HMRC Self Assessment, understanding the basics

Nov 03, 2022

HM Revenue and Customs (HMRC) is Gov UK taxes, customs, and payments authority. They collect money to pay for public services and provide targeted support to help individuals and families. HMRC has a Self Assessment system to collect government taxes.

HMRC has separate rules for UK and non-residents; hence, your residence status affects your taxation. UK residents typically pay their UK and foreign income taxes. HMRC rules allow non-residents only to pay their UK income tax, no foreign income tax.

This blog will further help you understand HMRC Self Assessment basics, a way of paying taxes by submitting a tax return to HMRC every year.

What is Self Assessment?

By completing a Self Assessment tax return, you inform HMRC about your taxable income and gains for the tax year. It is a process to work out and pay tax on what you owe. HMRC has an SA100 form for Self Assessment tax returns preparation.

For Self Assessment Tax calculation, you can use the SA100 form to assess how much tax you owe from the earnings. KBM offers Self Assessment SA100 Training to help students and professionals. Hence, they can properly learn and help people prepare their Self Assessment tax returns.

What support does KBM provide on HMRC Self Assessment?

We keep HMRC compliance learning at the heart of our accounting and bookkeeping programmes. Also, we embed HMRC Self Assessment and other HMRC aspects in our practical accountancy training. Our following training programme emphasises HMRC:

When will I complete a Self Assessment tax return?

Self Assessment tax payment, SA100, is mandatory unless HMRC agrees to cancel the return. You must complete and submit the tax return of your untaxed income.

Further, you can make the HMRC Self Assessment payment by submitting your tax return in paper form or utilising paying Self Assessment online option. The online Self Assessment tax payment facility closes after 31 January.

When can you register for Self Assessment?

Gov UK taxes compliance requires you to register for Self Assessment with HMRC. You can register for Self Assessment until 5 October, which follows the end of the tax year that the Self Assessment tax return you're filing.

So you can submit your Self Assessment tax return; you did not send one last year. For example, if your tax return is for the tax year 6 April 2021 to 5 April 2022, you must register for Self Assessment until 5 October 2022.

HMRC can impose a fine if you don't register by the appropriate deadline.

Reregistration is not required if you have already registered and made the HMRC Self Assessment payment for the last tax year. HMRC has three kinds of Self Assessment registrations which include:

Self-employed
Not self-employed
Partnerships

What information will you need to complete your tax return?

Your any-year HMRC Self Assessment tax return form must include the year's taxable income and gains, and it will contain the following typical things information:

Self-employment income and expenses, the data will help with Self Assessment tax calculation of your trading profit or loss for the year.
Property income and expenses information require for your rental profit or loss calculation for the year.
Employment and pensions income, this information includes forms P11D, P60, and P45 from any jobs.
Interest certificates issued from building societies or banks
Pension contributions details to relief at source schemes
Any chargeable capital gains detail for the year

What about the record-keeping for the Self Assessment return?

To complete the tax return, you must keep records of your taxable income and gains. HMRC does not require original documentation straight away, but they can ask later.

You can use paper or digital methods to keep your record. Copy of the documents becomes essential as a backup or to show you took reasonable care to get your return right. HMRC has a system to keep digital records for trading and property income. Hence going digital will get you ready for it in future.

You must have a record of your profit calculation; it applies to both self-employed and property income. The record-keeping can include:

Invoices (bills) about your work done
Paid expenses receipts
Bank statement(s)
Letting agents' statements or rental income details for property not using an agent
Information of private things used in the business, like vehicle mileage logs used in the business and privately

Do I still complete the Self Assessment tax return if I have no tax to pay?

Regardless of circumstances, you must complete and submit a tax return if HMRC has not cancelled or withdrawn that requirement. Also, your legal obligation is to notify HMRC that you are liable to Capital Gains Tax, Income Tax, or Class 2 or 4 NI (National Insurance).

HMRC requires a tax return to complete or collect the due amounts. Further, there are many exceptions to this obligation to notify – like all your income needs taxation under PAYE (Pay As You Earn), and you had no chargeable gains.

You can benefit from the HMRC tool for the Gov UK taxes assessment. It will help you understand whether to submit a Self Assessment tax return or not. For example, the tool will tell that self-employed persons with more than £1,000 turnover must submit the HMRC Self Assessment Tax return form.

Also, if you think there is no tax or NI payment can be an issue, and HMRC disagrees, like if you have expenses deduction from your income, which is not allowed. Furthermore, there are several reasons why you complete a return even if you have no tax or NI obligation to:

Pay voluntary Class 2 NI contributions
Report a trading or Capital Loss; or
Provide evidence of your income or trading status for mortgage applications.

What penalties can HMRC charge under Self Assessment?

Everybody must pay tax; tax avoidance leads to penalties and legal implications. HMRC can impose a penalty for the reasons:

Late filing
Inaccuracy
Late payment
Failure to notify

HMRC has four penalty categories they can charge under the Self Assessment regime. You can launch an appeal against the penalties on the following basis: