If you’re a taxpayer in the UK, you’ve probably heard the term ‘self assessment tax’. But what exactly is it, and how does it work? In this blog post, we’ll take a closer look at self assessment tax in the UK and what you need to know about it.
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What is self assessment tax?
Self assessment tax is a system used by HM Revenue & Customs (HMRC) to collect tax from people who are not taxed through the PAYE (Pay As You Earn) system, which is the method used for most employees. The self assessment system is used for a variety of different types of taxpayers, including self-employed people, landlords, and company directors.
Under the self assessment system, taxpayers are responsible for calculating their own tax liability and submitting a tax return to HMRC each year. This tax return must be submitted by 31 January following the end of the tax year (which runs from 6 April to 5 April the following year).
The tax return must include details of all the taxpayer’s income, as well as any tax reliefs or allowances they are entitled to. Once the tax return has been submitted, HMRC will calculate how much tax is owed and issue a bill.
Why do I need to pay self assessment tax?
If you’re required to pay self assessment tax, it’s because you’re either self-employed, receive income from sources other than employment (such as rental income or investment income), or you’re a company director. If you fall into any of these categories, you’ll need to complete a self assessment tax return and pay any tax owed.
It’s worth noting that even if you’re not required to complete a tax return, you may still need to pay self assessment tax if you receive income from sources other than employment and your tax liability is not covered by your PAYE tax code.
How is self assessment tax calculated?
Self assessment tax is calculated based on the taxpayer’s total income for the tax year, minus any tax reliefs or allowances they are entitled to. The tax rates and thresholds are the same as those used for PAYE tax, but the taxpayer is responsible for calculating their own tax liability.
There are a number of different types of income that may need to be included on a self assessment tax return, including self-employed earnings, rental income, investment income, and capital gains. There are also a number of tax reliefs and allowances that may be available, such as the personal allowance, which is the amount of income you can earn tax-free each year.
It’s important to note that if you make errors in your self assessment tax return, you could be subject to penalties and interest charges. This is why it’s important to ensure that your tax return is accurate and complete before submitting it to HMRC.
When is self assessment tax due?
Self assessment tax is due by 31 January following the end of the tax year. This means that if you’re completing a tax return for the tax year ending 5 April 2022, you will need to submit your tax return and pay any tax owed by 31 January 2023.
If you miss the deadline for submitting your tax return or paying your tax bill, you could be subject to penalties and interest charges. It’s therefore important to ensure that you submit your tax return and pay any tax owed on time.
How do I submit a self assessment tax return?
Self assessment tax returns can be submitted online using HMRC’s online service. To use this service, you’ll need to create an HMRC online account and register for self assessment. You’ll then be able to complete your tax return online, submit it to HMRC, and pay any tax owed.
Alternatively, you can submit a paper tax return by post
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