By Max Clarke
Emily Coltman, a qualified Chartered Accountant at FreeAgent Central, gives her ‘quick guide’ to meeting the self-assessment deadline on the 31st of January.
"If you’ve yet to file your 2009/10 self-assessment tax return online, you’re in good company. As of 17th January 2011, over three million people who’d been issued with tax returns to fill in hadn’t filed them yet.
So here are a few answers to some of those burning questions you may have, to help you meet that deadline.
So when is the “2009/10 tax year” exactly?
The tax year runs from 6th April to 5th April each year.
Tax returns covering a particular tax year are due to be filed by the end of January the following year.
So the tax return that’s due by 31st January 2011 is for the tax year covering 6th April 2009 — 5th April 2010.
That’s quite long-winded to write out every time so it’s usually written as “the tax year 2009/10” or just “2009/10”.
How do I know if I need to file a tax return?
HM Revenue issue a “Notice to Complete a Tax Return” by snail mail, to everyone it has on its books as needing to file a tax return.
They usually do this soon after the end of the tax year. So for the tax year 2009/10 (which started on 6th April 2009 and finished on 5th April 2010), the notices will have arrived through your letterbox in April or May 2010.
You’ll need to complete a tax return if you:
• Are self-employed, either as a sole trader or in partnership
• Are a director of a UK limited company (unless the company is dormant, or a not-for-profit organization that doesn’t pay you anything, either in cash or as a benefit such as a free subscription)
• Have income of £10,000 or more a year from savings and investments
• Have income of £10,000 or more a year before expenses are taken off, or £2,500 a year after expenses are taken off, from renting out property
• Receive income from a trust, or the estate of a deceased person
There are other less common cases where you’ll also need to fill in a tax return — the HMRC sites lists these at www.hmrc.gov.uk/sa/need-tax-return.htm
HM Revenue don’t know I need to file a tax return, do I still need to?
What should I put on my tax return?
In short — you should tell HM Revenue about all income you’ve received during the tax year, whether or not you’ve already paid tax on it.
Here are some of the more common types of income that this might include:
If you’re an employee — including of your own limited company
If you’re an employee, you’ll be paid a salary by your employer (or else you wouldn’t still be there!) and you need to put that income for 2009/10, and the tax that was taken off it at source under the PAYE system, on to your tax return, in the “Employment pages”.
You’ll find these figures, the salary and the tax deducted, on your form P60, which your employer will have given you by the end of May 2010.
If you left your employment during the year, your employer will have given you a form P45 with the same details. Remember, if you're the director of your own limited company, the company is your employer, so you'd have a salary to put on your tax return.
You may also have received non-cash benefits from that employment, such as private medical insurance paid for by your employer. These will be on your form P11D, which again your employer should have given you before July 2010.
If you receive interest on a bank account:
If you’ve received any interest on a bank account that was subject to tax, then, whether or not it actually had tax taken off it, you need to put that on your tax return.
If you received any interest on a joint bank account, just include your share of the interest — so if you have a joint account with your spouse / partner, then include a half-share of the interest.
But don't include interest received from an ISA - and sadly no, you can’t deduct from that total any interest you paid to the bank, unless it was for a business loan or on a business account, in which case it would be an expense in your self-assessment accounts.
If you own any shares or investments
Dividends received in the tax year 2009/10 need to go on your tax return.
That is dividends received, not dividends declared, so if you hold shares in a company that said on 1st April 2010 it was going to pay a dividend but that dividend wasn't paid until 7th April 2010, that dividend goes on your 2010/11 tax return.
If you own shares in a foreign company, those dividends would go in the “Foreign Income” section of your tax return. That's unless you earned less than the equivalent of £300 in foreign dividends, in which case you can put them in box 5 of the "Interest and dividends from UK banks" section. So do look out for that if you had any shares in a foreign-owned company. For example, if you have shares in what was Abbey National, that’s now owned by Santander — which is a Spanish company!
If you rent out property, or a room in your own home
If you own property that you let out, then this income goes on your tax return, though you can take off most expenses that you incurred when renting out the property, such as ground rent, before paying tax.
If you rent out a room in your main home to a lodger for more than £4,250 a year, or rent out a room for less than that amount but still decide to complete income and expense accounts for that room, then this would go on your tax return too.
If you’re self-employed, or in partnership
If you have your own business, whether that’s as a sole trader or a partnership, you have to pay income tax on the profits of that business. That’s its income less allowable expenses.
That sounds complicated, how do I work that out?
Using software such as FreeAgent will help you work out your business’s profit accurately.
It also provides a projection of how much tax you can expect to pay at the end of January each year on that profit.
If you receive a pension:
Pension income, whether that’s from the State Pension or a company pension, needs to be included on your tax return. If you receive the State Pension, what goes on your tax return is 52 x the weekly amount you receive.
Other taxable money:
If you sold a large asset, such as a house that’s not your main home, during 2009/10, then you may well have capital gains tax to pay.
If you’re not sure whether or not you have to pay tax on money you’ve received, it’s wise to ask an accountant.
How much tax will I pay for my 2009/10 income?
Everyone receives a personal allowance each year. No, that doesn’t mean you get some money direct from the government unfortunately. It just means that you only start paying tax once your income goes above a certain level.
The basic personal allowance for 2009/10 was £6,475, so you’d only start paying tax once your income went above that.
If you’re over 65, or registered blind, or you’re married and you or your spouse was born before 6th April 1935, you get a higher personal allowance — though HM Revenue scale that back if your income for the tax year 2009/10 was over £22,900.
Above the level of the personal allowance, you’ll pay tax at 20% on most of your income.
If you had savings, you’ll pay 10% on the first £2,440 of savings income you had (such as bank interest).
And if your income for 2009/10 was higher than £39,840, you’ll pay tax at 40% on any income above that threshold.
This tax is due for payment on 31st January 2011, the same date as the deadline for filing the tax return.
I’ve heard of “Payments on account”, what are those?
Be aware that as well as this tax, if less than 80% of your income had tax deducted from it at source (as bank interest and employment income do), and your tax bill for 2009/10 is over £1,000, you’ll have to make payments on account for 2010/11.
So if your income is from self-employment which doesn’t have tax deducted at source, and your tax bill for 2009/10 is £1,500, then you will have to make payments on account.
Payments on account are half of your previous year’s tax liability and are paid on 31st January and 31st July each year.
Does that mean I have to pay this year’s tax, plus half of next year’s, on 31st January 2011?
Is there software available to help me fill in my tax return?
HM Revenue provide free software for straightforward tax returns. They also give a list of software providers you can use if you prefer, or if your tax return is more complicated.
This is a lot to get through! How can I make it easier next year?
It’s always easier when you have longer to spare — so I’d recommend starting in November or December this year for your 2010/11 return, rather than January! Also if you choose to use an online accounting solution such as FreeAgent it can help you keep on top of your finances all year round as well as helping you to speed up preparation for these types of financial deadlines.
Emily Coltman is Chief Accountant to FreeAgent Central, an online accounting application that helps small business owners manage their books easily and keep on the right side of the taxman. www.freeagentcentral.com