Personal
Tax
An
Introduction to Self Assessment
Self
assessment was introduced for individuals for the 1996/97
tax year onwards. It represented a fundamental shift in the
responsibilities of taxpayers in the submission of tax returns.
Under the self assessment regime an individual is responsible
for ensuring that their tax liability is calculated and any
tax owing is paid on time.
The
Self Assessment Cycle
Tax
returns are issued shortly after the end of the fiscal year.
The fiscal year runs from 6 April to the following 5 April,
so 2004/05 runs from 6 April 2004 to 5 April 2005. Tax returns
are issued to all those whom the Revenue feels need a return
including all those who are self employed or company directors.
Those individuals who complete returns using software are
sent a notice advising them that a tax return is due. If a
taxpayer is not issued with a tax return but has tax due they
should notify the Revenue who may then issue a return.
A taxpayer will normally be required to file his tax return
by 31 January following the end of the fiscal year. If a completed
return is not sent to the Revenue on time, an automatic penalty
of £100 will be imposed.
The taxpayer does have the option to ask the Revenue to compute
their tax liability in advance of the tax being due in which
case the return must be completed and filed by 30 September
following the fiscal year.
Whether you or the Revenue calculate the tax liability there
will be only one assessment. This is an improvement over the
pre-self assessment situation where an individual could receive
three or four assessments over a period of many months all
covering the same tax year.
Payment
of Tax
The
Revenue much prefers to deduct tax at source ie from the payer
rather than the recipient of the income. But this is not possible
for the self employed or if someone with investment income
is a higher rate taxpayer. As a result we have a payment regime
in which the payments will usually be made in instalments.
The instalments consist of two payments on account of equal
amounts:
- the
first on 31 January during the tax year and
- the
second on 31 July following.
These
are set by reference to the previous year's net income tax
liability (and Class 4 NIC if any).
A final payment (or repayment) is due on 31 January following
the tax year.
In calculating the level of instalments any tax attributable
to capital gains is ignored. All capital gains tax is paid
as part of the final payment due on 31 January following the
end of the tax year.
A statement of account similar to a credit card statement
is sent to the taxpayer periodically which will summarise
the payments required and the payments made.
Example
Sally's income tax liability for 2003/04 (after tax deducted
at source) is £8,000. Her liability for the following
year is £10,500. Payments for
2004/05
will be:
|
|
£
|
| 31.1.2005 |
First
instalment (50% of 2003/04 liability) |
4,000
|
| 31.7.2005 |
Second
instalment (50% of 2003/04 liability) |
4,000
|
| 31.1.2006 |
Final
payment (2004/05 liability less sums already paid) |
2,500
|
|
|
£10,500
|
There will also be a payment on 31 January 2006 of £5,250,
the first instalment of the 2005/06 tax year (50% of the 2004/05
liability).
Interest and surcharges
Interest will be charged on any tax paid late. There will
also be interest added by the Revenue when tax overpaid is
refunded. In addition there will be a 5% surcharge on any
tax still outstanding on 28 February following the year of
assessment, increasing to 10% if still unpaid at 31 July.
Nil payments on account
Where there is only a modest amount of income tax due, after
tax deducted at source has been accounted for, then the two
payments on account will be set at nil. This applies if either:
- income
tax (and NIC) liability for the preceding year - net of
tax deducted at source and tax credit on dividends - is
less than £500 in total or
- more
than 80% of the income tax (and NIC) liability for the preceding
year was met by deduction of tax at source and from tax
credits on dividends.
Claim
to reduce payments on account
If it is anticipated that the current year's tax liability
will be lower than the previous year's, a claim can be made
to reduce the payments on account. We can advise you whether
a claim should be made and to what amount.
Changes
to the Tax Return
Corrections/Amendments
The Revenue may correct a self assessment within nine months
of the return being filed in order to correct any obvious
errors or mistakes in the return
An individual may, by notice to the Revenue, amend their self
assessment at any time within 12 months of the filing date.
Enquiries
The
Revenue may enquire into any return by giving written notice.
In most cases the time limit for the Revenue is within 12
months following the filing date.
If the Revenue does not enquire into a return, it will be
final and conclusive unless the taxpayer makes an error or
mistake claim or the Revenue makes a discovery.
It should be emphasised that the Revenue cannot query any
entry on a tax return without starting an enquiry. The main
purpose of an enquiry is to identify any errors on, or omissions
from, a tax return which result in an understatement of tax
due. Please note however that the opening of an enquiry does
not mean that a return is incorrect.
If there is an enquiry, we will also receive a letter from
the Revenue which will detail the information regarded as
necessary by them to check the return. If such an eventuality
arises we will contact you to discuss the contents of the
letter.
Keeping
Records
The
Revenue wants to ensure that underlying records to the return
exist if they decide to enquire into the return.
Records are required of income, expenditure and reliefs claimed.
For most types of income this means keeping the documentation
given to the taxpayer by the person making the payment. If
expenses are claimed records are required to support the claim.
Checklist
of Books and Records Required for Revenue Enquiry
Employees
and Directors
- Details
of payments made for business expenses (eg receipts, credit
card statements)
- Share
options awarded or exercised
- Deductions
and reliefs
Documents
you have signed or which have been provided to you by someone
else:
- Interest
and dividends
- Tax
deduction certificates
- Dividend
vouchers
- Gift
aid payments
- Personal
pension plan certificates.
Personal
financial records which support any claims based on amounts
paid eg certificates of interest paid.
Business
- Invoices,
bank statements and paying-in slips
- Invoices
for purchases and other expenses
- Details
of personal drawings from cash and bank receipts
How
We Can Help
We
can prepare your tax return on your behalf and advise on the
appropriate payments on account to make.
If there is an enquiry into your tax return, we will assist
you in answering any queries the Revenue may have.
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of page
For information of users: This material is published
for the information of clients. It provides only an overview
of the regulations in force at the date of publication, and
no action should be taken without consulting the detailed
legislation or seeking professional advice. Therefore no responsibility
for loss occasioned by any person acting or refraining from
action as a result of the material can be accepted by the
authors or the firm.
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