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How to Complete Your First Tax Return Without Making a Mistake or Suffering a Penalty

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How to Complete Your First Tax Return Without Making a Mistake or Suffering a Penalty

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11 minute read

You may be facing the anxiety of completing your Self-Assessment Tax Return (SATR) for the first time and don’t know where to start. Or it may have been years since you last did one, and it all feels quite different now.

Don’t worry, you are not alone. According to HMRC there are 11.7 million people who must complete their SATR. The latest results show that 10.4 million filed their return online, which is a new record.

Lots of taxpayers don’t enjoy completing their SATR and leave it until the last minute. In the final week of the tax year about three million people still hadn’t submitted their return. 26,000 people submitted their returns between 11pm and 11.59pm on the night of the deadline! This leaves no wriggle room to correct mistakes, errors, or omissions.

This blog is for first timers and those who haven’t done one for several years. It will answer the following common questions:

  • Do I need to complete a tax return?
  • When should I register with HMRC?
  • How do I pay my tax bill?
  • Which forms should I complete?
  • How do I claim refunds and rebates?

If your income is only coming from the UK and that income has already been taxed at its source, then you probably do not need to complete a tax return. This is true regardless of your residence or domicile status. All self-employed people in the UK (even those who pay tax at the source of their income) have to complete a tax return under the Construction Industry Scheme (CIS), unless the trading income is exempt under the trading allowance.

There are two common reasons for needing to complete a tax return. Firstly, if you have exceeded the annual exemption for Capital Gains Tax (CGT) (£12,300 in 2020-21). Secondly, if you have moved to a higher rate of tax due to receiving dividend income from investments.

Top tips

You are most likely to file your tax return online. The HMRC website will time-out if there is a delay entering information. This can be frustrating if you don’t have everything to hand.

Here are some more tips:

  • Complete your return well before the deadline of January 31st
  • Make sure that you have all your HMRC log-in information to hand
  • Get all your paperwork and statements in order and to hand
  • Set aside a quiet time of day and avoid interruptions
  • Read any useful fact sheets before you begin
  • If in doubt, don’t guess. Save your return and come back to it when you have the correct information.
  • Access your Government Gateway account to test that it all works before you attempt your return

Do I need to fill in a SATR?

You will need to complete one if:

  • your self-employment income was more than £1,000
  • your income from renting out property was more than £2,500
  • you earned more than £2,500 in untaxed income, for example from tips or commission
  • your income from savings or investments was £10,000 or more (before tax)
  • you have sold things like shares or a second home
  • you’re a director of a company (unless it is a non-profit organisation, such as a charity)
  • you (or your partner’s) income is over £50,000 and you’re claiming Child Benefit
  • you have income from abroad you need to pay tax on, or you live abroad and have an income in the UK
  • your taxable income was over £100,000
  • if you earned over £50,001 in the 2020-21 tax year and made pension contributions you may have to complete an assessment to claim back the extra tax relief you’re owed
  • you are a trustee of a trust or registered pension scheme
  • your State Pension was more than your personal allowance and was your only source of income
  • you received a P800 from HMRC saying you did not pay enough tax last year

HMRC have a useful tool to help establish if you do need to complete a tax return. It can be found here.

You can also fill in a SATR if you want to make voluntary Class 2 National Insurance Contributions (NICs). This will help you qualify for benefits such as the State Pension.

You do not need to fill in a SATR if you are an employee who has paid tax through the Pay as You Earn (PAYE) system, unless you earnt over £100,000.

Do I have to register for self-assessment?

If you’ve never submitted a tax return before, you will first need to register. There are different ways to register if you’re:

  • self-employed
  • not self-employed, but you still need to declare your income
  • in a partnership

Find out more and register on the Gov.uk website.

Once you have registered, you will be sent your Unique Taxpayer Reference (UTR). This is very important. Keep it somewhere safe because you will need it each time you do your return.

If you want to submit your Self-Assessment form online, you must set up a Government Gateway account. To do this follow the guidance in the letter from HMRC that contains your UTR.

Once you’ve set-up the account you will get an activation code in the post, which you will need to complete the set-up of your Gateway account.

You will need your old UTR to register and set up an account if you have previously submitted Self-Assessment tax returns.

It is best to make sure you can access your Gateway account before you submit your return to save time if you can’t log in.

When are the Self-Assessment deadlines?

You submit tax returns for tax years, not calendar years. The system works one year in arrears.

For example, for the 2020-21 tax year (6th April 2020 to 5th April 2021) you would need to:

  • register for Self-Assessment by 5th October 2020 if you’ve never submitted a return before
  • submit your return by midnight 31st October 2020 if filing a paper tax return
  • submit your return by midnight 31st January 2021 if filing online
  • pay the tax you owe by midnight 31st January 2021

You might be charged a penalty fee if you fail to meet one or more of these deadlines.

What information will I need to fill in a SATR?

Before you start, make sure you have:

  • your 10-digit UTR
  • your National Insurance Number
  • details of your untaxed income from the tax year, including income from self-employment, dividends and interest on shares
  • records of any expenses relating to self-employment
  • any contributions to charities or pensions which might be eligible for tax relief
  • P60 or other records showing how much income you received which you’ve already paid tax on

It is always a good idea to read the relevance HMRC advice. This is particularly true for the sections relating to why you’re filling in a return.

How do I complete my tax return?

There are two sections to a tax return. The main section is the SA100.

This deals with:

  • taxed and untaxed income in the form of dividends and interest
  • pension contributions
  • charitable donations
  • benefits, including the State Pension, Child Benefit and the Blind Person’s Allowance

You may also need to fill in a supplementary page if you have income to declare from the following sources:

  • as a company director
  • as a foreign national
  • as a citizen with dual residency
  • property
  • Capital Gains
  • from abroad

How do I complete the SA100?

Before you start filling in the SA100 or the supplementary pages, it is important to read the help sheets and notes related to the section you’re completing. You can find all the relevant help sheets for Self-Assessment on Gov.uk.

Income

This section is specifically for declaring tax and untaxed income from interest earned from bank and building society accounts and dividends from shares.

Pensions, annuities, and state benefits

If you’re retired, you need to enter the:

  • total amount of State Pension you were entitled to receive over the tax year
  • gross amount of any State Pension lump sum
  • gross amount of any annuities or pension lump sums (other than the State Pension)

If you’re claiming benefits, you will need to enter the:

  • amount received in Incapacity Benefit and Jobseeker’s Allowance
  • grand total of taxable benefits received (including the Bereavement Allowance, Carer’s Allowance, and the Industrial Death Benefit)

You do not need to include the following benefits:

  • Attendance Allowance
  • Bereavement Support Payment (lump sum)
  • Personal Independence Payment (PIP)
  • Pension Credit
  • Working Tax Credit
  • Child Tax Credit
  • Employment Support Allowance (income-related)
  • Maternity Allowance
  • War Widow’s Pension

This is because these benefits are not taxable.

Other UK income

This section is for any other taxable income, not related to interest, dividends or the supplementary pages.

You can also enter any allowable expenses related to this income, in addition to any income tax you’ve already paid on it.

Pension contributions

This section is for any payments into a registered pension scheme, an annuity contract, or an employer’s scheme where deductions were made after tax.

Charitable donations

This is for the grand total of Gift Aid donations made to charities during the tax year. You can also enter amounts for any shares, securities, land, or buildings gifted to charities.

Blind Person’s Allowance

Confirm whether or not you are claiming Blind Person’s Allowance.

Student Loan repayments

Confirm whether or not you’re currently repaying your Student Loan and deductions made by your employer.

High Income Child Benefit Charge

If you’re receiving Child Benefit and your income was over £50,000, you will need to fill in this section.

Marriage Allowance

Complete this section if your income for the tax year was less than the Personal Allowance and you wish to transfer some of your Personal Allowance to your spouse. Find out more about the Marriage Allowance here.

How do I complete the supplementary pages of my tax return?

If you have extra income to declare from self-employment, property, or capital gains, you will need to fill in a supplementary page. If you’re:

  • self-employed, you need to complete SA103
  • reporting property income, fill in SA105
  • declaring capital gains, complete SA108

You will also need to report income from the sources which you have not paid any tax on in these pages. You will also be able to declare any allowable expenses which will be deducted from your tax bill.

Self-employed (SA103)

Income

If, owing to the COVID-19 pandemic, you are in receipt of a self-employed income support grant, this has to be reported as income.

If you’re earning money through self-employment, you will be asked to enter your turnover under the business income section. This is the grand total of everything you had coming in during the tax year before expenses are deducted.

If you have more than one source of self-employed income, you can enter this amount separately, but make sure the job which you earn the most from is your main job.

Expenses

You cannot claim expenses if you claim the £1,000 tax-free trading allowance.

There are two ways to declare your expenses if you’re self-employed. You can just enter your total expenses without having to itemise them if your annual turnover is below £85,000. You will have to enter individual amounts for each type of expense (including a total) if your annual turnover is above £85,000.

The different expenses you can include if you’re self-employed are:

  • cost of stock bought for resale
  • cost of equipment used at work
  • wages, salaries, and other staff costs
  • payments to subcontractors (if you work in the construction industry)
  • vehicle and travel expenses
  • work building costs (including rent, power, and insurance)
  • repairs and maintenance for work buildings and vehicles
  • office costs (including internet access, phones, and stationery)
  • advertising and business entertainment costs
  • interest on loans
  • bank, credit card and other financial charges
  • accountancy, legal and other professional costs

When you submit your tax return, you do not need to send in proof of your expenses. You will need to keep records of expenses for five years after you submit your return for that tax year in case HMRC ask you to produce them.

Find out more about acceptable expenses for self-employed individuals on Gov.uk.

UK property income (SA105)

Income

You will be asked to enter the income from rented properties in two separate sections if you’re a landlord.

In the first section, you will need to enter the total income from all furnished holiday lettings in the UK. If you have any furnished holiday lettings in the European Economic Area (EEA), you will need to enter the total income from these on a separate page. In the second section, enter the total rent and income from other properties. You can get earn up to £7,500 a year tax free by taking advantage of the Rent a Room scheme.

Expenses

If you claimed the £1,000 tax-free trading allowance, you cannot claim expenses.

If you make money from renting out a property you can claim expenses for:

  • rates, insurance, and ground rent
  • property repairs and maintenance
  • interest on loans and other financial expenses
  • legal, management and other professional fees

Capital Gains (SA108)

Income

Disposal proceeds is the name of the income you need to declare for CGT. You will need to fill in a separate ‘disposal proceeds’ total for residential property, non-residential property and shares and securities.

Expenses

On a Capital Gains Tax return, you can claim for ‘allowable costs’. These include:

  • the initial price paid for the relevant asset
  • the costs of any improvements (these must be reflected in the asset when it is sold)
  • other costs in buying or selling the asset (such as Stamp Duty when buying a property).

Keeping a good record will help you make sure you do not claim for the same thing twice. This is because you might be claiming expenses as part of your tax return for property in previous years. For example, if you claimed for maintenance on a Buy to Let property in a previous tax year, you cannot claim for the same expense as part of your Capital Gains tax return when you come to sell the property.

Paying your tax bill

Once you’ve submitted your tax return, you will be told how much tax and, if you’re self-employed, NICs you will need to pay.

When do I need to pay?

The deadline is 31st January.

Can I pay my tax bill in instalments?

Yes, you can make payments in instalments, but these are an advance on your next tax bill.

You can arrange for what is called a budget payment plan through your online account and decide how much you want to pay each week or month. You can also choose to stop paying for up to six months. The only restriction is you must be up to date with your previous tax payments. However, you cannot use this to pay for a previous tax bill in instalments. Find out more about budget payment plans on Gov.uk.

How do I pay my tax bill?

There are many ways to pay your tax bill, but the length of time depends on which method you choose. If you’re making your payment close to the deadline, you should choose one of the faster options to make sure you don’t get penalised.

The fastest ways to pay are through online or telephone banking, the Clearing House Automated Payment System (CHAPS), a debit or corporate credit card or in person at your bank or building society. You can also arrange for a bank transfer and pay by Direct Debit or by sending a cheque. Discover the different ways you can pay your Self-Assessment tax bill on Gov.uk.

What should I do if I miss the deadline?

If you miss the deadline to register, to submit your return or to pay your bill you will get a penalty. If you’re up to 3 months late filing or paying tax, there is a penalty of £100. If it’s later than this the penalty will be more. If you have a reasonable excuse you can appeal.

Learn more about penalties for missing Self-Assessment deadlines.

What should I do if I make a mistake?

You do not need to fill in your tax return all in one go, so it is a good idea to start early and take your time to minimise mistakes. Before you officially submit you will be given the chance to go over your return and correct any errors you have made. If you realise you’ve made a mistake after you’ve submitted, you can still make changes up until the filing deadline the year after. This means, for the tax return you submitted by 31st January 2020, you can make changes up until 31st January 2021.

Find out how to make a correction to a submitted tax return on Gov.uk.

What should I do if I cannot afford to pay my tax bill?

Owing to the COVID-19 epidemic, the government has announced any income tax payments due in July 2020 have been deferred until January 2021. Unless your last tax bill was less than £1,000 or you’ve already paid more than 80% of all the tax you owe, you will be asked to make payments on your account towards your next tax bill. Payments on accounts are made up of two payments, each of which is half of your previous year’s tax bill. They are due by 31st January and 31st July.

If you can’t afford to pay your tax bill, you need to contact HMRC as soon as possible by calling the Business Payment Support Service on 0300 200 3825. This line is for everyone, not just for businesses. If your business is struggling, you can also contact the Business Debt Line.

HRMC will look at how much you owe, your income, expenditure, assets, savings, and investments and decide whether or not you will be given more time to pay. It is likely that you will have to pay interest and penalty charges if you do not pay on time. You might be offered more time to pay or offered the chance to pay in instalments.

Find out what to do if you cannot pay your tax bill on time on the Gov.uk website.

Tax is a priority debt. It is therefore necessary to take immediate action and call the Business Payment Support Service if you are struggling to pay your tax bill. If you do not and simply refuse to pay, HMRC will take enforcement action against you. This can include directly collecting what you owe through your earnings, bank account, pension, or through repossession, or a debt collection agency. You could also be faced with court action, the threat of bankruptcy or of your business being closed down.

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