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Self Assessment tax returns are how HMRC gathers information on any income that’s not taxed at the source—i.e. through PAYE. You have to file a Self Assessment tax return if HMRC sends you a ‘notice to file’, which is a letter that asks you to do so.
Unsure whether you should enrol for Self Assessment?
Don’t worry. As a general rule, anyone who receives income that’s not taxed at the source needs to complete a Self Assessment. This will apply to you if you’re a sole trader, a partner in a business, someone who receives rental income from property—and there are a few other situations when you might need to file a Self Assessment too.
Read on for our full guide to who needs to file a Self Assessment tax return with HMRC each year.
Before we start...
If you're feeling uncertain about your finances, we strongly recommend you work with an accountant. Having an accountant is valuable beyond just compliance and tax planning—it’s about having someone by your side with the experience to help you make the big decisions and build a better business.
Coconut also makes it really easy for you to collaborate with your accountant. Once you've invited yours through the app, they'll be able to view your business activity and bookkeeping data whenever they need to.
What is a Self Assessment tax return?
Self Assessment is the method HMRC uses to collect Income Tax on any income that’s not taxed at source. Income Tax is usually collected directly from income like salaries—but if you receive other income, you usually need to fill out a Self Assessment tax return so that HMRC can work out how much tax you owe.
Do I have to complete a Self Assessment?
As a general rule, you only need to complete a Self Assessment if you receive an income other than a salary, a pension, or income from savings, because other income is generally not taxed at the source. This means that HMRC has no way of knowing how much tax you owe unless you tell them.
While this usually applies to sole traders and other self-employed people, there are a number of situations where you might not realise you need to submit a Self Assessment—and you could receive a penalty for not doing so.
There are also some specific rules you need to be aware of depending on your employment status and the types of income you receive:
If you’re self-employed
When you’re employed by an employer, tax and National Insurance are automatically deducted from your payslip. But when you’re self-employed, you have to handle this yourself—which means filing a Self Assessment tax return each year. This tells HMRC about your income and expenses, so they can work out how much tax and National Insurance you owe.
You don’t have to file a tax return if your annual income is less than £1,000—but if you’re already registered for Self Assessment, you do need to tell HMRC that you won’t be filing a tax return, or you could get a penalty for not doing so.
If you’re not sure if your situation means you count as self-employed or not, here are a few questions to ask yourself:
- Did you earn more than £1,000 in a year from something other than a salary, pension, or savings?
- Do you have more than one client or customer at the same time?
- Are you personally responsible for the success or failure of your business?
- Can you choose to outsource your work to someone else if you want to?
- Do you provide your own equipment, tools, or materials to do your work?
If you answered ‘yes’ to most of the above, there’s a good chance that HMRC would classify you as eligible for a Self Assessment tax return. This category includes people like freelancers and some contractors. If you’re still not sure whether you fall into this category, it’s a good idea to get some advice from an accountant or tax advisor to help you figure it out.
When you file your Self Assessment tax return you’ll need to provide details of all of the income you received during the tax year, as well as any expenses you incurred while running your business. And if you’re not already, it could be a good idea to get set up with some sole trader-friendly bookkeeping software, to help you keep track of all of this in one place, so you’ll have it to hand when the time comes.
Coconut, for example, lets you scan and attach receipts to each of your transactions, so you won’t be left wondering what that mysterious £20 was for when tax time comes around. And no more trying to make sense of a shoebox full of crumpled paperwork either (we’ve all been there).
If you’re a company director
If you’re a director of a company, you’ll need to file your personal Self Assessment tax return to tell HMRC how much you earned. This is separate from your company tax return, which provides details of the company’s profits and losses.
For your personal tax return, it’s important to keep hold of your P45, P60 and P11D documents. You should also keep records related to taxed award schemes, redundancy payments and any benefits you’ve received, including Jobseeker’s Allowance, Sick Pay, or Statutory Maternity Pay. If you’ve had any income from things like employee share schemes, HMRC will want to know about this too. Keeping records of any expenses you’ve had is also a good idea, as you could use them to reduce the amount of tax you’ll pay.
There are a few different types of paperwork involved in running a limited company: you have to submit annual accounts to Companies House, and file a company tax return with HMRC (again, this is different from your personal tax return).
When you submit your company tax return, the period it covers can’t be more than 12 months, so if you’ve been trading for longer than that, you may have to file two tax returns to cover the entire period. If you do, you’ll have two payment deadlines in the first year too. After the first year, you’ll normally only file one company tax return each year.
If you’re a partner in a business
When you’re in a partnership, you’ve (potentially) got two Self Assessment registrations to think about: one for you, and one for the business. Every partnership needs to have a ‘nominated partner’, which is the person responsible for the business’ tax records.
If that’s you, that means you’ll have to register the partnership for Self Assessment and deal with all its paperwork. The partnership will get a Unique Taxpayer Reference (UTR) number, and you’ll have to file a tax return each year through Self Assessment. You’ll also have to register for Self Assessment yourself and file a personal tax return each year too.
Things are a little bit different if your business is a Limited Liability Partnership (LLP), or if one of the ‘partners’ in the company is another company. In both of these cases, special rules apply, and you might want to consider reaching out to a tax expert for help.
If you have income from renting out a property
If you make an income from renting out property, HMRC wants to hear about it. Of course, this applies to landlords who make money renting out whole properties—but you also need to tell HMRC even if you’re just renting out a room in your house, a garage, or a parking space, for example.
In this case, HMRC is interested in your profits, which means you can deduct certain expenses from your rental income. For example, if you paid to replace the carpets in a room you’re renting out, you may be able to deduct this cost from the profit that you pay Income Tax on. The rules on what you can and can’t expense can get a bit murky here, so it’s definitely worth clarifying with an accountant.
The way you pay tax on rental income depends on how much money you’re making from it. If you make under £1,000 per year, you don’t need to file a tax return (unless you have other untaxed income that you need to declare). You also don’t need to file a tax return if your rental income qualifies for rent-a-room relief. This is a government scheme that allows you to earn up to £7,500 per year tax-free by renting out a room in your home.
If your income doesn’t qualify for rent-a-room relief (for example, because you’re not renting out a room in the house where you live), you must report your rental income on a Self Assessment tax return if it’s:
- Between £2,500 and £9,999 a year after allowable expenses
- Over £10,000 a year before allowable expenses
If your property income is below these limits, you probably don’t need to register for Self Assessment and can pay your Income Tax via PAYE instead. To do this, you’ll need to fill out a P810 form to tell HMRC about the money you’re making.
If you receive Child Benefit and have a high income
In certain circumstances, you might have to pay a tax charge on your Child Benefit. In this case, you have to fill out a Self Assessment tax return each year to pay the charge. This is the case if your individual income is over £50,000, and either:
- You or your partner gets Child Benefit
- Someone else you lives with you gets Child Benefit and they pay at least an equal amount towards the child’s upkeep
If you and your partner both have an independent income of more than £50,000 per year, whoever has the higher income is responsible for paying the tax charge.
If you don’t want to pay the tax charge, you can opt out of receiving Child Benefit payments instead—HMRC has a handy calculator to give you an idea of what you’ll have to pay.
If you have a second job (or other additional income)
If you have a second job or make an income from something like making or selling products, you need to report this on a tax return if the income you make from it amounts to more than £1,000 per year.
For example, if you make handmade products to sell online, HMRC will want to know about it if you’re making money from it. If you’re not sure whether you should be reporting income to HMRC, here are a few questions to ask yourself:
- Is your main goal to make money from what you’re doing?
- Are you selling items regularly?
- Are you buying stock or materials specifically to continue selling your products?
If you’re answering yes to the above questions, it’s likely that your activity will count as a business in HMRC’s eyes. However, if your income from this activity is less than £1,000 per year, you can use the trading allowance system.
Essentially, the trading allowance means that you don’t need to declare income of less than £1,000 that you get from a ‘side-gig’. However, there are a few things to be aware of.
First, if you already use Self Assessment, you have to ‘make an election’ to use the trading allowance—it’s not applied automatically. You also can’t use this allowance to claim you’ve made a loss: the best you can do is reduce your income by up to £1,000, to a minimum of £0.
When you use the trading allowance, you can’t claim your normal expenses against your income—you have to choose one or the other. And that’s one or the other per person too: if you have multiple sources of income, you can’t use the trading allowance for one and expenses for the other.
If you’re employed as well as self-employed, HMRC might be able to collect your tax through your tax code.
This might all sound a bit confusing, but the bottom line is that you have to think about what you’re doing when you have a second income—and more importantly, think about how it looks to HMRC. If in doubt, it’s always best to get professional advice to avoid any problems down the road.
If you’re a gig economy worker
Gig workers are hired by companies on a short-term basis and are usually paid by the ‘gig’ or task, rather than on a regular schedule. When you work from gig to gig, you’re responsible for paying your own tax and National Insurance, which means you need to file a Self Assessment each year.
If you’re a high earner
If you earn over £100,000 in a tax year, you have to file a Self Assessment tax return. If you don’t normally file one, you need to register for Self Assessment by October 5th following the tax year when your income went over £100,000. This is because you’re likely in a more complicated financial situation than most, and probably have income from several sources—which HMRC wants to take a look at.
To work out how much tax you owe, HMRC needs to work out your ‘adjusted net income’, which is your gross income minus a few different kinds of tax relief. Then, they’ll work out your tax-free Personal Allowance, which changes when you earn over £100,000 a year: essentially, you lose £1 of your tax-free Personal Allowance for every £2 over £100,000 your income goes.
If this all sounds a bit confusing, it is—which is why HMRC needs to see a tax return to sort it all out.
If you have untaxed savings
If you have savings that you haven’t paid tax on, HMRC might be able to collect tax on small amounts without you having to do a tax return. However, if your income from savings or investments was £10,000 or more during a tax year, you probably need to file a tax return.
You should always tell HMRC about savings income of more than £1,000 a year (or £500 a year if you pay tax at the higher rate), and dividends of more than £2,000 a year.
If you’ve made capital gains
When you ‘dispose of’ (sell) a valuable asset, you often have to pay ‘Capital Gains Tax’ on it. This is a tax based on the profit you made when you sold the asset—not its actual value. Capital Gains Tax only applies to items worth £6,000 or more, so we’re talking about high-value things like jewellery, antiques, and valuable artworks. When you sell something that counts for Capital Gains Tax, you need to file a Self Assessment tax return to tell HMRC about the profit you made.
Capital Gains Tax also applies to property sales—but you don’t need to pay it if you sell the home you live in unless you used it for business or let it out to tenants. If you sell a second property (that’s not your ‘main home’), you’ll have to pay Capital Gains Tax on the profit you made.
If you inherit something, you usually only have to pay Capital Gains Tax if you later sell it. And if you don’t use your car for business, that doesn’t count for Capital Gains Tax either.
You’ll also need to tell HMRC about things like sales of shares and business assets, though ISAs, PEPs, and things like Premium Bonds are exempt (fun fact: you don’t have to pay Capital Gains Tax if you win the lottery either—phew!).
If you sell several things that count for Capital Gains Tax in one year, you’ll need to add up the total profit you made and report this in your Self Assessment tax return.
If you have any income from abroad (but live in the UK)
If you have money coming in from abroad, you usually need to pay tax on it, although a lot depends on your status as a UK resident and the type of income you’re receiving.
Foreign income that you probably have to pay tax on includes income from renting out a property overseas, foreign investments and savings, or wages from working abroad.
Your foreign income will usually be taxed in the same way as your income from the UK. However, there are special rules for property rentals, pensions, and certain jobs like working on a ship or for the government.
If you’re living and working abroad
You usually only pay tax on foreign income if HMRC considers you to be a UK resident. This basically means that you either:
- Spent 183 days or more in the UK during the tax year you’re declaring for
- Owned or rented your sole home for 90 days or more in the UK, and spent at least 30 days there
If your residence status changes during the tax year, you might be able to get ‘split year treatment’, which means you’ll only pay tax on the income you made while you were a UK resident. There are a few conditions you have to meet though—and if you return to the UK after living abroad for less than a full tax year, you don’t get split-year treatment.
If you’re living or working abroad for the entire tax year, you still might have to pay tax on some or all of your income—which usually means filing a Self Assessment tax return. It all depends on where the money’s coming from and your tax residency status.
Even British expats living permanently overseas can sometimes find themselves liable for tax in the UK. If this is your situation, you might have to file a tax return and pay UK tax if:
- You’re a director of a UK company
- You’re receiving rental income from the UK
- You do some or all of your work in the UK
This can be a tricky issue, so it’s always best to get professional advice if you’re not sure whether you should be paying tax in the UK.
Non-domiciled status
It’s possible to be a UK resident if your permanent home is abroad, which is called being ‘non-domiciled’. If you’re a non-domiciled UK resident with under £2,000 in foreign income, you won’t have to pay tax on it as long as you keep it abroad.
Other situations where you might need to file a Self Assessment
You may also need to complete a Self Assessment tax return if:
- You received a COVID-19 grant or support payment
- You’ve made a loss on investments
- You want to claim tax relief on employment expenses over £2,500 in a year
- You received a P800 from HMRC saying you didn’t pay enough tax last year
When is the deadline for Self Assessment tax returns?
The deadline for filing your Self Assessment tax return is 31st October if you’re filing a paper declaration, and 31st January if you’re filing online. To learn more about the important dates for your self-employment diary, read our full guide.
What happens if I don’t file my Self Assessment in time?
If you don’t file your Self Assessment (or pay any tax you owe) by the deadline, you could face a penalty from HMRC—so it’s a good idea to make sure you’re prepared ahead of time.
Disclaimer:
The content included in this guide is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should be regarded as a guide only. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this guide.
