessment tax return, or you may face a penalty. This is called the High Income Child Benefit Charge and it means you won’t be entitled to some or all of the Child Benefit. If your partner’s income was over £50,000 but yours was less, your
partner needs to declare the Child Benefit on their tax return.
“It’s important to be aware that as of the current tax year, the threshold rises to £60,000 – but for this return, it’s still £50k.”
Why should I be thinking about my pension?
“If you earnt over £50,271 a year in the last tax year, not completing a self-assessment tax return could lead to you missing out on valuable tax relief on pension contributions. Anyone with a pension receives 20% tax relief on every contribution they make, and this is added automatically. However, unless you’re using salary sacrifice to make pension contributions, higher rate taxpayers might need to claim the extra 20% of tax relief they are entitled to, which will then be repaid via a tax rebate, a change in tax code (which will mean you’ll pay less tax the following year) or a reduction in your tax bill for the current year. If you’re not sure whether you’re contributing via salary sacrifice, your employer will be able to help.
“Higher rate taxpayers should complete a self-assessment return every year they’ve paid higher rates, and anyone that hasn’t done this may have built up unpaid tax relief in arrears. It’s worth investigating if you think this applies to you, as you can make claims for up to four previous tax years, meaning you could be owed thousands of pounds from the government. HMRC doesn’t tend to prompt non-self-employed people to submit a self-assessment, so any higher rate taxpayers who pay their tax through PAYE need to actively request to submit a tax return.
Is there anything else I should be aware of?
“Once you start completing a self-assessment, you will be expected to complete one in each future year, unless you tell HMRC you no longer need to. Be sure to make a note in the calendar for when the time comes again.
“Another important reason to have a good grip on your tax return if you’re a higher earner is there’s a chance you might have exceeded your annual allowance, and it’s your responsibility to disclose this. The annual allowance is the amount you can pay into your pension each year with tax relief, and this sits at £60,000 for most people. If you’ve already started accessing your pension, beyond your tax free cash, your annual allowance will reduce to £10,000, and if you earn £200,000 or more your allowance could begin to be 'tapered' down to £10,000.
How do you submit a tax return?
“First, you’ll need your Government Gateway user ID and password to register for online self-assessment. If you don’t have a Government Gateway account, you can create one when you first visit the self-assessment section of the HMRC website and sign in. You’ll be prompted to set up a user ID and password, and then you’ll be sent a 10-digit Unique Taxpayer Reference (UTR) number in the post. You’ll also be sent your activation code, which can take up to ten days to arrive. You need to activate your account within 28 days of the code arriving, or it’ll expire. You’ll then be able to use the HMRC online service to submit your return. Alternatively, you can send your tax return via post.
What happens if you miss the deadline?
“If you fail to file your return, file it after the deadline, or fail to pay your tax bill, you’ll incur a penalty. If your return is up to three months late, you’ll be charged £100, and if it’s any later then you could be charged an extra £10 a day up to £900. There are further penalties if your return is more than six or 12 months late. If you’re late paying your tax bill then you’ll be charged interest on late payments too. You can appeal against a penalty if you have a legitimate excuse, but it’s far less hassle to file your return on time and pay your bill in the first place!”
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