The 2022/23 Self-Assessment Tax Return deadline of 31st January 2024 is fast approaching. With the personal allowance frozen until the 2027-28 tax year, more individuals may fall into the Self-Assessment tax regime. This shift in tax policy means that many people who previously may not have needed to submit Self-Assessment returns will now have to familiarise themselves with the process.
We understand that tax matters can be complex and confusing. Therefore, Sara Dennis, Director at Bevan Buckland LLP, explains what Self-Assessment is and who needs to complete it and offers some tips on managing this changing tax landscape effectively.
Self-Assessment is a system employed by HM Revenue and Customs (HMRC) in the UK to collect income tax from individuals and businesses. It is a way for taxpayers to report their income, gains, and other financial details, enabling HMRC to calculate the correct amount of tax owed.
With the personal allowance frozen until 2027-28, it is important to understand how this affects you and whether you now fall into Self-Assessment. The personal allowance is the amount of income you can earn before you start paying income tax. This freeze means that as your income rises with inflation, you might find yourself exceeding the personal allowance threshold and therefore having an income tax liability.
Who Needs to Complete a Self-Assessment Tax Return?
The following individuals or groups may need to complete a Self-Assessment tax return:
- Self-Employed Individuals: If you run a business as a sole trader, you must complete a Self-Assessment tax return if you have earned over £1,000; this includes freelancers, contractors, and small business owners.
- Partners: If you are, or were, a partner in a business partnership in the previous tax year, you must complete a Self-Assessment tax return.
- Landlords: If you receive more than £1,000 of rental income from a property you own, you must notify HMRC, however this can be done by contacting HMRC directly, rather than via Self-Assessment. If the income received is greater than £2,500, this must be reported on your Self-Assessment tax return.
- High Earners: If your total annual taxable income is over £100,000, you must complete a Self-Assessment tax return, regardless of your source of income (note this threshold increases to £150,000 for 2023/24 but you may still need to file a return due to other reasons).
- Savers: If your income from savings and investments (e.g., dividend income) exceeds £10,000, you must report this to HMRC on your Self-Assessment tax return. Please note, however, that savings/dividend income less than £10,000 may generate a tax liability which will need to be reported to HMRC, however this can be done informally by speaking to HMRC, rather than by completing a Self-Assessment return.
- High-Income Child Benefit Charge Payers: If the High-Income Child Benefit Charge applies to you, then you must complete a Self-Assessment tax return.
- Those with Complex Finances: If your financial situation is more complex due to investment income, multiple sources of income, or significant capital gains, a Self-Assessment return may be required.
- Those receiving a pension: Retired individuals have previously not needed to prepare a tax return may find that their pensions increase due to inflation. As the personal allowance is capped, this increase may exceed the threshold and mean they now must prepare a self-assessment tax return.
Managing the Frozen Personal Allowance
The frozen personal allowance may lead to more individuals being required to complete Self-Assessment tax returns. Here are some essential tips for managing this tax change and completing the tax return accurately and on time:
- Stay Informed: Keep up to date with changes in tax policy, as they can have a significant impact on your financial situation. Understanding the personal allowance threshold is crucial.
- Record Keeping: Maintain accurate financial records, including income, expenses, and relevant deductions. Good record-keeping makes it easier to complete your Self-Assessment return accurately.
- Seek Professional Advice: If you need clarification about your tax obligations or assistance navigating the Self-Assessment process, consider consulting a tax advisor or an accountant. They can help you optimise your tax position and ensure compliance.
- Plan Ahead: Plan your finances to minimise the impact of the frozen personal allowance; this might include exploring tax-efficient investments, pensions, and other strategies to reduce your overall tax liability.
Get in touch
At Bevan Buckland LLP, we are here to assist you in managing your tax responsibilities, ensuring that you meet your obligations and make the most of available tax planning opportunities. If you have any questions or require expert guidance on Self-Assessment tax returns, do not hesitate to contact us by email or by calling 01792 410100.