There are certain circumstances where you will need to complete a tax return even if you are an employee and have taxes deducted from your salary. It is essential to know if you need to submit a tax return as HMRC can impose significant penalties for failing to do so before the deadline, which is 31 January. If you have not submitted a self-assessment tax return before, you must register by 5 October after the relevant tax year. i.e. if you setup your sole trader business in February 2024, you must register as a sole trader by 5 October 2024.
Circumstances where you must submit a tax return
Sole Traders
Business Partnerships
Circumstances where you may need to submit a tax return
Rental Income
If you have received over £1,000 in rental income in the last financial year your must submit a self-assessment tax return to HMRC. You will need details of rental income received, receipts, purchase invoices and logs of your mileage when you travel to and from your rental property(s). Allowable expenses reduce your tax liability as a landlord so ensure you keep copies of invoices/receipts for: property repair and maintenance, electric, gas and water bills, professional fees, management fees, insurance, and replacement of domestic items, just to name a few. The property allowance of £1,000 can be claimed if your allowable expenses fall under this allowance.
The Let Property Campaign
HMRC have established a special campaign to assist landlords that are behind on their tax returns. If you have undisclosed rental income, it is vital to address this promptly as voluntarily disclosing your situation is likely to result in lower penalties.
Capital Gains Tax Returns for Selling Residential Properties
Starting from 6th April 2020, the deadline for submitting a return and paying Capital Gains Tax is 60 days from the sale of a residential property in the UK. You must file a self-assessment tax return if you have made over £6,000 in profit from property investments.
Interest Income
If you are a basic rate taxpayer, you will pay tax on any interest earned over £1,000. As a higher rate taxpayer, you will pay tax on any amount over £500. You will pay tax all your interest if you are an additional rate taxpayer. If you have a joint bank account, interest will be split equally between the account holders. If you are employed or receive pension income, your tax code will change based on HMRC’s estimate on how much interest you will get in the current year by looking at how much interest you receive in the current year by looking at the amount you received last year. However, you must register for self-assessment if your savings and investment income is more than £10,000. If you file a self-assessment tax return, you must report any interest earned from your savings on your tax return. However, if you are not employed, do not receive a pension or do not file a self-assessment tax return, your bank/building society should inform HMRC how much interest you received at the end of the tax year. HMRC will let you know if you need to pay tax and how to pay it. Remember that savings income from an ISA (Individual Savings Accounts) is tax free.
Dividends
The dividend allowance for 2022-23 is £2,000 but that has been reduced to £1,000 for 2023-24 and is reducing again to just £500 for 2024-25. If you receive any amount of dividends over these allowances for the relevant tax years, you must report them to HMRC. There are different ways to report taxable dividend income, if the total dividend payments you receive is up to £10,000, you can call HMRC on 0300 200 3300 (Monday to Friday 8am to 6pm) to report dividend income. You can also ask HMRC to change your tax code if you are employed which means that the tax can be taken from your wages to account for dividend payments you have received. Alternatively, you can submit a self-assessment tax return to HMRC, if you already complete and file one. However, if the value of your dividends are more than £10,000 in value, you must complete and submit a self-assessment tax return to HMRC. To complete a tax return, you will need the dividend vouchers for each dividend you received which will show your shares in the company, the dividend rate and dividend payable to you. The rates of tax for dividends are different: basic rate is 8.25%, higher rate is 33.75% and additional rate is 39.35% as opposed to 20%, 40% and 45% respectively. Furthermore, National Insurance is not payable on dividends.
Foreign Income
If you are resident and domiciled in the UK for tax purposes, you must report your foreign income to HMRC through your self-assessment tax return, even if you have paid tax on it abroad. This includes wages for work outside the UK, foreign investment income, overseas rental property income and income from pensions held outside the UK. Residence is decided by the rules of the Statutory Residence Test, for tax purposes. Feel free to get in touch if you would like help with identifying your residence status with HMRC. If you have already paid tax in a different country, you may not have to pay tax twice. You may be able to claim Foreign Tax Credit Relief for the tax paid abroad. If you have foreign income and do not usually submit a tax return, you must register for self-assessment by 5 October after the end of the tax year when you received foreign income.
High Income Child Benefit Charge
If you, or your partner, received Child Benefit during the tax year and one of yours adjusted net income is more than £50,000, the highest earner will need to submit a tax return to pay the High Income Child Benefit Charge. Your adjusted net income is your total taxable income before any deductions/allowances. Total taxable income includes interest from savings as well as dividend income. If both your own and your partner’s adjusted net income is more than £50,000, whoever has the highest income is responsible for paying the tax charge. In this context, the term ‘partner’ means someone you’re not permanently separated from who you’re not married to, in a civil partnership with or living with as if you were. If one of you is over the threshold, you can choose to either 1) get child benefit payments and settle any tax charge at the end of the tax year or 2) opt out of receiving child benefit payments and not pay the charge.
Circumstances where you may want to submit a tax return
If your employer does not reimburse you for certain expenses (i.e. business mileage) you may want to consider filing a tax return to reclaim this from HMRC. If you work in the construction industry under the CIS scheme and do not have gross payment status, you will want to submit a tax return to reclaim your overpaid tax as well as any expenses you have not been reimbursed for such as business mileage. If you make personal pension contributions and gift aid payments as a higher tax payer, you may want to complete a tax return to increase your basic rate band and reduce the amount of higher rate tax which you pay. You should also complete a tax return if the following apply:
- HMRC has told you to
- your income is over £100,000 (even if you have already been taxed through PAYE)
- you received income from a trust
- you live abroad but had income from the UK.
Checking if you need to submit one
It is advisable to check whether your specific circumstances mean that you need to submit a tax return. Feel free to get in touch with our team and we will be able to advise you on whether you need to submit one.