Let's Understand Self-Assessment Tax: Who Needs to File and How to Do It

Every economy requires taxes for running and ensuring the welfare of its citizens, and the UK is no different. Her Majesty's Revenue and Customs (HMRC) uses the self-assessment tax system to collect income tax from those who have income that is not taxed at source. These individuals include self-employed people and high-earning workers. In this thorough guide, we will explore who needs to file a Self-Assessment tax return and how to do it.

Who Needs to File a Self-Assessment Tax Return?

Self-Employed People (Sole Traders)

All self-employed people, including sole proprietors, must submit a Self-Assessment tax return. Being self-employed means that you need to compute and pay your own taxes. To guarantee an accurate tax estimate, it is essential to maintain precise records of your income and expenses during the entire tax year.

Being self-employed, you need to declare your total income and claim any allowable expenses related to your business. The resultant amount will be your taxable profit, and you will be required to pay income tax as well as National Insurance Contributions (NICs) on it. Additionally, depending on your amount of revenue, you could have to pay Class 2 and Class 4 NICs.

Employed People Earning More Than £100,000 a Year

The High-Income Child Benefit Charge (HICBC) is assessed to working individuals who make above £100,000 annually. You must still file a Self-Assessment tax return even if you pay income tax through the Pay As You Earn (PAYE) system at your place of employment. This return's calculations and payment of the HICBC on the child benefit you or your partner receives are the main goals.

Pension Relief Claimants

High-rate taxpayers, including those who are employed and self-employed, have the option to submit tax returns that claim pension relief. You might be able to get tax relief on your contributions if you make them to a personal pension plan. You can apply for this relief by filing a Self-Assessment tax return, which would lower your tax obligation and perhaps raise your pension savings.

How to File a Self-Assessment Tax Return

Register for Self-Assessment

You must register with HMRC if you are a self-employed person or need to file a Self-Assessment tax return for any other reason. By going to the HMRC website and completing the registration process, you can do this online.

Gather Relevant Information

If you are self-employed, gather all the relevant data, including records of your earnings and outgoings. Make sure you have information on all sources of income, including dividends, pension contributions, and job income.

Complete the Tax Return

You can submit your Self-Assessment tax return online using either the authorized software or the HMRC website. You will be guided through several sections of the tax return form and asked to submit the necessary information. Give accurate information to prevent mistakes and penalties.

Claim Pension Relief

Make sure to seek pension relief on your tax return if you qualify. To lower their overall tax bill, high-rate taxpayers can claim additional tax relief on their pension payments.

Submit the Tax Return

Check your tax return for correctness and completeness once you have entered all the required information. Make sure everything is correct, then send your tax return to HMRC. Typically, the Self-Assessment tax return filing date is January 31st after the end of the tax year. However, it is important to confirm the exact date for the relevant tax year.