At a glance

  • Self-employed sole traders earning more than £1,000 and partners in a partnership business must complete a tax return
  • A tax return allows HMRC to calculate how much income tax and National Insurance you should pay
  • The government offers certain tax reliefs and allowances, which you can claim by completing a self-assessment tax return
  • You need to complete your tax return by specific deadlines or face a penalty

At a glance

  • Self-employed sole traders earning more than £1,000 and partners in a partnership business must complete a tax return
  • A tax return allows HMRC to calculate how much income tax and National Insurance you should pay
  • The government offers certain tax reliefs and allowances, which you can claim by completing a self-assessment tax return
  • You need to complete your tax return by specific deadlines or face a penalty

At a glance

  • Self-employed sole traders earning more than £1,000 and partners in a partnership business must complete a tax return
  • A tax return allows HMRC to calculate how much income tax and National Insurance you should pay
  • The government offers certain tax reliefs and allowances, which you can claim by completing a self-assessment tax return
  • You need to complete your tax return by specific deadlines or face a penalty

Who needs to complete a tax return?

Most UK taxpayers do not have to complete their own tax return. The amount of tax they have to pay is calculated and paid through the pay-as-you-earn (PAYE) system.

But there are still millions of people – 11.7 million for the 2018/19 tax year – who have to fill out their own self-assessment tax return.

You need to complete a self-assessment tax return if you are:

  • Self employed as a sole trader and earn more than £1,000
  • A partner in a partnership business

You may also need to complete a self-assessment tax return if you have untaxed income such as:

  • Money from renting out a property
  • Tips and commission
  • Income from savings, investments and dividends
  • Foreign income

The gov.uk website has an online tool that you can complete in seconds to confirm whether or not you need to complete a self-assessment tax return.

What is a tax return?

A tax return is a document that details your taxable income during the tax year. It also records the capital gains and/or losses you have made and enables you to claim certain tax reliefs and allowances.

The tax year starts on 6 April and ends on 5 April the following year.

The information on your tax return lets HM Revenue & Customs (HMRC) calculate how much income tax and National Insurance you should pay, and any refunds you might be due.

What is income tax?

Income tax is tax you pay on your income from things such as:

  • Money you earn as an employee
  • Profits you earn from self-employment
  • Some state benefits and most pensions
  • Rental payments from property

There are many different allowances and exemptions that mean you do not pay tax on every part of your income.

What is National Insurance?

National Insurance is a tax on earnings from employment and profits from self-employment. The government uses receipts from National Insurance to help it pay certain benefits such as the State Pension.

Employed and self-employed workers both pay National Insurance, but you do not have to pay it once you reach State Pension age.

If you’re employed, National Insurance will normally be taken from your regular salary through the PAYE system.

If you’re self-employed you will have to arrange to pay it yourself, usually through your self-assessment tax return.

There are four ‘classes’ of National Insurance, each set at different rates.

  • Class 1 is for employees earning more than £183 a week.
  • Class 2 is for self-employed people earning more than £6,475 a year
  • Class 3 are voluntarily contributions
  • Class 4 is for self-employed people earning annual profits of £9,501 or more

Your National Insurance record counts towards the amount of state pension you will receive in retirement. If your record is in incomplete, Class 3 voluntary contributions can help you fill gaps to ensure you get the full state pension entitlement in later life.

Claiming tax relief

The government offers certain tax reliefs and allowances. You can claim these by completing a self-assessment tax return.

Tax relief applies to personal payments you make such as:

  • Pension contributions
  • Charity donations
  • Maintenance payments

There is also tax relief available on business expenses including:

  • Some of the costs associated with running your business as a sole trader or partner in a partnership
  • Travel and essential items you have paid for personally

Tax relief on these expenses will reduce the amount of tax you have to pay.

Dates, deadlines and penalties

The following dates and deadlines apply to the 2019/20 tax year, which ended on 5 April 2020.

If you did not complete a tax return for the previous year – 2018/19 in this scenario – but you need to complete one this tax year, then you have to register with HMRC. You need to do this by 5 October 2020.

Once registered you then have to meet the following deadlines:

  • 31 October 2020 – Submit your tax return, if paper based
  • 31 January 2021 – Submit your tax return, if online
  • 31 January 2021 – Pay the tax you owe

Most self-employed people pay their income tax and National Insurance ‘on account’. This means the total amount they owe is split into part-payments.

Taking the 2020/21 tax year as an example, the deadline for the first payment is 31 January 2021.

This payment is estimated at half of the tax paid in the previous year – 2019/20. A second payment is then payable by 31 July 2021.

If these two estimated payments don’t match the calculated total payable for the 2020/21 tax year, a balancing payment has to be made by 31 January 2022.

If you miss the deadline to submit your tax return, HMRC can issue a £100 penalty, with additional fines levied the longer your tax return is outstanding.

In addition, HMRC will fine you for late payment of tax – equivalent to 5% of the tax outstanding after 30 days. Further charges of 5% are then made after six and 12 months.

 

Please note that the figures provided refer to the 2020/21 tax year.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Who needs to complete a tax return?

Most UK taxpayers do not have to complete their own tax return. The amount of tax they have to pay is calculated and paid through the pay-as-you-earn (PAYE) system.

But there are still millions of people – 11.7 million for the 2018/19 tax year – who have to fill out their own self-assessment tax return.

You need to complete a self-assessment tax return if you are:

  • Self employed as a sole trader and earn more than £1,000
  • A partner in a partnership business

You may also need to complete a self-assessment tax return if you have untaxed income such as:

  • Money from renting out a property
  • Tips and commission
  • Income from savings, investments and dividends
  • Foreign income

The gov.uk website has an online tool that you can complete in seconds to confirm whether or not you need to complete a self-assessment tax return.

What is a tax return?

A tax return is a document that details your taxable income during the tax year. It also records the capital gains and/or losses you have made and enables you to claim certain tax reliefs and allowances.

The tax year starts on 6 April and ends on 5 April the following year.

The information on your tax return lets HM Revenue & Customs (HMRC) calculate how much income tax and National Insurance you should pay, and any refunds you might be due.

What is income tax?

Income tax is tax you pay on your income from things such as:

  • Money you earn as an employee
  • Profits you earn from self-employment
  • Some state benefits and most pensions
  • Rental payments from property

There are many different allowances and exemptions that mean you do not pay tax on every part of your income.

What is National Insurance?

National Insurance is a tax on earnings from employment and profits from self-employment. The government uses receipts from National Insurance to help it pay certain benefits such as the State Pension.

Employed and self-employed workers both pay National Insurance, but you do not have to pay it once you reach State Pension age.

If you’re employed, National Insurance will normally be taken from your regular salary through the PAYE system.

If you’re self-employed you will have to arrange to pay it yourself, usually through your self-assessment tax return.

There are four ‘classes’ of National Insurance, each set at different rates.

  • Class 1 is for employees earning more than £183 a week.
  • Class 2 is for self-employed people earning more than £6,475 a year
  • Class 3 are voluntarily contributions
  • Class 4 is for self-employed people earning annual profits of £9,501 or more

Your National Insurance record counts towards the amount of state pension you will receive in retirement. If your record is in incomplete, Class 3 voluntary contributions can help you fill gaps to ensure you get the full state pension entitlement in later life.

Claiming tax relief

The government offers certain tax reliefs and allowances. You can claim these by completing a self-assessment tax return.

Tax relief applies to personal payments you make such as:

  • Pension contributions
  • Charity donations
  • Maintenance payments

There is also tax relief available on business expenses including:

  • Some of the costs associated with running your business as a sole trader or partner in a partnership
  • Travel and essential items you have paid for personally

Tax relief on these expenses will reduce the amount of tax you have to pay.

Dates, deadlines and penalties

The following dates and deadlines apply to the 2019/20 tax year, which ended on 5 April 2020.

If you did not complete a tax return for the previous year – 2018/19 in this scenario – but you need to complete one this tax year, then you have to register with HMRC. You need to do this by 5 October 2020.

Once registered you then have to meet the following deadlines:

  • 31 October 2020 – Submit your tax return, if paper based
  • 31 January 2021 – Submit your tax return, if online
  • 31 January 2021 – Pay the tax you owe

Most self-employed people pay their income tax and National Insurance ‘on account’. This means the total amount they owe is split into part-payments.

Taking the 2020/21 tax year as an example, the deadline for the first payment is 31 January 2021.

This payment is estimated at half of the tax paid in the previous year – 2019/20. A second payment is then payable by 31 July 2021.

If these two estimated payments don’t match the calculated total payable for the 2020/21 tax year, a balancing payment has to be made by 31 January 2022.

If you miss the deadline to submit your tax return, HMRC can issue a £100 penalty, with additional fines levied the longer your tax return is outstanding.

In addition, HMRC will fine you for late payment of tax – equivalent to 5% of the tax outstanding after 30 days. Further charges of 5% are then made after six and 12 months.

 

Please note that the figures provided refer to the 2020/21 tax year.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Who needs to complete a tax return?

Most UK taxpayers do not have to complete their own tax return. The amount of tax they have to pay is calculated and paid through the pay-as-you-earn (PAYE) system.

But there are still millions of people – 11.7 million for the 2018/19 tax year – who have to fill out their own self-assessment tax return.

You need to complete a self-assessment tax return if you are:

  • Self employed as a sole trader and earn more than £1,000
  • A partner in a partnership business

You may also need to complete a self-assessment tax return if you have untaxed income such as:

  • Money from renting out a property
  • Tips and commission
  • Income from savings, investments and dividends
  • Foreign income

The gov.uk website has an online tool that you can complete in seconds to confirm whether or not you need to complete a self-assessment tax return.

What is a tax return?

A tax return is a document that details your taxable income during the tax year. It also records the capital gains and/or losses you have made and enables you to claim certain tax reliefs and allowances.

The tax year starts on 6 April and ends on 5 April the following year.

The information on your tax return lets HM Revenue & Customs (HMRC) calculate how much income tax and National Insurance you should pay, and any refunds you might be due.

What is income tax?

Income tax is tax you pay on your income from things such as:

  • Money you earn as an employee
  • Profits you earn from self-employment
  • Some state benefits and most pensions
  • Rental payments from property

There are many different allowances and exemptions that mean you do not pay tax on every part of your income.

What is National Insurance?

National Insurance is a tax on earnings from employment and profits from self-employment. The government uses receipts from National Insurance to help it pay certain benefits such as the State Pension.

Employed and self-employed workers both pay National Insurance, but you do not have to pay it once you reach State Pension age.

If you’re employed, National Insurance will normally be taken from your regular salary through the PAYE system.

If you’re self-employed you will have to arrange to pay it yourself, usually through your self-assessment tax return.

There are four ‘classes’ of National Insurance, each set at different rates.

  • Class 1 is for employees earning more than £183 a week.
  • Class 2 is for self-employed people earning more than £6,475 a year
  • Class 3 are voluntarily contributions
  • Class 4 is for self-employed people earning annual profits of £9,501 or more

Your National Insurance record counts towards the amount of state pension you will receive in retirement. If your record is in incomplete, Class 3 voluntary contributions can help you fill gaps to ensure you get the full state pension entitlement in later life.

Claiming tax relief

The government offers certain tax reliefs and allowances. You can claim these by completing a self-assessment tax return.

Tax relief applies to personal payments you make such as:

  • Pension contributions
  • Charity donations
  • Maintenance payments

There is also tax relief available on business expenses including:

  • Some of the costs associated with running your business as a sole trader or partner in a partnership
  • Travel and essential items you have paid for personally

Tax relief on these expenses will reduce the amount of tax you have to pay.

Dates, deadlines and penalties

The following dates and deadlines apply to the 2019/20 tax year, which ended on 5 April 2020.

If you did not complete a tax return for the previous year – 2018/19 in this scenario – but you need to complete one this tax year, then you have to register with HMRC. You need to do this by 5 October 2020.

Once registered you then have to meet the following deadlines:

  • 31 October 2020 – Submit your tax return, if paper based
  • 31 January 2021 – Submit your tax return, if online
  • 31 January 2021 – Pay the tax you owe

Most self-employed people pay their income tax and National Insurance ‘on account’. This means the total amount they owe is split into part-payments.

Taking the 2020/21 tax year as an example, the deadline for the first payment is 31 January 2021.

This payment is estimated at half of the tax paid in the previous year – 2019/20. A second payment is then payable by 31 July 2021.

If these two estimated payments don’t match the calculated total payable for the 2020/21 tax year, a balancing payment has to be made by 31 January 2022.

If you miss the deadline to submit your tax return, HMRC can issue a £100 penalty, with additional fines levied the longer your tax return is outstanding.

In addition, HMRC will fine you for late payment of tax – equivalent to 5% of the tax outstanding after 30 days. Further charges of 5% are then made after six and 12 months.

 

Please note that the figures provided refer to the 2020/21 tax year.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

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