Family finances:
Self assessment and tax returns
Self assessment was introduced in the 1996/97 tax year. You, as an individual, are responsible for advising HM Revenue & Customs (HMRC) of your income and gains and, unless your tax return is submitted by 30 September, calculating the tax payable on your self assessment tax return for each tax year. HM Revenue & Customs' role is limited to checking the returns people make rather than one of calculating their tax liabilities. Not all returns will be checked. Obvious errors may be picked up and amended but otherwise HMRC should not query your tax return unless there is a formal tax enquiry.
Not everyone will be issued with a self assessment tax return. Generally you will not be required to complete a tax return if all your income is received net of tax, for example if you are employed under PAYE and receive building society interest and dividends which have tax deducted at source, and you are not a director or higher rate taxpayer. Even if you do not receive a tax return it is your responsibility to advise HMRC of untaxed income or gains you have, and to do so by 5 October following the end of the tax year. HMRC will then issue a return so the tax can be calculated and paid.
The key features of self assessment include:
- Tax is calculated on the income arising in the tax year (income from business profits is taxed generally on the basis of the tax year in which the accounting period ends)
- There is one set of payment dates for tax not deducted at source
- There are automatic fixed penalties for late tax returns and interest and surcharges on the late payment of tax
- There are clear obligations for keeping records.
Self assessment applies to everyone but in practice the following are required to submit self assessment tax returns:
- Self employed persons including business partners
- Company directors
- People with complex tax affairs including higher rate taxpayers
- Pensioners with more complex tax affairs
- People receiving rent from land and/or property
- Trustees and personal representatives
- Trustees of self administered pension schemes
- Non resident company landlords.
The self assessment tax return is made up of the core tax return to be completed by everyone, and supplementary pages which should only be completed it relevant.
The supplementary pages cover:
- Employment
- Ministers of religion
- Share schemes
- Self employment
- Lloyd’s underwriters
- Partnerships
- Land & property
- Foreign income
- Trusts, including estates of deceased persons
- Capital gains
- Non-residents
If you are sent a self assessment tax return you will normally also receive a step by step guide on completing the return and how to calculate your tax liability. In most cases you will benefit from having professional assistance to complete your tax return to ensure you claim all the allowances and reliefs you are entitled to.
Your completed tax return must be submitted to HM Revenue & Customs by 31 January following the end of the tax year it relates to (or 3 months after it was issued, if later). For example if you are completing your tax return for the tax year ended 5 April 2006 you must submit the return by 31 January 2007.
You must also pay any outstanding tax for the tax year by 31 January, the same deadline as for the submission of the return. If you have overpaid tax then a refund will be made once your tax return is processed by HMRC. Depending on how much tax you usually have to pay, you may have to pay two instalments of tax on 31 January and 31 July on account of next year's tax bill.
The main deadlines, illustrated for the 2005/06 tax year are as follows:
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The 2005/06 1st and 2nd instalments of tax will generally be half the 2004/05 tax liability (excluding any tax on capital gains or tax deducted at source) unless:
- The 2005/06 tax liability (excluding any tax on capital gains) was under £500, in which case you do not have to pay any instalments for 2005/06
- You know the 2005/06 tax will be significantly less than the 2004/05 tax and make a claim to reduce the instalments accordingly.
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Once submitted you have one year from the filing date (31 January) to make any amendments to the figures on the return. Likewise HM Revenue & Customs has the same period to enquire into the entries on the return. There are complex rules on tax enquiries and the conduct of them. If you need advice in connection with an enquiry into your tax return please contact us.
Record keeping
You are now required by law to keep the records which support your tax return. If there is an enquiry into your tax return HM Revenue & Customs may ask to see the supporting records and can impose penalties of up to £3,000 for failing to keep adequate records to support the figures on your tax return.If you are self employed (or a partner) you must keep all tax return records (both business and personal) for 5 years from the 31 January after the end of the tax year they relate to. If you are an owner/director of your company there is no requirement to keep your personal records for as long as the company records (a company must keep records for 6 years from the end of the accounting period), but it may be beneficial in practice. You can find more information on business records in the Your business section.
Individuals not running a self employed business, who are required to complete a tax return, must keep the associated records for one year following the 31 January after the end of the tax year they relate to. For example the records for the 2005/06 tax year must be kept until at least 31 January 2008, the normal deadline by which HM Revenue & Customs can enquire into the tax return. This timescale for keeping records will be extended if you submitted the tax return late or if there is an enquiry in progress.
These time limits for keeping your records are really minimum requirements. In the more serious cases, or if HMRC make a "discovery", enquiries may be able to be started into earlier years.
For more information on managing your personal records see our section on Managing your paperwork.
 |  | Related literature: |
- An introduction to self assessment
- An introduction to the tax system for the self-employed
- How long should you keep books and records?
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Where next?
Within Family finances
- Overview of the UK personal tax system
- Managing your paperwork
- Managing your money
- Caring for elderly relatives
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