| Index »Self-Assessment |
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| Self-Assessment |
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| Self assessment is a way of establishing what tax is due on your income. It does not affect the amount of tax you pay. It is the process by which people who normally get a tax bill each year notify HM Revenue and Customs of the taxe due on income and capital gains and pay their tax or to claim tax allowances against their tax bill. It involves completing a paper or online form called a Self Assessment tax return. |
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| Most people pay tax on their earnings or pensions through PAYE (Pay As You Earn). Under PAYE the employer or pension provider deducts tax on behalf of HMRC, and you don't usually get a Self Assessment tax return. But if you're not on PAYE, and/or are due to pay additional tax because of other income not taxed through PAYE (for example from property or investments above a certain amount, or because you're self-employed) you have to account for this income through Self Assessment. HMRC uses the figures you supply on the tax return to work out your tax bill, or you can work it out yourself. It's called 'Self Assessment' because you're responsible for making sure the details you provide are right. |
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| The key elements are : |
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You as taxpayer are responsible for completing a tax return by the legal deadline and for keeping records to support the entries on your tax return |
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HM Revenue and Customs process your return, usually as you send it in |
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You are required to pay the correct amount of tax on the due dates |
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You may have to make payments of tax 'on account' for the current year profits. |
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You receive regular statements of account from HM Revenue and Customs showing tax falling due and payments that you have made. |
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You will be charged penalties if your return is not sent back on time, and interest if tax is paid late |
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| If you have any income or gains which are not assessed under PAYE or taxed at source at the correct rate (for instance by your bank on interest payments) you are required to notify HM Revenue and Customs who may then send you a tax return to complete. |
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| About one in three taxpayers falls within self assessment; most of them are self-employed, people with income from property, company directors, or others with high earnings. But people on relatively low incomes may be affected too, for instance some pensioners or others with small amounts of interest on savings might also be required to fill in a tax return. |
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| HMRC will only send you one if it needs information from you in order to find out how much tax you should pay. If your only income is earnings from your job, you won't need to fill a form out because the right amount of tax is automatically taken from your wages. |
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| If you're self employed, run a company, or you have more complex finances, the HMRC will need to know. For example, if you're self employed you'll need to provide details about your business accounts on the form. |
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| Once HMRC receives your form you'll be sent a calculation that will tell you how much you have to pay. You only have to pay tax on amounts over your tax-free allowance, so if you've already had the correct tax deducted by your employer then you won't have to pay it again. If you fill in your form online you'll see a calculation of your tax come up straight away so you'll know exactly what your position is. |
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| What Do I Need To Prove My Income? |
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| If you're employed you should receive a P60 (see under our employment section to know more about this form) at the end of the tax year - this will tell you your earnings and tax deductions for the year. If you've left any jobs during the year then you will have received a P45, so make sure you keep hold of them. If you're self employed you should keep a full and accurate business record and you should also show any money you have coming in and out of any business accounts. If you keep a record book showing receipts, invoices, purchases, sales of stock, business expenses, and so on, then you'll also need to keep those to hand. |
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| Some Info Concerning Allowable Expenses? |
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| You may deduct the running costs you incur solely for the purpose of your business. To name a few, The following could be treated as running costs. include the cost of: |
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Goods bought for resale; |
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Employee wages; |
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Rent and overheads of the premises you use for the business; |
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Stationery; |
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Running vehicles used for the business. |
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| What Are The National Insurance Classes Payable By The Self Employed. |
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| Class 2 - National Insurance Contributions |
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| You can register for Class 2 NICs when you register as self-employed with the HMRC Class 2 NICs count towards certain benefits, like State Pension, Maternity Leave and Bereavement Benefit. |
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| You pay Class 2 NICs at a flat rate of £2.10 a week (2006-2007) if your earnings are above £4,465 per year. (You can choose to make your payments either quarterly or by monthly direct debit.) However, If you earn less than £4,465 ( 2006- 2007) per year you can apply for a 'certificate of small earnings exception' and not pay Class 2 NICs. |
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| However, you might decide to carry on paying them voluntarily to keep your entitlement to the State Pension and other benefits. Class 2 NICs don't count towards the additional State Pension, Statutory Sick Pay or Jobseeker's Allowance, so you might want to think about making other arrangements like a personal pension and income protection insurance. |
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| Class 4 National Insurance Contributions |
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| The amount of Class 4 NICs you have to pay for any tax year is based on your profits for that year. You pay eight per cent on annual profits between £5,035 and £33,540( 2006- 2007) and one per cent on any profit over that amount. You work out your Class 4 NICs on your tax return and pay them alongside your Income Tax. Class 4 NICs don't count towards benefit entitlements. |
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| SELF ASSESSMENT & TAX LIABILITY |
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| Self Assessment will change the way in which liability is established and will remove the Inland Revenue's reliance on estimated assessments. The liability that taxpayers declare on their returns should normally reflect their proper liability and there should be no need for the Inland Revenue to review those cases in the way described above. |
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| However, where a taxpayer has not submitted his or her return, the Inland Revenue can determine the taxpayer's likely tax liability so that the tax can be pursued. There is no right of appeal against such determinations, and the tax determined is legally enforceable. Taxpayers can displace the determination with their own self assessment at any time up to the fifth anniversary of the statutory filing date for the year of assessment in question (or one year after the determination was issued, if later). |
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| It is unlikely therefore, that the point will often be reached where a determination can no longer be displaced. Where exceptionally that does occur and the conditions of the practice described are fulfilled, then the Inland Revenue will be prepared to consider extending their practice to meet this situation.
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