What is Self Assessment and how does it work?
The principle of Self Assessment is quite simple. You should know whether or not you have a source of income that is untaxed or not taxed at the right rate. If this is the case you must tell H.M. Revenue & Customs (HMRC) by 5th October following the end of the tax year in which the income first arose unless you have been sent a tax return to complete.
Overseas resident landlords MUST tell HMRC if they have any income from rent whether any tax is due or not (on form SA1). Then HMRC will register the landlord for UK taxation and send a Tax Return to the landlord. Once you have a Tax Return, you have until the later of 31st October and two months after the Return was issued if you want HMRC to calculate the tax due, and 31st January and three months after the Return was issued if you want to calculate the liability yourself or you want us to calculate it for you. In any event you have until 31st January in the year following the end of the tax year to pay any tax due.
What are the penalties for late Self Assessment Returns?
On the day your Tax Return is late you have a penalty of £100.
For each of the days after the first and up to 90 days you incur a penalty of £10 per day.
That makes total penalties of £1,000 if you are three months late.
For the second quarter there is a quite different arrangement. The penalty is £300 or 5% of the tax due — whichever is the higher.
And at the end of the fourth quarter there is another £300 or 5% of the tax due — whichever is the higher. For more details see the late filing and late payment penalties page.
When should the Self Assessment payments be made?
The tax year runs from 6th April one year to 5th April in the next. The first payment is made in January during the tax year and is one half of the liability for the previous year unless the liability for the previous year was under £1,000. Assuming your Tax Return has not been submitted and processed by 31st July, the second instalment is due on that date and is the same amount. You are required to submit your Tax Return by 31st January following the end of the tax year together with any balancing amount of tax due.
Interest is charged on tax paid late. This applies whether the late paid tax is either of the two payments on account or the balancing payment.
To avoid interest and penalties you should keep a close eye on the important dates throughout the year, or let us keep an eye on the due dates for you when you become a client.
Not sure if you have missed a deadline? To ensure your peace of mind, get in touch to discuss this or any other points on Self Assessment.
What’s the best way of keeping records for Self Assessment?
Until April 2023 there will be no prescribed way to keep your records. The simplest method is to keep all the agent’s statements to evidence rental income received and agent’s charges paid. Then to add the receipts or other evidence for anything else you have paid. You may scan all the documents and keep them in your computer if you wish.
Records of all information used to complete Tax Returns must be kept for 22 months after the end of the tax year, or for 5 years and 10 months for those carrying on a business or who have income from letting out property. There is a maximum penalty of up to £3,000 for each tax year for which records have not been kept.