What is a Self Assessment Tax Return? Do you need one and how it works

The questions you're probably asking

If you've landed on this page then there's probably a good chance that one, or more, of these questions has crossed your mind:

• Do I need to complete a tax return?
• What happens if I ignore it?
• Can I just do the tax return myself?
• How much tax am I going to owe?
• When do I need to start thinking about this?

The good news is you're not alone. Many people have to file a Self Assessment Tax Return, and we hear these questions every week. We get queries from freelancers, influencers, business owners, landlords, and those that have received a letter from HMRC and aren't sure what it means. 

Our aim is to simplify things for you where possible and provide clear answers to your queries. 

What is a Self Assessment Tax Return? 

The Self Assessment Tax Return is a system operated by HM Revenue & Customs (HMRC) where you inform the taxman about your income where it hasn't already been taxed automatically. 

What this means is:

• HMRC doesn't already necessarily know about this income through payroll and PAYE
• You'll need to report it yourself

This can include:

• Self-employment income
• Rental income from buy-to-let
• Dividends from a company
• Bank interest
• Income from foreign countries
• Capital gains resulting from selling assets

You declare these things through Self Assessment and when you complete a tax return, HMRC then calculates how much you owe, and provides you with a statement for when you need to pay it. 

Do I need to complete a tax return?

This is the first and most important question because in our experience:

• Many people don't realise they should be filing a tax return
• Some people assume they need to file when they don't need to

Usually you'll need to complete a tax return if you:

• Are self-employed such as a sole trader
• Are a limited company director
• Earn more than £1,000 income from side hustles such as freelancing, selling goods, or service-based work
• Receive rental income
• Have income that hasn't been taxed from dividends or investments
• Need to pay Capital Gains Tax

Uncertainty is where people often get caught out. The reason being not filing when you should can lead to interest charges and penalties, even if this was down to a mistake and you didn't realise it. 

How does Self Assessment actually work?

The step-by-step process is as follows:

1. You register with HMRC

If it's your first time, you need to register through Gov.uk for self assessment. 

2. Keep clear and accurate records throughout the year

All things such as income, expenses, dividends and gains from selling assets. Being organised is absolutely critical. 

3. Complete your tax return

You have to submit details of your income for the tax year which runs from 6 April to 5 April. The tax return needs to be submitted by 31 January following the tax year in question. 

4. HMRC calculates your liability

Your accountant or tax advisor can also help you project this so that you can set money aside for when the bill comes through. 

5. You pay what you owe

Payment is usually split onto 2 dates in the calendar year being:

• 31 January and;
• 31 July

This is known as payments on account. 

When are the deadlines?

When is the tax return deadline? To find this, and other key dates that stay the same each year, see the list below:

• 5 October - Register for self assessment
• 31 January  - Submit your tax return online
• 31 January - Pay first payment on account and balancing payment
• 31 July - Pay second payment on account

We find where many people go wrong is that they know the deadlines but leave everything until the month of January!

Why leaving your tax return until January is a bad idea    

Every year we come across new clients who exclaim: 

'I didn't realise it would be this complicated.'

And also:

'I can't believe it's this much, how am I going to pay this!?'

If you leave things late it can mean:

• Not knowing what your tax bill is until the very last minute
• Losing out on potential opportunities to plan or reduce your liability
• The risk of errors (and HMRC doesn't ignore them)
• Creating unnecessary stress for yourself

The point is a tax return is a process, not just a deadline. 

The earlier you start, the more control you have. 

What happens if you don't complete your tax return, or get it wrong? 

People often worry about this part but don't necessarily understand it. 

If you file late: 

• £100 automatic penalty even if no tax liability is due
• The additional penalties after 3, 6, and 12 months

If you pay late:

• Interest charges
• Additional penalties applied over time

If your tax return is incorrect:

• HMRC may open an investigation into your finances
• You face the prospect of fines or additional tax charges

The reality is HMRC has more data than ever before and they're more proactive in pursuing these things. 

Can you do your tax return yourself?

You can, and many people do. But the real question is should you? 

The answer depends on your circumstances. 

Doing it yourself can work if:

• Your finances are simple
• You have one income stream
• You're confident with numbers and HMRC's systems

But this can become risky when:

• You have multiple income sources
• You're a business owner or director
• You're unaware of what you can, and can't, claim
• You're uninformed as to the various reliefs and allowances available
• You're looking to minimise your tax bill legally

A big risk isn't just getting your tax return wrong, it's:

• Overpaying without realising it
• Triggering tax issues you didn't know existed

When should you start thinking about your tax return?

December and January are too late!

Ideally you're thinking about it as soon as possible after the end of the tax year on 6 April. The reason being doing so provides sufficient time to:

• Plan your tax properly 
• Budget for the upcoming bill
• Avoid surprises
• Assist you in making better financial decisions

What should you do next?

You're likely to be in 1 of 3 situations:

1. You definitely need to do a tax return

So the next step is understanding how to complete it properly 

2. You think you need to do one, but you're not sure

You need confirmation before you risk getting it wrong. 

3. You just don't want the hassle!

You don't have the time and need someone else to handle it for you. 

All 3 are common situations and therefore normal. 

Most people don't just come to us because they can't do a tax return, they also come to us because they don't want the risk, stress, and workload.  

What happens next (if you want help)

If you're unsure about whether you need to complete a tax return, or you want to avoid the risk of mistakes, it's worth getting in touch for a free conversation. 

There will be no pressure or obligation, it's just to explore your situation. We'll:

• Find our more about your circumstances
• Confirm what you actually need to file
• Explain clearly and simply what's involved
• Map out timelines and next steps

If you're better off doing it yourself, we'll be sure to tell you that too!

Please be aware that information provided in this website page is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website, blog, or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this website page.