Tag Archives: tax liability

When do you need to submit a self-assessment?

Despite ongoing consultations and efforts to simplify the system, many taxpayers are still left unsure of what it is they’re meant to do.

Since filing a self-assessment late carries a hefty penalty fee, knowing when you’re required to complete a tax return is very important.

The chances are that, if you completed a self-assessment for the last tax year, you’ll need to do it again this year. HMRC tend to issue letters informing people when completing Self Assessment forms are no longer necessary, and they actively urge taxpayers to tell them as soon as their situation changes.

A spokesperson for HM Revenue and Customs stated “people with slightly more complex affairs may have to fill in a tax return but it all depends on their personal circumstances.

“We don’t want anyone to fill in a tax return unless it’s absolutely necessary.”

So, how do you know if it is necessary for you? HMRC will judge whether or not they need you to complete a Self Assessment based on a few different factors. Here are some of the more important points to consider –

Your income

As a rule, anyone with a taxable income of more that £100,000 will automatically be required to fill out a self-assessment form.

If you make any income over £10,000 from savings, investments or shares, you’ll also need to report it to HMRC.

Say you sold your holiday home or some shares to your business in the last year. You would need to disclose that income on a self-assessment in order to pay the Capital Gains Tax that you owe.

In most cases, though, if your only income comes from your wages as a non-shareholding employee/director or pension, you won’t need to submit a return.

Your role

If you’re self-employed, or were self-employed at any point over the past tax year, you will need to submit a Self Assessment. You will be allowed to deduct some allowable business expenses from your income before working out how much you owe in tax.

Company directors also need to complete a Self Assessment unless they work for a non-profit organisation and do not receive any pay or benefits. Trust and registered pension scheme trustees must complete tax returns.

As a landlord, you may not think of yourself as self-employed or as a business owner. But, in HMRC’s eyes, you are. You must report all income you receive in rent but you will be able to deduct revenue expenditure from your profits to reduce your tax liability.

Depending on your individual circumstances, you may need to send a return even if you do not fall into any of these categories. For example, religious ministers and Lloyd’s underwriters are also liable for self-assessment.

Other types of income

Even if your usual income does not meet the HMRC criteria for requiring a Self Assessment, other factors may mean you still need to fill out a tax return.

This could include your partner’s income too. If one of you makes more than £50,000 a year, and either you or your partner are claiming child benefit at the same time, you will need to report it on a self-assessment form.

Income from overseas is also taken into consideration. Any tax owed on income in other countries must be put on your tax return. Even if you were living abroad yourself, you’ll need to pay the tax on any UK income you made during that time.

If you have received a P800 from HMRC saying you didn’t pay enough in the last tax year, and you have not already payed what you owe through your tax code or voluntary payment, it will be added onto your total tax bill.

Work with us

In any case, if you receive a letter or HMRC telling you to send in a tax return, you must submit the form. Even if you don’t have any tax to pay, going against HMRC could result in fines or even trigger an official investigation.

The Self Assessment process can seem daunting, especially with new tax changes being announced every year. If you need any advice or guidance through submitting your tax return, speak to us today on 01872 271655, or email us on enquiries@kelsallsteele.co.uk

Associated Companies

Are you associated?

For the financial year to 31 March 2015, Limited Companies paid different rates of Corporation Tax depending on their profit levels. If taxable profits were higher than £1,500,000 then the rate of tax was 21%. If taxable profits were less than £300,000 then the rate of tax was 20% and for profits between these two limits, marginal relief was applied.

However, if the company was associated with other companies, then their profit limits had to be divided by the number of associated companies, for example, if there were 3 associated companies, they would all pay tax at the higher rate of 21% if their taxable profit was higher than £500,000 (£1,500,000 divided by 3).

For the financial year to 31 March 2016, the tax rates have changed so that regardless of the levels of your profits, the corporation tax rate will be 20%. It therefore doesn’t matter how many associated companies you have, you will still pay tax at 20%.

We can’t forget about associated companies altogether however as the number of associated companies also establishes the limits above which a company has to pay corporation tax in instalments rather than 9 months and 1 day after the year end.

From 1 April 2015 onwards each company has to disclose whether there are other companies that are classed as ‘51% group companies.’ If you are a 51% subsidiary of another company or if there is another company that is a 51% subsidiary of you or if you and another company are both 51% subsidiary companies of the same company, then you are classed as ‘51% group companies.’ To clarify, a 51% subsidiary company means that 50% or more of its ordinary share capital is owned beneficially (directly or indirectly) by another company.

For a company with no 51% group companies, they will not have to pay their corporation tax in instalments until their taxable profits exceed £1,500,000. This limit is reduced by every 51% group company so that a company with 2 additional 51% group companies would have to pay their corporation tax in instalments if their profit levels exceeded £500,000 (£1,500,000 divided by 3).

Even if you exceed your upper limit, if either of the following applies, you will not need to pay your corporation tax in instalments:

  • If your corporation tax liability is less than £10,000 (pro-rated for periods shorter than 12 months)
  • If your profits are less than £10,000,000 and the company has not existed for the full previous 12 months or for any accounting period ending in the previous 12 months, the tax liability was less than £10,000 or the profit levels were below the upper limit.

Please note, the £10,000,000 limit is also divided by the number of 51% group companies, so would be £3,333,333 if there were 3 x 51% group companies.

For periods beginning on or after 1 April 2015 then, it should be simpler to calculate whether your company needs to pay corporation tax in instalments. If you are unsure if your company(ies) will be affected by these changes, please let us know and we will be happy to help.