Self-assessment is the process of reporting and paying your income tax liability to HMRC at the end of each tax year.
It’s something that most business owners will already be familiar with, as it needs to be done by self-employed people who earn more than £1,000, or anyone in a business partnership.
But business owners aren’t the only people who need to file self-assessment returns. A return needs to be completed for most forms of untaxed income, including rent from property, interest on savings or returns from investments, foreign income and more.
Here are a few of the lesser-known reasons you might need to send a tax return, and what you need to know if these apply to you.
Property income
Depending on the income you receive from property, you may need to report it on a self-assessment return.
Most people have a property allowance of £1,000, meaning any income they receive from property up to that amount is tax-free. If you earn less than this, you probably won’t have to report it – but be sure to check that you’re eligible for the allowance.
You need to report the income on self-assessment if it’s between £2,500 and £9,999 after you’ve deducted allowable expenses, or if it’s £10,000 or more before expenses.
If your income is between £1,000 and £2,500, it may be possible to report and pay tax for it without filing self-assessment. Contact HMRC if this is the case.
You might also be required to pay Class 2 National Insurance if your profits are over £5,965 a year and what you’re doing counts as running a business.
This is likely to be the case if, for example, being a landlord is your main job and you’re renting out several properties, as well as acquiring new ones to rent out.
The let property campaign
If you’ve previously received rental income but haven’t paid tax on it, don’t panic. HMRC’s let property campaign allows you to declare any unpaid tax on this income, and receive much more lenient terms than if you had been caught out.
If you make a disclosure through the campaign, you may not need to pay a penalty at all. If you do, it’s likely to be lower than the penalty you would have received if HMRC found out about the unpaid tax.
Foreign income
If you’re a UK resident with foreign income, it’s likely you’ll be required to complete a self-assessment return.
Usually, foreign income is taxed in the same way as UK income, but the rules are slightly different for pensions, rent from property, and certain types of employment income.
For example, special rules apply if you work on a ship, in the offshore gas or oil industry, or for a foreign government. Talk to us for advice if you’re not sure how your foreign income should be taxed.
To report overseas income, you’ll need to use the ‘foreign’ section of the tax return. HMRC provides guidance notes on filling out this section, but you can also talk to us if you’re unsure.
You may be able to receive tax relief if your income has already been taxed abroad, so make sure you include this if you’re eligible.
High income child benefit charge
If either you or your partner have an income of more than £50,000 and you receive child benefit, you may have to pay a tax charge via self-assessment.
If both partners earn more than £50,000, the person with the higher income is responsible for paying the charge.
It may seem counter-intuitive to keep claiming child benefit when it’s cancelled out by the charge anyway, but it can still provide National Insurance credits if you’re staying home from work to look after your child.
We can help
We can help with any area of your tax return, or simply complete it on your behalf.
With our personal tax service, you’ll have access to our senior tax advisers who can guide you through the process, as well as offering tax planning advice. Talk to us to find out more.
Dick Haffenden
