The recent press coverage of taxpayers who may be receiving unexpected tax refunds or tax demands has created yet further anxieties about the UK tax system. The refunds and demands are due to HMRC errors in tax codings and other issues for the two tax years ending 5 April 2009 and 5 April 2010. It will be mainly tax payers who are not required to complete a self-assessment tax return who will be affected, although not all tax payers in this category will be included. If you complete a self-assessment tax return your annual tax position is reconciled as part of the filing process.
It comes as a surprise to many overseas visitors that not everyone in the UK has to complete a tax return as happens, for example, in the United States and Australia. That is largely because the Pay As You Earn (PAYE) system has generally worked well for many years in the UK. However, PAYE is only an approximation of a person?s tax liability and as more taxpayers have multiple sources of income it becomes less likely to be accurate. It has not helped either that there is no tax code that takes tax from income that is taxed at the 50% tax rate. So problems are likely to continue.
So, who does need to complete a UK tax return? I have listed below the main reasons why you may need to complete a self assessment return.
- You are self-employed
- You are a company director, minister, a Lloyd's name or member
- You have income above a certain level from savings, investment or property
- You have income from savings and investments of £10,000 or more; income from untaxed savings and investments of £2,500 or more; income from property of £10,000 or more (before deducting allowable expenses); income from property of £2,500 or more (after deduction of allowable expenses); annual trust or settlement income for which tax is still due; income from the estate of a deceased person on which tax is still due
- You receive a reduced age-related allowance because you're 65 but your income is over a certain level (£22,900 for the 2010-11 tax year), you'll need to complete a tax return. But there are exceptions, for example should your tax affairs be very straightforward.
- You receive income from overseas
- You have an annual income of £100,000 or more
- You need to make a claim for certain expenses or reliefs
- You owe tax and HMRC cannot collect it through your tax code, or you prefer to pay direct
- You have a capital gain and Capital Gains Tax to pay
- You have lived or worked abroad or are not UK domiciled
- You are a trustee
If you fall into one of these categories, you will have to notify HMRC of your need to complete a tax return. This has to be done within six months from the end of the tax year in which any potential liability arises. In other words, if you have a liability in the 2009/2010 tax year, you have to notify HMRC of this before 5th October 2010. If you are unsure what to do, make sure you consult a professional advisor. It is unlikely that you will be charged for a quick phone call to check if you need a tax return.
Ian Marlow runs HFM, a London tax and accounting business serving clients both resident in, and living outside, the UK. For more detailed tax information and access to their excellent free monthly tax newsletter, go to the HFM website => http://www.hfmtax.co.uk.
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