The clock is ticking for the nearly six million people who have yet to file a self-assessment tax return for the 2021-22 tax year.
Although there are still two weeks until the all-important deadline of January 31st (see below), there’s no time to lose in gathering necessary information—especially if you’re new to the self-assessment process.
Also keep in mind that looming mail strikes may delay any mailing required to complete the task.
Here’s our quick guide to self-assessment, including who needs to fill out a tax return, how to file, plus potential penalties for those who file papers or pay their taxes late.
What is a self-assessment?
Those in a full-time job may wonder what all the fuss is about when it comes to self-assessment and the need to fill out a tax return.
Many employees, for example, have income tax and National Insurance contributions fully withheld from their wages before they receive a payment receipt without any other obligations to the tax authorities.
However, others’ tax affairs can be more complicated. And we’re not talking about small numbers of people either.
In fact, HMRC estimates that about 12 million people are expected to complete a tax return for the 2021-22 tax year. In contrast to the 129 people who completed their paperwork between midnight and 1 a.m. on New Year’s Day, the IRS notes another 5.7 million individuals did not file their return by January 3, 2023.
The reasons for filling out a tax return can be many and varied. An individual may have multiple income streams, for example, be self-employed, have received non-taxable interest on savings, or have made a profit on an asset (known as a “capital gain”) that they have sold.
In these scenarios, HMRC will not know how much tax the individual owes, so it is up to the person involved to make the calculation and then arrange the necessary payment.
To do so means completing an annual tax return. In addition to calculating the tax due, the tax return can also be used to claim any tax credits or exemptions relevant to an individual’s circumstances.
Who needs to fill out a tax return?
According to Alice Hein, personal finance analyst at Bestinvest, most UK taxpayers do not need to file a tax return because tax is automatically deducted from their wages (known as Pay-As-You-Earn) and pensions: it is not deducted and in the earning scenario If someone has extra income that is not taxable, filing a tax return is a must.”
Ms Hain adds that with income tax thresholds frozen until 2028, more people will have to file a tax return this year because their income may have jumped above £100,000, the minimum salary at which all income earners must file a return.
Below is a list of reasons a tax return must be filed for the 2021-22 tax year. They cover people who:
- You are self-employed and have earned over £1,000
- You have earned over £100,000 in taxable income
- Money earned from renting real estate or other non-taxable income (for example, tips and commissions)
- Income earned from savings, investments and dividends
- Income earned abroad, or living abroad with income from the UK
- You are a partner in a business partnership
- Employed but using their own money for travel and other business expenses
- Claim some grant or support payments for Covid-19
- The need to claim income tax credits such as money paid into a personal pension, business expenses where they are self-employed, and charitable donations.
Anyone who is unsure whether or not they need to file a tax return can use HMRC online checker.
What are the deadlines and what if I miss?
The deadline to submit old-style printed tax returns for the 2021-22 tax year was October 31, 2022, while January 31, 2023 is the last date for HMRC customers to file their tax return online.
Although HMRC says it will treat customers “leniently” where there is a real excuse to miss this deadline, the vast majority of customers who fail to do so face an immediate fine, with additional penalties that increase whenever there is any delay.
The immediate penalty for missing the January 31st deadline is £100, even if there is no tax to be paid. Failure to apply for a return for a further three months results in additional daily penalties of £10 up to a maximum of £900.
After six months, an additional penalty equal to 5% of the tax due – or £300, whichever is greater – applies. 12 months late, it will be a surcharge of 5% or £300, whichever is greater again.
There are also penalties for late payment of any tax due in the 30-day, six-month, and 12-month phase. Interest is also charged on amounts owed. HMRC’s online calculator Determines the size of any penalties likely to be incurred due to returns and late payments.
“The number of people who have yet to file their tax returns is about the same as this time last year,” says Nimish Shah, president of tax and advisory firm Blick Rothenberg. But, last year, HMRC gave people an extra month to file returns without getting a late filing penalty. About 2.3 million people benefited from the extra month last year.”
Shah added: “If the same number of people fail to file their returns on time this year, HMRC can expect to impose fines of £230m worth £100 for late filing. In addition, paying taxes this late The year will more than double in interest charges as HMRC’s official interest rate has fallen from 2.75% to 6% in the past 12 months.
“People who have not filed their 2021/22 tax returns should aim to do so as soon as possible to avoid delays in filing tax returns and benefits. They need to get organized and gather information they may need. They may also need to request pending information from the bank or Pension provider or employer. So they must act now.”
It’s important for people to file their returns online as soon as possible, says Trusha Shah, director of taxation at accounting firm HW Fisher. “People often leave it behind and make minor mistakes in their rush to complete it on time.
“It takes longer than you think to collect paperwork. This includes your P60 which will confirm the total tax you paid on your income. You will also need a record of your benefits and expenses which can be found on your P11D or P9D forms. If you left a job in the last tax year, you will also need to P45 from your previous employer.”
Other items of paperwork that may be required include:
- information about earnings and received tax exemptions
- pension contributions, Venture capital credits, or investment plans, in the enterprise
- Charitable gifts qualify for gift aid
- Details of potential capital gains crystallized upon sale of shares or funds held outside individual savings accountsetc
- Income and expenses related to the purchase of owned real estate
- Information about relevant tax credits such as work from home allowance, uniform allowance, etc.
Postponing your tax return until the last minute is common enough to qualify as a national pastime, says Sarah Coles, personal finance analyst at Hargreaves Lansdown. If you’re one of the millions of people who’ve done it, there are some steps you can take to make the process less painful.
By avoiding mistakes, they may save you some cash. Even if you’ve already completed your return, they can pay, because you have until the deadline to sign in again and make changes.
To file a tax return online, you need to create a government portal user ID if you don’t have one already.. This can be done via gov.co.uk website. You will have to answer security questions to verify your identity, for which you will need your National Insurance number, passport, payment slips or P60.
Once you set up your self-assessment account online, HMRC will send you a letter with your Unique Taxpayer Reference (UTR) – the 10-digit code you need the first time you log in. It may take up to 10 business days to receive this code by mail.
Those who haven’t filed a tax return for a while, or have forgotten their passwords, should be able to retrieve the information online. But if you run into problems and need to contact HMRC, remember that phone lines will be down in January as people make a dash at the last minute to complete a document.
There have been reports of people being kept on hold for over an hour and then being cut off, so start your calls early in the day at 8am to beat the queues.
What else do I need to know?
After signing up for the system, it’s a matter of working through the parts of your tax return that are relevant to you. HMRC provides plenty of support information – from advice on how to claim an expense to actually making the payment.
It is important to do the calculations carefully and make sure that everything related to the tax year in question is declared. HMRC is allowed to impose penalties for any mistakes made, including underestimating or misrepresenting the amount of tax owed, even if they were done in good faith.
In addition to filing your tax return by January 31, you also have to pay your tax bill by that date. This is the tax you owe for the period 2021-22 and is known as the balanced payment. You can pay online with HMRC, pay with bank transfer, debit card or check, or pay at your bank or building society if you have a HMRC payment voucher.
Setting up direct debit for your first HMRC payment can take some time, so wait five business days for this process to complete.
For customers who owe money from HMRC, payment will be made directly into the bank account that was on file at the time the tax return was completed.
Against the background of a The cost of living crisisFinding a large sum of money to pay a tax bill in one go can be difficult. To counter this, it is possible to subscribe to the budget payment scheme provided by the government. Unfortunately, paying for the 2021-22 tax year won’t help, but it can ease the burden for next year with the option to make weekly or monthly payments.
It is important not to panic if it turns out that the tax bill is going to be very expensive. HMRC offers options for those who are strapped for cash and it is better to address the problem directly, rather than letting the problems build up and get worse.
The Time to Pay scheme is a payment scheme for those who owe less than £30,000, within 60 days of the payment deadline and plan to pay off the debt within 12 months. To be eligible, clients must have no debt or other payment plans with HMRC and understand that they are expected to utilize their savings and assets to reduce debt.
In turn, HMRC will want to know how much the customer earns, how much they typically spend per month and how much it costs to compensate.