It is now the mid of 2017 which means it is time for people to start filing their 16-17 tax returns. There are people that wonder if they are able to do their tax returns themselves or if they would need to hire an accountant to do it for them. Different people have their own opinions and understanding of what a tax return is and what is required. Today we will run through the basic requirements and reliefs for Self-assessment which will give you an opportunity to decide whether DIY tax returns are a good choice for you.
Does Self-Assessment Apply to You?
Employee: If you only have a salaried job and that is your only source of income, you are less likely to be required to file a self-assessment. Because your taxes are being taken care of by PAYE tax code. However, this duty is required if you earn more than £100k per year. Also, if you claim the child benefit plus you earn more than £50k a year, then you are required to file a self-assessment and declare the high income child benefit tax charge.
Also if you claim professional expenses, e.g. medical doctors claim their professional fees, etc, you may find it quicker to receive a tax rebate when you claim it via filing a self-assessment. In particular, you will need to do so if your expenses are more than £2,500.
Self-employed: Currently, there’s a £1,000 exemption for self-employment income, which means that you may not need to file tax return if you earn less than that for the year. If not, a full self-assessment tax return is required.
If there are expenses and eventually you quit your job and you pay tax on your employment income then you might find it beneficial to file a self-assessment. This is because if you are making a loss you can use the loss to offset your employment income and get some tax refunds to aid your cash flow.
Company directors: If you are director of a company you are required to file a self-assessment, as you may receive dividend income which is not taxed at source. However, in the event your company is dormant, or your business is making a loss where no dividends to take, you can avoid this duty.
Investors: Income from stocks and shares, investment properties, and capital gains are required to be declared via self-assessment. However, If your rental income is less than £1,000 then you do not need to declare it. Also if you are renting out a spare room, the rent-a-room scheme means that you do not have to declare the rental income if it is less than £7,500 (under the current legislation).
Some DIY-able Tax Relief
- Charitable Donations – Charitable donations can help you reduce the total taxable income. In particular, for individuals who earn more than £100k and start losing personal allowance, some charitable donations may well protect your personal allowance.
- Pension Contribution – You can contribute into a personal pension and get tax relief. If you are a basic rate taxpayer, you get £20 tax relief for every £80 you contribute. And if you are a higher rate taxpayer, the tax relief you get will be even more.
- ISA – With an ISA you earn tax-free interest, including a stocks and shares ISA. Your money is in a tax-free environment.
- Usual Saving Accounts – If you have a joint account with your spouse or your family member, but they are earning under the tax-free threshold (currently is £11,500), or not earning at all, then you may consider telling the bank as they will be able to give the interest without deducting the tax. This is because the bank will usually deduct 20% of the tax before they pay the interest.
- Tax-efficient Investments – Investing in certain types of small businesses provides some tax relief. If you invest £10,000 in a Venture Capital Trust, where it provides funds to those small businesses, then you get £3,000 back from the government. When the businesses start making money, they will start paying your dividends which are tax-free as well. But this type of investment can be risky too, so please do seek for advice from a financial advisor to review your investment strategy as a whole.
What If You Don’t Fill in A Tax Return on Time?
There are late filing penalties if you do not file the self-assessment on time. The deadline for this is 31st January each year, i.e. the deadline for 16-17 tax return is 31st January 2018. If you are late for less than 3 months then the penalty is £100. If it is more than 3 months, there will be a daily penalty which could be around £10 a day. If you do owe any tax, then you might have a late payment penalty as the deadline is also 31st January and the penalty depends on how much tax you owe.