How to file taxes in the UK.
If you have just moved to the UK, managing your financial affairs will be an important aspect of building your new life here. This includes being clear about how income tax works. While few people are excited about taxes, it’s something to deal with, so we’re going to focus on everything you need to know.
Who must file a tax return in the UK?
Living in the UK, you have to pay income tax on anything you earn above your personal tax-free allowance, which at the time of writing is £12,570.
If you are employed in the UK and your salary is below £100,000 a year, your employer will automatically deduct the income tax you are due from your salary. This means that you do not have to file a tax return.
On the other hand, you will have to file a tax return through a process known as Self-Assessment if other scenarios apply, including the following:
If you earn more than £100,000 a year as an employee.
If you earn more than £1,000 as a freelancer.
If you are a partner in a commercial company.
If you receive income from abroad that is subject to tax, such as rental payments for a property in your home country.
When do you have to file the tax return?
The financial year in the UK runs from April 6 to the following April 5. The tax return for this period must be submitted before October 31, if you do it by mail. However, most people prefer to file online, which saves more time, since the deadline in this case is January 31.
How can the taxes return be filed?
Before filing your first tax return, you must register for the Self-Assessment with HM Revenue & Customs (HMRC). You must do this before October 5 following the first financial year in which you have been working.
If you are self-employed, the easiest way to do this is online, by following these steps.
Set up a Government Gateway user ID and password here . You will need to provide your full name and an email address to which the verification code will be sent. Having a Government Gateway ID will allow you to access government online services.
You can now register for the Self-Assessment by following the prompts on the screen. You will need to provide information about the nature of your work, along with personal details including your national insurance number.
Within 10 days you will receive by mail your Unique Taxpayer Reference number (UTR), which you will need to file your tax return.
You will also receive an activation code for your online tax account in a separate letter.
If you are not self-employed but still need to file a tax return – for example, because you receive tax-free income from abroad – the process is very similar, except that you must complete the SA1 form through your online account.
Once you’ve done all of this, you’ll be ready to file your taxes online . Simply log in to your account and follow the on-screen prompts to provide the requested information about your earnings. Alternatively, you can choose to mail in a paper tax return form.
You may be entitled to a tax deduction from your bill, also known as tax relief. If you are self-employed, you should keep track of your operating expenses, as some may be considered tax-free “allowable expenses.” These include:
Office expenses such as stationery, phone and internet bills, computer software.
Office rent, utility bills, and insurance costs.
Travel expenses, including vehicle insurance, fuel, cost of repairs, and hotel bills.
Costs of uniform or protective clothing.
Financial or legal costs, such as bills from accountants and lawyers.
To claim these expenses, you will need to record the costs on your tax return. Make sure you keep evidence, such as receipts or invoices, in case HMRC ever asks to see it.
What happens after I file the tax return?
You will be able to see how much you owe in taxes after you complete your return online. If you submitted a paper form, you will receive your tax bill in the mail.
If the amount is greater than £1,000, the invoice will generally include an advance payment for the following year’s invoice. Known as “payment on account”, it is usually divided into two instalments, each reflecting 50% of the current tax bill.
The deadline to pay your tax bill, together with the first instalment of the payment on account, is January 31. After that you have to make the payment of the second instalment of the payment on account before July 31. If your next tax bill turns out to be more than the amount of the payment on account, you will have to make up the difference with a “balance payment”.
It sounds complicated, but an example situation should make it clearer. Let’s say your first Self-Assessment tax bill is £2,000. This means that before January 31 you must pay £2,000, together with the first down payment of £1,000 (50% of £2,000).
You must make the second payment on account of £1,000 before July 31. Now let’s say your next tax bill is £2,500. This means that you have to make a balance payment before January 31, as that is what you owe, after deducting the two instalments of £1,000 that you paid in advance. You will also have to pay the first instalment of the new payment on account, which will be £1,250 (50% of £2,500).
If you already know that your next tax bill will be less because your earnings have been reduced, you can go into your tax account and select the option to reduce your payment on account.
How can tax bills be paid?
It is important that you pay your taxes before the two annual deadlines, or you will be charged penalties. The easiest way to pay is online through the official UK government website or through your HMRC account. You can pay by online bank transfer, debit card, corporate credit card or by setting up Direct Debit payments.
Alternatively, you can pay in person at the bank or building society, by cash or check, or by posting a check to HM Revenue & Customs.