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Self assessment tax return

Self assessment is broadly the means by which individuals report their income and gains on their tax return and calculate the tax & National Insurance Contributions payable. You can of course arrange for Her Majesty's Revenue & Customs to do the calculation so long as your tax return is filed by the 30th September following the end of the tax year.

Many individuals who pay their tax through the PAYE system on earned income, pensions and/or by deduction of tax at source on investment income do not normally have to complete a tax return and are therefore not within the self assessment system. Individuals who are self employed or receive their income gross (e.g. Rents), those who are higher rate taxpayers on their investment income and those who have capital gains tax liabilities are generally liable to file their tax returns and pay all or part of their tax directly to HMRC through self assessment.

Tax Returns

If you do not receive a tax return but have taxable profits or gains on which no tax has been paid then you need to inform the HMRC by the 5th October following the end of the tax year. If you fail to do so then HMRC may seek to charge you interest and penalties based on the amount of tax unpaid at the recognised date for payment. You cannot simply wait for HMRC to contact you.

Tax returns are normally issued shortly after the 5th April and these need to be filed by the following 31st January at the latest. If the return is filed after this date you may be charged a late filing penalty of £100 with a further charge of £100 if the return is still outstanding on the following 31st July. The fixed penalty cannot exceed the amount of tax outstanding at the tax return filing date. If the HMRC do not send you a tax return until after the 31st October then the filing date is 3 months from the date of issue. So in some circumstances the 31st January filing date is extended.

There is a proposal for the filing date for tax returns to be brought forward with effect from 2008. The intention is to have a filing date of 30th September for the tax return proper and a filing date of 30th November for tax returns filed on line.

Tax Payable

You are normally required to make two equal payments on account of your tax bill (and Class 4 NIC if appropriate) by 31st January in the tax year and 31st July following the end of the tax year based on your overall tax liability of the previous year. Any balance is normally payable on or before the 31st January following the end of the relevant tax year.

You are not required to make any payments on account if more than 80% of your tax bill is deducted at source (PAYE, dividend tax credits or tax at source on interest) or if your previous year’s tax bill was less than £500.You can also apply to reduce or postpone your payments on account if you have good reason for this- your income has gone down or you have allowances or reliefs to claim.

In certain situations it is possible for individual within PAYE to arrange for as much as £2000 of tax underpaid to be recovered in a later tax year through their PAYE tax code Your Tax Papers.

You need to keep all of the papers relevant to the tax return. Usually it is for 22 months following the end of the tax year except for those individuals who are self employed or let property. In these situations you have to keep the papers for 5years and 10 months following the end of the tax year.

This information is for general guidance only. You should always seek professional advice based on your own personal circumstances.