Not everyone needs to file a return but if you need to do so you need to let HMRC know and file by the legal deadlines in order to avoid penalties and interest.  HMRC are getting increasing good at finding those who have not declared income, especially people renting property or trading online.

Do I need to do a tax return?

It can be confusing to know whether you need to do a tax return, especially now there are so many small exemptions from tax.  

If your only source of income is a salary and tax is deducted on that each month then you are unlikely to need to file a return, however if you have additional sources of income then it is worth considering whether a return is required or whether there would be a benefit to reporting the income or loss.

Here is what HMRC have to say about who needs to prepare a return.

You will need to do a return if:

• You are self employed and the value of your sales is over £1,000
• You are self employed as a partner in a partnership
• You rent a property
• You earn tips and commission that are not taxed by your employer
• You have income from savings, investments and dividends that exceed the various tax free thresholds
•  You have foreign income
• You need to pay the High Income Child Benefit Charge (where you or your partner have claimed child benefit and you earn over £50,000)
• You have made capital gains by selling a valuable asset such as a property which is not where you live, or a valuable antique or investment.

You may choose to file a tax return or are recommended to if:

• You need to claim some tax reliefs
• You need to prove you are self employed to claim Tax Free Childcare or Maternity Allowance.
• You are trading (including with sales under £1,000), renting property or sold assets at a loss.  This allows the loss to be declared and is then available to set off against future profits.

HMRC has a tool to help you decide if you need to do a return, it can be found at: https://www.gov.uk/check-if-you-need-tax-return .

Period covered and deadlines

If you do need to file a return it will cover a tax year which runs from 6 April one year to 5 April the next year.  

Take for example the tax year ended 5 April 2023. 

• If you have not already registered to file a return you must do so by 5 October 2023
• If you want to file a paper return it must reach HMRC by midnight on 31 October 2023
• If you file your return online, you have until 31 January 2024 to file the return.
• If you file your return by the 30 December, the amount of unpaid tax is small, and you are employed you can ask to pay the tax due via your salary
• Any tax due is due by 31 January 2024.

Budgeting to pay tax

The sooner you prepare your tax return after 5 April each year the more time you will have to plan how you are going to pay your tax bill and the more options about how to pay are available.

If you are self-employed, it is more than likely that you will need to make payments on account.  Once you have been trading a few years these may not cause a problem as they smooth out your tax bills, but especially at the beginning they can cause problems with cash flow.  You will have to pay the tax due on profits reported to HMRC on the return.  HMRC will the assume that you will continue to make the same level of profit in future and expect you to pay it in advance as two instalments one due on 31 January and one due on 31 July.

For example, if your tax bill for the year to 5 April 2023 (the first year of your business) was £10,000, then on 31 January 2024 £15,000 will be due.  This is made up of the £10,000 plus the first payment on account for the year to 5 April 2024 of £5,000.  The second payment on account is due on 31 July 2024.  HMRC are trying to collect the tax before you spend it on something else, but this can be rather painful for a new business where you may have thought the money would be available to help cash flow.

Sometimes payments on account can be reduced so it is always a good idea to have professional help.

Partnership returns

When you are a partner in business you will need to file a personal tax return AND the partnership will need to file a return.  These are easily forgotten and can give rise to unwelcome penalties.

Penalties

Needless to say, failing to file a tax return when one is due will mean you have to pay penalties which start at £100 and increase depending upon how late the return is.  There are also surcharges and interest charged on tax paid late.  Sometimes there are grounds to appeal against penalties if you do incur them.

How I can Help

If you are concerned about needing to file a tax return, want help sorting out past returns that should have been filed or need any other advice please contact me for your free consultation.