Federation Of Tax Advisers

SELF-ASSESSMENT
FREQUENTLY ASKED QUESTIONS

What is Personal Tax Self-Assessment?
Does Self Assessment affect me?
What do I have to do for Self-Assessment?
What changes has Self-Assessment made?
Who will calculate my tax liability?
What are my options for submitting my Self Assessment returns?
When do I pay Self-Assessment income tax?
What are the penalties for late returns and payments?

What is Personal Tax Self-Assessment?

Self-assessment is arrangement for payment of Income and Capital Gains Tax. It places the responsibility on the taxpayer to complete a tax return, and this must be done accurately and within a fixed timescale every year. Taxpayers affected must keep accurate records of income and expenditure.

Does Self-Assessment affect me?

Self assessment currently affects about 9 million UK taxpayers, everyone who has income which is not taxed at the correct rate at source. This includes the self-employed, company directors, those paying higher rate taxes and people with income from land and property or perhaps large investments and savings. Also drawn into the net are a large number of employees who are earning £8,500 or more with benefits and expenses.

Strict deadlines have been imposed and it is essential for all taxpayers to organise their record keeping to enable them to make their return to the HM Revenue & Customs within the time allowed.

What do I have to do for Self-Assessment?

You must keep complete and accurate records of all income and allowable expenses for the current tax year. You must also obtain, and keep for two 2 years (5 years and 10 months for the self-employed), proof of income and all receipts for expenditure.

You must complete a self-assessment tax return, which is issued by HM Revenue & Customs. This will take the form of the core tax return with additional supplementary pages for each source of extra income - although not all of these ‘additional’ pages will apply to everyone.

What changes have the Revenue/HMRC made?

Prior to the introduction of the self-assessment system, you would have submitted a return to the Inland Revenue (renamed Her Majesty’s Revenue & Customs – HMRC) that would then calculate the amount of tax due to be paid. It would then send you an overall assessment along with a demand for the tax due which was payable the following year.

Following its introduction, your tax return is on the basis of ‘self assessment’ and should you wish to do so, you can calculate your own tax liability, although HMRC will still calculate the actual amount of tax due but only if your form is received by the date the department stipulates. Following this procedure, HMRC issues a statement detailing the balance of payment to be made by January 31 of the following year.

Self-assessment returns are not examined when HMRC receive them, but they will be processed as soon as practical and then checked at a later date. Additionally HMRC will make periodic ‘checks’ on cases they believe may contain inaccuracies and they will also carry out random examinations of a percentage of returns every year.

To ease its administration, HMRC is encouraging taxpayers and Tax Advisers to use its Internet Filing service, available on its website. Taxpayers using this online filing method will receive immediate confirmation of the amount of tax payable and any rebate due will normally be paid after no more than 28 days.

Who will calculate my tax liability?

If you wish HMRC to calculate your liability the completed paper return forms for the year ending 5th April must be submitted no later than 30 September of the same year. A calculation must be included if you miss this deadline and unless you have better than average experience you are advised to consult a Tax Adviser to assist you with the return and calculation. Remember, your return with correct calculation must be in the hands of HMRC by 31st January each year. If HMRC so wishes, it can raise queries regarding your return and any underpayment of tax may be subject to penalties.

What are my options for submitting my Self-Assessment returns?

Submit your return to HMRC by 30 September and hope it will calculate your tax liability correctly
This may seem an attractive option as there is no cost involved. However HMRC does not always get its data entry correct and its mistakes can result in you paying the incorrect amount of tax.
Complete your own self-assessment return calculating your own tax liability
One mistake on your part could result in either overpayment of tax, or a penalty along with the underpayment.. You will remain in the category of 'unadvised taxpayers' , forty-two percent of whom pay too much tax because they don't claim their allowances reliefs or tax credits..
Use HMRC's free software
HMRC normally has an online form-filing program that will calculate your tax correctly - based on the data you have entered.
Use proprietary brand software
An increasing number of taxpayers are using software to complete their return and to submit it directly to Inland Revenue electronically. There is, however, no substitute for obtaining professional advice.
Use a regulated Tax Adviser; who holds professional indemnity insurance and in membership of an organization such as The Federation of Tax Advisers.
This is the solution recommended by FTA and taxpayers can write to FTA to obtain the address of a local Adviser or for the name of members who operate a postal service.

When do I pay Self-Assessment income tax?

Under the PAYE system your employer will deduct tax from your income and any adjustment is made by 31 January of the following year unless you submit your return early in the year in which case your tax code can be amended to reflect any underpayment for the previous year.

For the self-employed, their tax will be paid in two instalments - the first (estimated) amount on 31 January and the second by 31 July of the (current) year. These amounts will normally be 50% of the tax paid in the previous year there will then be a final adjustment figure payable on the following 31 January along with the first instalment for the subsequent year.

What are the penalties for late returns and payments?

If you do not submit your return by 31 January there is an automatic penalty of £100. If after a further 6 months you have still not submitted your forms there will be a £200 penalty. Should you fail to submit your self-assessment return after more than 12 months, the penalty increases from the fixed amounts to 100% of the tax due and if there is still a continuing delay then a £60 per day penalty can be imposed.

The penalty for late payment of tax (and the penalties when imposed) will be 5% of the tax unpaid if payment is not made within 28 days, with a further 5% surcharge being made if the payment is still outstanding after 6 months.

When you are seeking assistance with your tax return, you should choose an Associate or Fellow of the FTA, the association that regulates professional tax assistants and advisers on a voluntary basis.