The Inland Revenue’s posters warning about the annual self-assessment tax deadline are everywhere. Given this publicity blitz, it’s easy to forget that the vast majority of people don’t have to file a tax return.
However, this doesn’t make it any less stressful for the 11 million people who do. The HMRC helpline gets increasingly busy as the deadline approaches and the website has been known to crash in the last few hours.
Given these pressures, you may be tempted to let things slip, but this is not a good move. Missing the deadline can quickly become an expensive mistake.
Everyone who files late is automatically fined £100. This can rise to £600 or 10% of the outstanding amount (whichever is greater) for repeated non-payment. So how can you make the process as pain-free as possible?
First, make sure you know whether you should file a tax return. In some cases it will be extremely clear since you’ll have received a letter from the Inland Revenue directing you to do so.
In the past you could safely ignore this if you didn’t have to pay any tax. However, this has changed and now you have to file anyway, unless you receive a further letter saying that you’ve been removed from the system.
If you aren’t already part of the system, then it gets a little more complex. The basic rule is that you must file if you get taxable income that is not covered by the PAYE system. This includes rental income, so those who rented out their house via Airbnb will have to pay tax.
Those with capital gains tax due, or who earn more than £100,000 a year, also have to register, as do the self-employed, company directors and ministers of religion.
If you have to file a return, make sure you keep accurate records. This will make it much easier to calculate the amount that you have to pay. While you are allowed to put in estimated amounts for things like petty business expenses, you have to make this clear.
If the Inland Revenue thinks that you may have claimed too little or have any other concerns, they may ask to see your records. This is common if you’re self-employed or making large claims for deductions related to your job.
You don’t necessarily have to invest in a large filing cabinet: electronic records are acceptable, although they have to be readable. If you don’t keep accurate records and HMRC investigates, you could face hefty fines in addition to any bill for unpaid tax.
There is also an obligation to hold relevant records for at least three years. It goes without saying that printing off a copy of your tax return is also a sensible idea.