If you're self-employed and haven't already filed a self-assessment tax return, do it now to avoid a hefty fine, as the deadline is fast approaching.
Here's what you need to know:
- You've got until 11.59pm on 31 January to send a completed online self-assessment tax form for the 2012/13 financial year, which ended 5 April 2013, to HM Revenue & Customs (HMRC).
- For the first time all parents with incomes above £50,000 who received child benefit payments after 7 January 2013 need to register. HMRC says 110,000 have yet to do so.
- If you miss it, you'll be fined £100. This can rise to as much as £1,600 if there are further delays. There are also penalties for paying late as outlined below.
- If you haven't got a login to file online, you need to get one now, as it can take up to ten working days to get one.
According to HMRC, about 10.9 million people need to submit a self-assessment form. Of those, 7% missed the January deadline in 2013.
Do I need to file a return?
If you received a notification since last April saying you need to submit a self-assessment form, then you must do it.
If you haven't received a notification, you should get in touch with HMRC if you fall into one of the following categories, as it's likely you'll need to file a return too:
- You're self-employed
- You're a company director
- Your annual income is £100,000 or more
- You have an income from savings, investment or property
- You need to claim expenses or relief's
- You or your partner receive child benefit and your income is over £50,000
- You get income from overseas
- You have income from trusts, settlements and estates
- You have capital gains tax to pay
- You've lived or worked abroad or don't live in the UK permanently
- You're a trustee
As mentioned above, newcomers to self-assessment include all parents with incomes above £50,000 who received child benefit payments after 7 January 2013. If this includes you, you'll have to pay a tax charge based on your income and how much of the benefit you received in the 2012/13 tax year.
If HMRC has asked you to complete a tax return but you don't think you need to, tell it as soon as possible. You'll have to pay a penalty if you forget and don't send one in.
If your tax is deducted by your employer, you usually don't need to submit a form, unless you get additional income from a second job or freelance work, or have been caught up in the changes to child benefit outlined above.
If you need a form or you are in any doubt, contact your tax office.
Do I need to register to file online?
Yes. To file online, you first need a login. If you've had one for previous years, this will still be valid.
To register for the first time, visit the HMRC website. The latest you can register is 17 January, as it can take up to 10 working days for HMRC to send you an activation code by post. But in order to ensure you file your tax return in plenty of time, do it now, as there's not long left.
Can I file by paper?
The deadline for filing paper returns passed in October, so don't do it that way or you'll definitely be fined.
What must I pay?
As well as 2012/13 tax, most self-assessment payers must also pay the first half of what's called a 'payment on account' for the 2013/14 tax year.
This is half the total tax owed for 2012/13. So if you owe £2,000 for 2012/13, the first payment on account will be for £1,000.
The next half (£1,000 in the example above) must be paid by 31 July, and come 31 January 2015, you'll settle the current year's tax bill, as you're doing now for 2012/13.
You only have to make payments on account if your previous year's tax came to more than £1,000. But if an employer (if you have more than one job) has already deducted more than 80% of that figure, you won't owe a payment on account now.
HMRC will usually send you a Self-Assessment Statement that shows how much you owe, or you can check your tax bill online.
How can I pay?
If you want to pay your tax via a bank transfer, you can do so right up until the evening of 31 January. HMRC now accepts money under the Faster Payments regime, which allows cash to go through in two hours.
However, each bank has a limit on how much you can transfer under Faster Payments. The limits range between £5,000 and £100,000. See the Payments Council for each provider's limit.
What if I'm late paying?
If you're late making your payment on account you'll be charged 3% interest. This is on top of the minimum £100 fine for missing the deadline for filing your tax return.
What expenses can I claim?
For the self-employed, you only pay tax on profits after legitimate expenses, so claim back all you're entitled to (see HMRC's allowable expenses).
What if I'm owed tax back?
After filing, it may be you're due cash back. This may happen if you've only worked part of the year, or you owe less than the total payments on account you've made for 2012/13. See the Revenue's refund forms for help claiming back.
What if I've yet to register for self-assessment?
This is different to registering to use the online service. This is where you tell HMRC you're self-employed or you need to file a self-assessment form.
You must tell HMRC by the 5 October after the start of the tax year in which you realised you need to file a self-assessment form.
So if you became self-employed during 2012/13, became a company director in that time or earned over £10,000 from savings or investments, you should have told HMRC by 5 October 2013.
If you didn't, you could face a penalty of up to 100% of the amount of tax due, in addition to having to pay that tax back.
But the severity of the penalty depends on whether HMRC believes you deliberately failed to inform it. If you have a reasonable excuse, there may be no penalty.
See the HMRC website for further information, or to register for self-assessment.
What if I can't afford to pay the tax back?
If your bill is correct but you can't afford to pay it, contact HMRC as soon as possible, as you may be able to avoid late payment penalties by coming to an arrangement with HMRC to spread your payments over a period of time.
You will need to discuss your financial position openly with HMRC and bring any outstanding tax affairs up to date.