A guide to filing a tax return in 2016
The Self-Assessment tax return is how HM Revenue and Customs (HMRC) collects income tax and capital gains tax from individuals. Finance journalist Steve Sims breaksdown what you need to know.
- What is a self-assessment tax return?
- Deadline for tax return?
- Who should complete a tax return?
- How to do a tax return
- What does an accountant do?
A self-assessment return is a record of all the income or capital gains a taxpayer has made in the tax year from all sources worldwide.
HMRC is moving towards providing every taxpayer with an online digital account by 2020, meanwhile most taxpayers can still opt to file a paper or an electronic return.
Tax changes in April 2016
A number of new tax measures come into force from April 2016, but the main two affecting self-assessment tax returns are:
Savings allowance – A £1,000 tax-free allowance for savers paying basic rate income tax who receive interest from banks, building societies, peer-to-peer lending and other sources.
Higher rate taxpayers have the allowance capped at £500, while additional rate taxpayers are excluded from the allowance.
Dividend allowance – A £5,000 tax-free allowance for all taxpayers covering dividends paid from all sources.
For basic rate taxpayers, the company tax credit is scrapped and tax is charged at 7.5%. Income tax stays at 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
Filing deadlines for paper and electronic returns
Different filing dates and procedures apply depending on how you submit your tax return.
Taxpayers have to register for self-assessment by October 5, 2016 to declare any income for the 2015-16 tax year, which runs from April 6, 2015 until April 5, 2016 inclusive.
Registration is a one-time task – once registered taxpayers stay on the HMRC database and receive reminders to file tax returns each year.
Tax returns online
HMRC offers a free basic tax return service online, but if you have more complicated financial affairs you will need to buy software or download forms to complete your return.
The most common taxpayers needing software or extra forms are those with income as:
- Business partnerships
- Trusts and estates
- Lloyd’s underwriters
- Religious ministers
Online tax returns for the tax year ending April 5, 2016 have a filing deadline of midnight on January 31, 2017.
Any tax owed is paid at the same time.
Some taxpayers may have to make an extra payment in advance of the following year’s income tax on January 31 and the following July 31, 2017.These payments are credited against any tax due on January 31, 2018.
Paper tax returns
If you are filing a paper self-assessment return for the tax year ending April 5, 2016, the deadline is earlier for delivering the forms to HMRC – midnight on October 31, 2016.
Paper filers must pay any tax owed by January 31, 2017. If advance tax payments are due, these are paid on January 31, 2017 and July 31, 2017 and credited against any tax owed on January 31, 2018.
Paying your self-assessment bill through your tax code
HMRC will collect any tax you owe by adjusting your personal tax coding providing:
- The tax bill is no more than £3,000
- You already pay income tax by PAYE, such as from a salary or pension
- A paper self-assessment return was filed by midnight on October 31, 2016 or an online return was filed by midnight on December 31, 2016
About 11 million people file self-assessment tax returns. Completing and filing a return is not optional, HMRC applies strict rules requiring who should submit a return.
So, who should file a self-assessment return? Generally, if someone receives income taxed at source, they do not have to file a self-assessment return.
Here’s a list of the most common reasons for completing a return, but if in doubt, check with HMRC because it’s doesn’t cover every possible scenario:
- The self-employed or a business partner
- Someone paid more than £2,500 a year in untaxed income, such as from renting out property, savings or dividends
- Anyone making a profit from selling shares, land, a buy to let home or other chargeable assets
- Company directors, unless no pay or benefits were received
- Couples claiming child benefit when one partner earns more than £50,000 a year
- Someone receiving income from overseas that is taxable
- Anyone living overseas but receiving income from the UK
- Anyone earning more than £100,000 a year
- Trustees of trusts or registered pensions
- Anyone who received a Form P800 from HMRC who failed to settle an unpaid tax bill
You can complete your own tax return or ask an accountant for help. If your financial affairs are straightforward, drafting and filing your own return is not too hard.
Here are some tips to help you avoid some common pitfalls:
What should I have to hand?
Taxpayers need a wide range of security codes, forms, statements and other financial records readily available to complete a self-assessment tax return.
What you need depends on your personal financial circumstances.
If you are in business and VAT registered, then you’re probably in a routine of bringing financial records up-to-date every quarter. If you’re not VAT registered, then try to get into the same habit.
It’s best to have your online tax return completed by the end of November 2016, so you’re in no rush to file if HMRC’s systems are busy.
HMRC security codes and passwords
Don’t forget you cannot file online unless you have a unique tax reference (UTR) and you can only get a UTR by registering with HMRC.
If you’re completing a partnership return, you will need a separate UTR for the partnership as well as your own.
You will also require a username and password to access the HMRC online service. Setting up these UTRs and security codes can take up to a month as part of the process is completed online and the rest is by post.
It’s a good idea to have this information before Christmas 2016 at the latest.
The basics include:
- your national Insurance number
- date of birth
- forms P45 or P60 to show income received and tax paid
- dividend vouchers
- statements showing interest paid on savings
- details of pension contributions
The self-employed will need:
- bank statements
- till rolls,
- receipts for expenditure
- mileage records
- any other documents showing income and expenses
Common errors on tax returns
To reduce your tax bill, make sure any allowances or reliefs you are entitled to are claimed in full, such as:
Capital allowances if you’re self-employed – this is spending on assets to run your business, such as tools, equipment, office furniture and vehicles
Charity donations – if you give money through Gift Aid or Payroll Giving you may qualify for tax relief
Pension contribution relief – higher rate and additional rate automatically collect 20% tax relief, but have to apply for a top-up to 40% or 45% by completing a self-assessment return
Learn from your mistakes
Keeping records as you go rather than trying to tackle a heap of paperwork for an entire year is much easier.
Don’t throw away vital pieces of paper like bank statements, receipts or invoices because they take time to replace and financial institutions are likely to charge for replacements
Keeping financial records
No accounts, statements or other paperwork are filed with the return, but taxpayers must have workings and original documents at hand to show how figures entered on the forms were calculated.
HMRC can ask to see these financial records, so you must keep them safe for at least 22 months after the end of the tax year they apply to.
If you’re self-employed, keep the records for five years after the January 31 following the end of the tax year they apply to. For the 2016-17 tax year, that’s at least January 31, 2022.
Accountants will draft self-assessment tax returns, accounts, run payroll for businesses and deal with VAT returns as well as offer tax planning advice.
They need all the same paperwork as you to complete a return and you should remember the responsibility for completing the return properly and filing on time lies with the taxpayer and not the agent.
Don’t forget completing a self-assessment tax return on time is not optional. It is a legal requirement if you fall into the group that must submit one.
You have a right to arrange your personal affairs to pay the least tax, but evading tax by deliberately omitting figures from a tax return or not submitting one when you should are both crimes.