Introduction to Self-Assessment

Self-Assessment is HMRC's method for collecting Income Tax and National Insurance Contributions (NICs) from individuals whose tax is not automatically deducted from wages or pensions. It is essential for those with multiple income sources, self-employment, or specific tax reliefs to report.

The UK tax year runs from 6 April to 5 April. Self-Assessment ensures that all taxable income is declared and any tax owed is paid.

Who Needs to Complete a Self-Assessment Tax Return?

Mandatory Requirements:

• Self-employed individuals earning over £1,000 annually.
• Partners in a business partnership.
• Company directors, unless all tax is paid through PAYE and there is no other untaxed income.
• Individuals with untaxed income over £2,500 (e.g., rental income, foreign income).
• Those with investment income over £10,000 before tax.
• Claimants of High Income Child Benefit Charge (HICBC) where income exceeds £60,000 (from 6 April 2024).
• Individuals with income over £150,000 (note: the threshold was removed from 2024/25).
• Anyone with Capital Gains Tax liabilities.
• Anyone needing to report other untaxed income.

Voluntary Registration:

• To claim tax reliefs (e.g., pensions, Gift Aid).
• To reclaim overpaid tax.

Registering for Self-Assessment

• Deadline: 5 October after the end of the relevant tax year (e.g., 5 October 2025 for 2024/2025).
• How: Register online at GOV.UK.
• Different processes for: Self-employed individuals, Individuals with other income
• You'll receive: Unique Taxpayer Reference (UTR), Government Gateway login details
• Late registration can result in penalties.

Key Information Needed for Your Self-Assessment

• UTR and National Insurance Number
• Income Details: Employment (P60, P45), Self-employment, Rental income, Savings and dividends, Foreign income, Capital gains, Pension and state benefits
• Allowable Expenses: Office and travel costs, Advertising and insurance, Training and professional fees, Capital allowances
• Other Financial Details: Pension contributions, Gift Aid, Student Loans, HICBC

Calculating Your Tax Bill

Income Tax (2024/25 & 2025/26):
• Personal Allowance: £12,570 (frozen)
• Reduction: £1 less for every £2 over £100,000 (zero at £125,140)
England, Wales, NI:
• Basic Rate: 20% (£12,571 - £50,270)
• Higher Rate: 40% (£50,271 - £150,000)
• Additional Rate: 45% (Over £150,000)
Scotland:
• Starter Rate: 19%
• Basic Rate: 20%
• Intermediate Rate: 21%
• Higher Rate: 42%
• Advanced Rate: 45%
• Top Rate: 48%
NICs for the Self-Employed:
• Class 2: Voluntary only from April 2024
• Class 4:
o 6% on profits £12,570 - £50,270
o 2% on profits over £50,270
Capital Gains Tax:
• Annual Exempt Amount: £3,000
• Rates:
o 24% for residential gains (higher/additional rate)
o 18% for residential gains (basic rate)
o 20% for other gains (higher/additional rate)
o 10% for other gains (basic rate)
Dividend Tax:
• Allowance: £500 from April 2024
• Rates:
o 8.75% (basic)
o 33.75% (higher)
o 39.35% (additional)

Self-Assessment Deadlines

For the 2024/2025 Tax Year:
• Register: 5 October 2025
• Paper Return: 31 October 2025
• Online Return: 31 January 2026
• Tax Payment: 31 January 2026 (balancing + 1st payment on account)
• 2nd Payment on Account: 31 July 2026

Payments on Account

• Required if your tax bill is over £1,000
• Advance payments towards next year’s tax
• Each payment = 50% of previous year’s bill
• You can request to reduce them if income is falling

Record Keeping Requirements

• Keep invoices, receipts, statements, sales records
• Retain for 5 years after 31 January submission deadline

Making Tax Digital (MTD) for ITSA:

• Mandatory from April 2026 (income over £50,000)
• From April 2027 (income over £30,000)
• Digital records and quarterly updates required
• Still voluntary for 2024/25 and 2025/26

Penalties for Non-Compliance

• Late Filing:
  • £100 initial fine
  • Daily fines after 3 months
  • Higher penalties after 6 and 12 months
• Late Payment:
  • Additional 5% at 6 and 12 months
• Interest:
Charged on overdue amounts

Common Self-Assessment Mistakes to Avoid

• Missing deadlines
• Omitting income sources
• Not claiming eligible expenses
• Claiming non-allowable costs
• Poor record-keeping

Key Terms and Glossary

• UTR: Unique Taxpayer Reference
• Tax Year: 6 April to 5 April
• Personal Allowance: Tax-free income threshold
• Allowable Expenses: Deductible business costs
• Payments on Account: Advance tax payments
• Balancing Payment: Tax due after accounting for payments on account
• Class 2/4 NICs: National Insurance for the self-employed
• Capital Gains Tax: Tax on asset sales
• Dividend Allowance: Tax-free dividends
• HICBC: High Income Child Benefit Charge
• MTD for ITSA: Digital reporting system for self-assessment