Self Assessment tax returns can be tedious whether you are new to filing taxes or long standing, and can be a nightmare if you have a complex tax situation. A lot of confusion surrounds the process, leading to misconceptions that can cause unnecessary stress and even penalties from HMRC for mistakes and missed deadlines. To help you navigate Self Assessment with confidence, HMRC has debunked five of the most common myths associated with it. This blog will tackle the most common Self Assessment myths, ensuring you file accurately and stress-free.
Top 5 Self Assessment Myths Busted
Myth 1: “HMRC hasn’t been in touch, so I don’t need to file a tax return.”
Reality: This is a misconception. Do not depend on HMRC to contact you regarding the necessity of filing a Self Assessment return. You are responsible for understanding your tax obligations for the 2023 to 2024 tax year. Below are several situations in which you may be required to submit a return, even in the absence of communication from HMRC:
- Newly self-employed: If you have recently launched a business or become self-employed and your gross income surpasses £1,000, you likely need to register for Self Assessment.
- Voluntary National Insurance: Even if your earnings are below £1,000, you may wish to voluntarily file a return to contribute to Class 2 National Insurance Contributions (NICs). This can safeguard your entitlement to the State Pension and certain benefits.
- Business partnerships: If you have recently become a new partner in a business partnership, you need to register for Self Assessment.
- Untaxed income: Have you earned any untaxed income exceeding £2,500 in the previous year? This may include rental income, interest from savings, or foreign income. If this applies to you, you have to file a Self Assessment return.
- High Income Child Benefit charge: If you or your partner has a net income exceeding £50,000 and receives Child Benefit payments, you may be liable for the High Income Child Benefit Charge. Submitting a Self Assessment return enables you to declare this.
NB: The threshold increases to £60,000 in the 2024-25 tax year.
Myth 2: “I have to pay the tax at the same time as filing my return.”
Reality: Filing your Self Assessment return is essential, but you don’t have to pay any taxes owed right away. The deadline to submit your return for the 2023-24 tax year is October 31st, 2024, for a paper return and January 31st, 2025, for an electronic return. However, you have until January 31st, 2025, to pay any taxes due. This extended timeline allows you to organise your finances and ensure you can cover your tax bill.
You can also establish a Budget Payment Plan, which allows you to distribute the expenses of your upcoming Self-Assessment tax bill by making weekly or monthly direct debit payments ahead of time.
Myth 3: “I don’t owe any tax, so I don’t need to file a return.”
Reality: Even if you think you don’t owe any taxes for the year, submitting a Self Assessment return is mandatory if you need to, plus it can be advantageous. Here’s why:
- Tax refunds: If you’ve overpaid your taxes during the year, filing a return allows you to reclaim that excess. This could stem from having too much tax deducted at source or claiming relief on eligible expenses.
- Tax relief on expenses: Self-employed individuals are entitled to claim tax relief on legitimate business expenses. This can include office supplies, equipment rental, travel costs related to your business, and professional fees. Filing a return allows you to claim these deductions and potentially reduce your tax bill.
- National Insurance Contributions: Self-employed individuals may be required to pay Class 2 National Insurance contributions through the Self Assessment process.
- Charitable donations: If you’ve made any charitable donations throughout the year, you can claim Gift Aid relief on them through a Self Assessment return. This can further reduce your tax liability.
- Pension contributions: Contributions to a registered pension scheme can be offset against your taxable income, potentially lowering your tax bill. Filing a Self Assessment return allows you to claim this relief.
Myth 4: “HMRC will take me out of Self Assessment if I no longer need to file a return.”
Reality: You need to inform HMRC if you have ceased being self-employed or no longer need to submit a tax return, especially if you have received a filing notice. Failing to do so may result in HMRC continuously sending reminders to file, and potential penalties could be imposed.
You may not need to submit a tax return if you have ceased renting out property, are no longer liable for the High Income Child Benefit Charge, or if your income has dropped below the £150,000 threshold with no other filing obligations. If you believe you are no longer required to file a tax return for 2023 to 2024, you should promptly inform HMRC online when your circumstances change.
Letting HMRC know can prevent unnecessary reminders and potential penalties for missed returns. You can notify HMRC online through your Government Gateway account.
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Myth 5: “HMRC has launched a crackdown on people selling their possessions online, and now I will have to file a Self Assessment return and pay tax on the items I sold after clearing out the attic.”
Reality: Many people mistakenly believe that selling personal items online means you have to register for Self Assessment. This is not usually the case. It is crucial to differentiate between infrequent sales and ongoing trading:
- Casual sales: If you’re simply selling items you no longer need, such as clothes or furniture, this usually does not have tax implications.
- Ongoing trading: This may be considered a business if you regularly buy and sell items online for profit. In such cases, you would probably need to register for Self Assessment and pay taxes on your income.
Additional guidelines
HMRC encourages individuals to submit their tax returns before the deadline to ensure a stress-free experience. Early filing allows taxpayers to explore options for managing their tax payments, receive refunds sooner, and prevent expensive mistakes that can occur when rushing through the process.
Individuals should maintain thorough records to complete their tax returns accurately, as HMRC may request documentation during their review. Inaccurate, incomplete, or illegible records could lead to penalties. Additionally, self-employed individuals must track their business income and expenses diligently and confirm their registration with HMRC as self-employed.
