Category Archives: Income Tax News

Guernsey Says No to Higher Income Tax

In a significant turn of events, lawmakers in Guernsey have dismissed the idea of hiking income taxes, a move that had been suggested as a potential alternative to the introduction of a Goods and Services Tax (GST).

Tax Hike Proposal Shot Down

The proposition, which came to light recently, involved a suggested 3% increase in income tax. It was brought to the table by former Chief Minister Lyndon Trott and was intended as a possible fallback for States members in the event that the Policy and Resources (P&R) plans for a GST floundered.

Mr. Trott made it clear that, from his perspective, there wasn’t enough support within the States for a GST. He was adamant that a concrete decision regarding Guernsey’s financial future needed to be made this week, without further delay.

However, despite his urgency, the motion faced defeat. This means that for now, residents can breathe a sigh of relief knowing that a rise in income tax is not an immediate concern.

Alternative Financial Strategies

The original financial roadmap laid out by P&R included the introduction of a 5% GST. This was part of a broader plan aimed at securing funds for public services. Other aspects of the plan involved reducing income tax rates for individuals earning under £30,000, overhauling social security contributions, and increasing income tax allowances.

Steve Falla, Vice-President of the Economic Development Committee, voiced his disappointment over the rejection. He believed that an increase in income tax should have remained an option for lawmakers to consider.

Calls for Fiscal Prudence

The decision not to increase income tax was partly influenced by arguments emphasizing the need for the government to demonstrate fiscal responsibility. Deputy Sasha Kazantseva-Miller was particularly vocal, highlighting the importance of the States proving they can economize before requesting more in taxes.

She pointed out the inopportune timing of the proposed tax hike, stating, “It’s not the right time to raise such a significant amount of money from our community… I firmly believe we need to do a number of other measures in the meantime to show to the community that we have the mandate and right to raise such significant revenue.”

Her statement reflects a prevailing sentiment for caution and restraint, insisting that other measures be explored and implemented to assure the community of the government’s right to impose such substantial tax augmentations.

Looking Ahead

With the option of increasing income tax now off the table, the focus is likely to shift back to the original P&R plans, including the much-debated 5% GST. However, given the current lack of consensus on GST among States members, it’s evident that reaching a decision on Guernsey’s economic future remains a complex and challenging task.

UK Pensioners Brace for Potential Tax Hit Amid State Pension Increase

In a move that could see a significant shift in the financial landscape for retirees, millions of state pensioners in the UK might soon find themselves paying income tax due to a proposed substantial increase in the state pension, the Express reports.

The Triple Lock’s Triple Impact

The government’s ongoing commitment to the “triple lock” promise is central to this potential change. The triple lock ensures that state pensions rise in line with the highest of three figures: inflation, average earnings growth, or 2.5 percent. However, with recent data indicating an 8.5 percent surge in total earnings growth, state pensioners could see their income from pensions rise to £221.20 a week, or £11,502 annually, if the government applies the policy fully.

This substantial increase, while seemingly beneficial, comes with a catch. It would push the incomes of many pensioners just over the threshold for income tax liability, thanks to the static personal income tax allowance, which remains at £12,570.

Taxing Times for Pensioners

What does this mean in practical terms? Essentially, pensioners who receive the full new state pension will have a mere £1,068 of their personal income tax allowance left untouched. This narrow margin means that even small additional incomes from a workplace pension or other savings – the “nest eggs” many retirees rely on – could tip them into the income tax bracket.

Gary Smith, a financial planning partner at Evelyn Partners, highlights the gravity of the situation: “Even a modest amount of additional private income will now turn a massive number of state pension recipients into income tax payers in 2024/25.” This comes on top of an already noticeable increase in the number of pensioners paying income tax this year.

In fact, HM Revenue & Customs data show that following this year’s 10.1 percent increase in the state pension, an additional 800,000 pensioners are already paying income tax, bringing the total to 8.5 million people aged 65 or over. This number is not just a record high; it’s also a 10 percent leap from the previous year.

The Cost of Retirement

The financial ramifications extend beyond just the number of people affected. Smith explains that even for those with defined contribution pension pots, the tax they end up paying will vary based on how they use their savings. Cashing in a pot in full could lead to a higher tax; conversely, opting for a lifetime pension annuity that pays £1,068 a year would require a fund of roughly £16,875.

However, retirees wishing to leverage the 25 percent tax-free lump sum option would need a total pot of £22,500 to cover both this and the annuity. With the Office for National Statistics noting the average pension wealth sitting at £37,600, these potential tax liabilities present a significant consideration for retirees planning their financial futures.

Looking Ahead: Financial Security in Retirement

The implications of this potential policy are clear: retirees will need to factor in not just the rising cost of living and the returns from any savings or investments, but also their increasing likelihood of being liable for income tax. All this despite tax rates themselves not increasing.

“Surprise” Tax Hike: How Earning Over £100,000 Could Cost You More Than Expected

For many, earning a six-figure salary may signify reaching a peak in financial success. However, what they might not realize is that crossing the £100,000 threshold could unexpectedly land them in a 60% tax bracket due to certain UK tax rules. Understanding these regulations and the steps one can take to mitigate their impact is crucial for high earners looking to efficiently manage their finances, an article in the Express says.

The £100,000 Threshold: What Does It Mean for Your Taxes?

In the UK, the personal allowance is the amount you can earn tax-free each year, currently set at £12,570. However, this allowance starts to diminish for individuals earning over £100,000. Specifically, for every £2 earned over this threshold, the personal allowance is reduced by £1. This reduction can result in an effective 60% tax rate on earnings between £100,000 and £125,140, as the lost allowance increases the taxable income.

For example, if you earn £110,000 in the current tax year, your personal allowance decreases from £12,570 to £7,570. This reduction means an additional £5,000 of your income is taxed at the 40% rate, leading to a higher effective tax rate.

The situation escalates when an individual’s income reaches £125,140, at which point the personal allowance is completely phased out.

Salary Sacrifice: A Solution to the Tax Dilemma

Sarah Hollowell, Tax and Trustee Services Director at Killik & Co, highlights salary sacrifice as one viable strategy to counteract this effective 60% tax rate. By requesting your employer to reduce your salary to just below the £100,000 mark and redirect the excess into your pension, you effectively lower your taxable salary. This not only provides income tax savings but also reduces national insurance contributions.

However, this option isn’t universally available. If you’re self-employed or your employer doesn’t offer a salary sacrifice scheme, making personal pension contributions equivalent to the amount over £100,000 can be an alternative.

Contributing to a personal pension garners tax relief. When you make a contribution, the government provides basic rate tax relief, meaning to decrease your taxable income by £10,000, you’d need to contribute only £8,000 from your pocket. The remaining relief is claimed through self-assessment. These contributions, akin to those made under a salary sacrifice arrangement, are considered employer contributions, keeping your taxable income below the critical threshold and your personal allowance intact.

Other Income and Tax Strategies

It’s essential to remember that it’s not just salary pushing you over the threshold; all taxable income, including profits from a buy-to-let property or earnings on savings and investments, counts towards it.

In a time of rising interest rates and reduced dividend allowances, more people might face tax liabilities on their investment income. Utilizing your annual ISA allowance can be an efficient method to reduce the tax hit on these earnings.

Moreover, for married couples where one partner earns significantly more, transferring investments to the lower earner can be beneficial. This strategy utilises not only the lower tax rates of the receiving spouse but also helps in retaining the personal allowance for the higher earner.

Navigating the Tax Maze

The intricacy of tax rules can often lead to unexpected financial challenges, especially when salary increases or bonuses push earnings over the £100,000 mark. Planning and using strategies like salary sacrifice or pension contributions can help mitigate the effects of the personal allowance taper.

Ensuring you understand these thresholds, and taking proactive steps to manage your income and investments, is key to avoiding a “surprise” at tax time. If in doubt, consulting with a tax advisor or financial planner can provide tailored strategies that suit your personal financial circumstances.

Side Hustles Face New HMRC Scrutiny

Starting January 1, HMRC will require platforms like Airbnb, Uber, and Fiverr to report earnings made by people using these services to sell their offerings, marking a significant shift in how side incomes are monitored. This change is part of a broader effort by the tax authority to clamp down on what it perceives as potential tax evasion by individuals with side hustles, as The Sun reports.

Previously, it was entirely up to individuals to report this income on their tax returns. However, the new measures will ensure that HMRC has a direct line of sight into these earnings, raising the stakes for those who fail to declare this income on their tax returns.

Why This Change?

According to Seb Maley, CEO of Qdos, a tax insurance provider for self-employed workers, this new legislation is designed to address HMRC’s concerns that many in the UK aren’t accurately reporting income from their side hustles. Essentially, HMRC is now shifting some of the responsibility onto the platforms themselves, requiring them to record and share information on earnings.

This means that if you’re making money from a side gig, HMRC will know about it, whether you report it or not. They’ll be comparing the data from these platforms with individuals’ tax returns to identify any discrepancies.

The Importance of Tax Compliance

With these changes on the horizon, it’s more crucial than ever to ensure full compliance with tax laws. Failing to report income accurately can result in severe penalties, and with HMRC receiving data directly from the source, it’s much easier for them to spot any inconsistencies.

Who Needs to File a Tax Return?

The self-assessment system is used by HMRC to collect income tax from individuals and businesses with income sources not covered by the standard Pay-As-You-Earn (PAYE) system. This includes income from self-employment, rental properties, certain benefits, and more.

You’ll need to file a tax return if any of the following apply:

  • Your self-employment income exceeded £1,000.
  • You earned more than £2,500 from renting out property.
  • You or your partner received high income child benefits and either of you had an annual income of more than £50,000.
  • You received more than £2,500 in other untaxed income, such as tips or commissions.
  • You are a director of a limited company.
  • You’re a shareholder.
  • You’re an employee claiming expenses in excess of £2,500.
  • You have an annual income over £100,000.

Meeting Deadlines and Avoiding Penalties

It’s vital to meet the self-assessment deadlines to avoid penalties. The deadline for paper tax returns is October 31, while online returns must be filed by January 31, 2024. Penalties for late filing start at £100 if you’re up to three months late, with additional fines accruing the longer you delay.

If you realize you’ve made a mistake on your tax return, you have 12 months from the original deadline to make changes. After this period, you’ll need to write to HMRC to amend your return.

The Bottom Line

The landscape for side hustles is changing, with HMRC taking a more proactive role in capturing income data. If you’re one of the many people using platforms like Airbnb or Uber to boost your income, it’s imperative to understand these changes and take steps to ensure you’re compliant with tax laws. As the saying goes, it’s always better to be safe than sorry, especially when it comes to taxes.

Push to Change Benefits in Kind Legislation

The Institute of Directors (IoD) is pushing for significant changes in how businesses handle the health and wellbeing of their employees. This comes amidst concerns that not enough is being done to support occupational health in the workplace, particularly in smaller businesses that may not have the resources of their larger counterparts.

Understanding Benefits in Kind (BiK)

Firstly, it’s essential to understand what “Benefits in Kind” are. These are essentially benefits that employees or directors receive from their employer that are not included in their salary or wages. They’re often referred to as ‘perks’ or ‘fringe benefits’ and can include anything from company cars and health insurance to childcare provision.

Currently, many of these benefits are taxed, which means they’re treated as income and, therefore, not as attractive for employers to offer. However, the IoD is urging the government to consider more exemptions for occupational health services in the BiK tax rules.

The Disparity in Health Services Provision

According to the IoD‘s research, there’s a substantial divide between small and large businesses when it comes to providing occupational health services. Their survey, conducted from August 11 to 30, 2023, revealed that while an impressive 95.4% of large employers (those with 250+ employees) provide these services, only 41.5% of smaller businesses (those with 2-9 employees) do the same.

The reasons for this gap are primarily down to cost and necessity. Nearly half of the employers not providing these services (49.4%) stated that occupational health hasn’t been an issue for them, and 43.4% mentioned prohibitive costs. It seems that for small businesses, in particular, the financial burden is a significant barrier.

The Push for Expanded BiK Exemptions

Here’s where the IoD’s proposal comes in: they’re advocating for an expansion in the range of occupational health services covered by BiK exemptions. This means that these services would be more tax-efficient for employers to provide, thereby making them more accessible and appealing.

This isn’t just about employee perks, though. The IoD believes that increasing investment in occupational health could be a crucial factor in combating economic inactivity and addressing the ongoing skills and labour shortages plaguing various sectors in the UK. Essentially, healthier employees could mean a healthier economy.

A notable 41% of business leaders surveyed supported this idea, acknowledging that expanded BiK exemptions would likely be the policy change that would most encourage them to increase their investment in occupational health services.

The Road Ahead

In her commentary, Alexandra Hall-Chen, the IoD’s Principal Policy Advisor for Employment, emphasised the importance of using the tax system as a tool to empower employers to cater to their employees’ health needs, rather than prescribing one-size-fits-all solutions.

The full response from the IoD to HM Treasury’s consultation is available for public view, providing more in-depth insights into their findings and recommendations.

In the end, the IoD’s call to action highlights a critical point: investing in the health and wellbeing of the UK workforce is not just a matter of improving individual companies — it’s about bolstering the entire economy. As the government considers these proposals, only time will tell if these tax incentives become a reality and bring about the change that the IoD and business leaders are hoping for.

Reducing Tax for an NHS Consultant Undertaking Private Work

An interesting tax question is posed in The Telegraph today, by a reader referred to as Peter; His partner, an NHS consultant earning above the £50,270 per year National Insurance upper limit and also taxed at the 40pc rate, is thinking of starting work at a private clinic. Peter is aware that setting up as a limited company, where private earnings are paid to the company instead of as personal income, is common amongst her peers.

This approach sparks a pressing question: Would this be a beneficial & efficient move for them to make?

Sole Trader or Limited Company?

Peter’s partner could operate as a sole trader and pay 40pc income tax up to the additional-rate threshold of £125,140 — with the percentage rising to 45pc beyond. On top of that, she would also owe ‘Class 4’ National Insurance at 2pc, for an effective tax rate of 42pc.

However, she also has the option to operate as a limited company. In this case, she would invoice her services, and corporation tax would apply to the profits. This option can yield potential tax savings in specific circumstances, although it does come with added costs and a more complex tax situation.

Calculating The Tax

It’s worth noting that the standard corporation tax rate is 25pc, but typically, a reduced rate of 19pc applies for the first £50,000 of profits. If the fees from private patients amount to £10,000, £1,900 is claimed as corporation tax, leaving £8,100 to pay as a dividend, which would be subject to a 33.75pc income tax. The effective combined tax rate would then amount to approximately 46.34pc.

This formidable tax rate stems from an increase in the tax rate on dividends by 7.5 percentage points introduced by the Chancellor in recognition of the growing appeal of service companies as a tax-saving measure, following reductions in corporation tax rates. Complicating matters, the dividend allowance, initially at £5,000, has been cut down multiple times—sitting at £1,000 in 2023-24 and slated for a further decrease to just £500 from 2024-25 onwards.

So, why employ a service company despite these issues?

Benefits of Using A Service Company

There are two compelling reasons that consultants may opt to use a service company, especially when considering tax obligations.

The first advantage lies in its flexibility; owners can control how much they take as annual dividends. One could sidestep withdrawing dividends when their income lies between £100,000 and £125,140 to avoid heightened tax rates—60pc on earnings and profits, and 53.75pc on dividends. Essentially, they can store funds within the company for the time being.

The second potential perk involves the ability to establish the company with another shareholder who could be taxed at a lower rate. If shares are held equally with a basic-rate taxpayer spouse, with a dividend tax rate currently at 8.75pc, the total effective tax rate would only be about 26pc. This modification would result in an overall combined rate of 36pc.

Potential Complications

This arrangement is commonly used and generally effective; however, it’s crucial to exercise caution.

The case of Mr and Mrs Jones, owners of Arctic Systems Ltd who had one ordinary share each in their company, examined the application of this tax model. HMRC contested that, due to Mr Jones being the primary worker and his wife not working in the business, he should pay tax on her dividends. The House of Lords unanimously ruled against HMRC, finding that tax arrangements should not discriminate against married couples. This decision is not absolute and doesn’t necessarily apply to unmarried couples, creating potential room for HMRC to challenge similar setups.

The Bottom Line

In summary, using a service company could indeed lead to tax savings, but the decisions should be determined by your specific circumstances. You should consider the extra costs and the trade-off between these costs and the potential tax benefits. Navigating this territory can be difficult, but through careful consideration of all the variables, you could find a satisfying solution to tax issues for supplementary private work.

Time to Check Your Tax! Are You Due for a Self Assessment?

If you’ve ever thought that tax returns are just for the self-employed, think again. It might surprise you to find out that many people need to fill out a self assessment tax return for various reasons. And if this is your first time, you’ll want to make sure you’re all signed up by 5 October.

1. Who Usually Does This Tax Return Thing Anyway?

Most of us believe it’s just those brave souls who decide to work for themselves. While that’s a significant portion, there are a few other reasons why your neighbour might be filling out that self assessment form too.

2. Paying into Your Pension? Look Out.

If you’re one of those good folks who put money into a personal pension, here’s the scoop:

  • You get a pat on the back in the form of a 20% tax relief on what you pay. But, if you want the rest, you have to claim it through a tax return.
  • If you’re part of a workplace pension, things get a bit tricky. Some pensions, like the ‘net pay’ ones, are simple – your boss pays in before tax, so you get full tax relief without lifting a finger. Others, called ‘relief at source’ pensions, mean you get 20% and then you have to chase the rest yourself.

Unsure about your scheme? A quick chat with your employer will clear things up.

3. Receiving Child Benefit with Earnings Between £50,000 and £60,000?

If that’s a ‘yes’, then you might need a tax return to sort out the high income child benefit tax charge. In simple terms: for every extra £100 you earn over £50,000, you pay back 1% of your child benefit. Don’t worry; they’ll do the maths for you when you input the details.

4. Sold Something and Made a Nice Profit?

Say you sold a painting you found in your attic and made more than £6,000 in profit. Well, then you’re looking at a tax return. The only exception? If you gifted it to your partner or spouse.

5. Got a Side Business?

Whether you’re selling handmade crafts, vintage clothes on eBay, or renting out your home on Airbnb, listen up! If you make over:

  • £1,000 from these little ventures or
  • £7,500 from renting out a room

You’ll need to sign up for that self assessment.

6. Donating to Charity?

For those generous folks giving money to charity, if you’re a higher earner, you might benefit from a tax return. You already get a 20% gift aid, but if you want the rest of your tax back, you might want to fill out that form.

7. And Many More…

From earning a bit overseas, having more than £10,000 in savings, or even if you’re spreading the good word as a vicar, there are lots of reasons you might need to do this self assessment thing.

Not sure? A quick visit to the official website might be your best bet.

Remember, don’t leave it to the last minute. The deadline’s approaching, so make sure you’re all set for 5 October!

Understanding IR35 reforms and impact on contractors

The world of taxes can be a complicated and challenging place to traverse. One such part of this complex landscape is the legislation surrounding off-payroll working, also known as the IR35 legislation, which has been causing significant confusion and concern. HMRC’s recent proposal to change the way contractors are taxed under this scheme has only stirred up more uncertainty. ContractorUK attempts to break it all down and help you understand what’s going on.

Decoding IR35: What’s causing double taxation for contractors?

A system that started out promising to be a fair way to tax contractors has ended up with an unintentional outcome: double taxation. The crux of the issue lies in Chapter 10 Part 2 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) legislation.

This legislation stipulates that the HMRC will investigate the ‘end client’ (the entity hiring the contractor) if it suspects a misapplication of the IR35 rules. If the HMRC decides a mistake has been made, they would demand that the client pays tax on the full amount they paid the contractor, without acknowledging any tax paid by the contractor. This overlooks the fact that the contractor’s private limited company would have already paid corporation tax on the same funds, effectively causing a double taxation.

The predicament of a contractor: Making payments under the current framework

As a contractor, you know only too well that, on top of this complication, tax must be paid no matter how funds are extracted from your limited company. The tax already paid by the contractor, their company and employees is not currently accounted for when determining the tax liability of the deemed employer by HMRC.

HMRC carries out its investigation, collects any due tax with additional levies from the client, and then informs the contractor of a potential refund. However, the process grinds to a halt if HMRC doesn’t possess accurate contact details, leading to scenarios where too much tax is collected and no refund is processed. It’s therefore essential that contact details are kept up to date to not miss out on any refunds, especially considering these refunds have a time frame attached and won’t be handed out if the contractor is “late to the party”.

Prospective changes: Adjustments to the IR35 offer

A more balanced tax scenario could be on the horizon, following a recent HMRC consultation, which closed on June 22nd 2023. The proposed structure would allow Corporation Tax, Income Tax, National Insurance Contributions (NICs) and any tax paid on dividends to be set off against the client’s PAYE liability.

This would effectively mean, there would be no direct refund to the contractor, but instead, the client’s tax bill could be significantly reduced. This may seem unfair to a contractor, but if you consider yourself akin to an employee, the tax responsibility would typically lie with both the employer and the employee.

It’s been revealed that this new system could take effect from April 6th, 2024, providing a potential tax respite for deemed employers. It’s been reported that HMRC has given organisations a chance to ‘pause’ any ongoing IR35 enquiries until this new system is in place.

HMRC’s offer: What’s the Catch?

However, you must meet specific criteria for this “pause” to happen. You must admit to making a mistake in applying the off-payroll working rules in writing and agree with the gross liability. You will also need to provide specific information about the contractor and their company.

While this movement by HMRC relieves some of the administrative burdens, it doesn’t offer an offset for both Employer’s National Insurance paid by the contractor or Tax and NI payments made to employees/shareholders who are not included in the supply chain.

In the last two years, we’ve seen a series of tax and NIC indemnity clauses spring up in contracts between recruitment agencies and contractors, affecting direct relationships between contractors and their clients. While these indemnity clauses are still somewhat ambiguous in their enforceability, the new offset provision could provide reassurance to clients who were fearing they could be left to cover the entire tax liability alone.

However, it is significant to note that this new provision may not fully eliminate the HMRC liability. It’s probable that there may still be a taxed amount, along with additional interest and penalties left to pay. As always with tax matters, the devil is in the detail. But remember, understanding the detail is your most reliable defence against finding yourself lost in the tax maze.

How to Check Your Tax Code & Claim Refunds

Every year, a good number of Brits are paying more tax than they need to, simply because they’ve got the wrong tax code. It’s a little piece of info that decides how much Income Tax gets taken out of your pay. Get it wrong, and you could either be out of pocket or owing HMRC money. The Northern Echo has a handy guide on how you can make sure you’re on the right track.

Understanding the Tax Code

A tax code isn’t just some random number. It helps employers and pension providers figure out the right amount of tax to take from your wages or pension.

For most of us, our tax code will look something like ‘1257L’. That code is based on the Personal Tax Allowance, which means you can earn up to £12,570 before you start paying tax.

However, don’t just assume yours is correct. If you get it wrong, you could be paying too much and could get some money back. But on the flip side, if your code means you’ve not paid enough, you’ll have to settle up with HMRC.

Tax guru, Adam Park, from Zest R&D, warns: “Always check your tax code. Loads of them could be wrong. It’s not up to HMRC or your boss to make sure your code is correct – it’s up to you.”

Spotting Your Tax Code

So where do you find this all-important code? You’ve got a few options:

  • On your most recent payslip.
  • If you’ve recently left a job, it’ll be on your P45.
  • Fancy a digital dive? Check on But you’ll need a government gateway ID first.

Your tax code isn’t just numbers, there’s a letter in there too, and they each have different meanings:

  • L: This is for folks who get the standard tax-free Personal Allowance.
  • S: Living in Scotland? This one’s probably yours.
  • BR/ SBR: Got a side hustle or a second pension? Look out for this.
  • M: If your spouse or partner’s given you some of their Personal Allowance, this is you.
  • N: The opposite of M. This means you’ve given away some of your allowance.
  • T: A heads up that HMRC wants a chat to check some details.

Claim Your Cash Back

If you think you’ve overpaid, there’s an easy way to sort it out using the HMRC app:

  1. Log in: Use your 6-digit pin or facial recognition (speedy!).
  2. Head to: ‘Pay As You Earn (PAYE)’.

Not into apps? No worries. Head to GOV.UK, and you can do it on your online account there.

The best bit? If HMRC sees they’ve taken too much, they’ll sort it out with your employer. You’ll see the extra money on your next payslip. Think you’ve overpaid for a while? Good news – you can claim for up to four years back!

In a nutshell: Always keep an eye on your tax code, and make sure you’re not paying more than you should. It’s a bit of admin, but it might just put some pounds back in your pocket!

Who Must Register for Self-Assessment by 5 October?

The world of tax returns can seem daunting. If you’re thinking, “Isn’t that just for the self-employed?” or “Isn’t the deadline in January?”, you’re not alone. However, there’s more to it than meets the eye. Whether you’re self-employed or renting out a room on Airbnb, understanding the rules around self-assessment can save you both time and money.

Understanding The Deadlines

Many of us know about the January tax return deadline, but an equally important one exists in October. If you need to register for self-assessment for the 2022-23 tax year, make sure to mark 5 October 2023 in your calendar. After registering, the deadline to submit your online tax return and pay any outstanding tax is 31 January 2024. If you’re among those making payments on account, remember a second payment deadline on 31 July annually.

Still, leaning towards the old-fashioned way and considering a paper tax return? That comes with its own deadline: 31 October.

Out of the roughly 12 million people who file their tax return annually, an overwhelming 96% do it online.

Who Needs to Register for Self-Assessment?

Sarah Coles, from Hargreaves Lansdown, sheds light on this: “New self-assessment customers could range from someone with a side gig in addition to their main job, to those trading in crypto assets or renting out property. If there’s any income that hasn’t already been taxed, it’s time to register.”

Reasons to Register

There are various reasons why someone might need to register for self-assessment. Here are 11 of the most common:

  1. Self-employment or Business Partnership: If you don’t pay tax through PAYE, you’ll need to inform HMRC of your earnings and then pay any tax via self-assessment.
  2. Buy-to-Let Landlord: Earned money from renting out properties? Inform HMRC to pay the appropriate tax.
  3. Higher-rate Taxpayer with a Pension: Depending on your pension type, you might need to claim additional tax relief.
  4. Higher-rate Taxpayer Donating to Charity: You can claim back extra tax relief through a self-assessment claim.
  5. Receiving Child Benefit with Income Over £50,000: A tax return can help you determine the amount to pay due to the high income child benefit tax charge.
  6. Capital Gains Over £6,000: If you’ve profited from selling something that’s increased in value and it’s above the threshold, a tax return is needed.
  7. Incurred a Capital Loss: This can be offset against other gains or future gains.
  8. Interest and/or Dividends Over £10,000: Exceeding allowances might mean paying extra tax.
  9. Investing in EIS or VCT: Some investments come with tax benefits claimable via self-assessment.
  10. Side Hustle Earnings Over £1,000: Profits above the £1,000 trading allowance require a tax return.
  11. Renting a Spare Room Earning Over £7,500: Earnings above this threshold need self-assessment registration.

However, this list isn’t exhaustive. Use HMRC’s online checking tool to determine if you need to complete a tax return.

Additional Tips to Remember

No Longer Need to Complete a Tax Return?: Inform HMRC before 31 January 2024 to avoid penalties.

Beware of Scams: Never share your HMRC login details with anyone. Familiarize yourself with common scams to stay safe.

In conclusion, while the world of tax returns can seem complicated, being informed and proactive can simplify the process. Whether you’re self-employed, investing in the stock market, or just renting out a spare room, understanding the rules around self-assessment will ensure you stay on the right side of the taxman.