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In our latest YouTube video, we’ll talk you through who needs to file a self-assessment tax return and the reasons behind it.   You can watch it below. Alternatively, read through the key points in this post…

Self-assessment tax return – who needs to file and who doesn’t?

According to HMRC, if you are self-employed or have a source of untaxed income, then you are required to file a self-assessment tax return each year.  This criteria is broad and can be confusing, but we’ll break it down in detail…

Small business owners

 If you’re a sole trader or a partner in a partnership then you’ll need to file an annual tax return. The only exceptions are sole traders who’ve earned less than £1,000 in that tax year. 

Online sellers 

If you aren’t in business, but you are selling goods to earn extra cash on eBay or Gumtree, for instance, then you may be required to file.  That is, depending on how much you make. If you sell goods worth more than £1,000 in a tax year, then you’ll need to file a return.  

Additionally, if an item is worth more than £6,000 (with the exception of cars) then Capital Gains Tax may be due.

Contractors using an umbrella company 

If you’re a contractor employed by an umbrella company then you don’t need to take any action (as long as you have no other income). The umbrella company will report your salary and tax on your behalf. 

Company directors

Previously, HMRC claimed that all directors had to file a self-assessment regardless of their income.  This is incorrect. The criteria for filing is the same as it is for any employed individual.

If your main income is taxed through payroll, you earn small amounts of savings interest and up to £2,000 of dividends then, again, you don’t need to file a return. That said, if you receive more than £2,000 per tax year in dividends, you will usually need to file one.   

Other income streams that require a tax return

  • Employees earning more than £100,000 per year. Once you cross this threshold your personal allowance starts to be reduced, so this must be factored into your tax calculation 
  • Anyone receiving rental income from property – any landlord with any income greater than £2,500 must file
  • If you receive income from overseas or investments that aren’t in an ISA (a tax-free savings or investment pot)
  • If you are a minister of religion – even if you’re only paid a salary by the church

HMRC checking tool

HMRC has an online tool that lets you check whether or not you need to file a return, if you’re ever unsure.   It’s really simple to use and consists of just a few questions.

A word of warning – be careful on the first question, which asks if you work for yourself. If you are a director of a company then the answer is yes – even if you’ve never received income from the company.

Remember…

The onus is on you as the taxpayer to tell HMRC that you owe tax.  HMRC can’t ask for tax on income it doesn’t know about!  Also, don’t underestimate how much HRMC already knows about your financial affairs in this digital age!

If HMRC has been in touch and you’ve received a notice to file a tax return, then never, ever ignore this. Even if you don’t believe you should be paying anything.  If you do, you’ll incur non-filing penalties. Even if no tax is due!

If you find yourself in this situation, contact the HMRC self-assessment team and ask them to withdraw the notice.  You can do this through multiple channels – by post, phone, or online using your personal tax account. And do it as soon as possible! Don’t leave it until January 31st.    Trying to get hold of HMRC close to the January deadline will try anyone’s patience

Got any questions or queries about self-assessment? Get in touch with the North Star Accounting team here.