Income taxes and National Insurance contributions accounted for 43% of the UK government’s funding in 2021/22, totaling £230 billion and £161 billion respectively.
Much of this is collected from employees via PAYE.
However, many individuals will need to submit Self Assessment tax returns if they have more complex sources of income.
Why do I need to submit a Self Assessment tax return?
Most individuals pay income tax via Pay As You Earn (PAYE). This means that the income tax they owe is automatically deducted from their pay before they receive it.
Since many people only have one job and source of income, making sure their PAYE deductions are correct is all they have to do to be tax compliant.
However, if you are getting income from untaxed sources, such as investment income or being self-employed, you will have to declare this to HMRC and pay tax on it. Aside from income tax, you will also need to pay National Insurance contributions on this income.
Self Assessment tax returns are the way you declare your untaxed income to HMRC and calculate what you owe.
Importantly though, Self Assessment is also how you claim Income Tax relief for job expenses that come out of your own pocket, or for pension contributions and charity donations.
How do I know if I must submit a Self Assessment tax return?
You must submit a Self Assessment tax return if any of the following applies:
When can I claim income tax relief?
You can claim income tax relief when you have to use your own money to buy things necessary for your work.
You cannot claim relief if your employer gives you all the money back or gives you an alternative (for example, you were given a phone but wanted a different one).
The amount of relief depends on the rate at which you pay tax, and the value of the expense. If you are taxed at 20%, you can deduct 20% of the expenses’ value from your taxable income.
For example, if you pay 20% income tax and you had to spend £100 on fuel for work trips, you could deduct £20 from your total taxable income.
You can claim tax relief on the following work expenses:
- Costs involved in working from home.
- Cleaning, repairing, or replacing a uniform or specialist clothing or tools.
- Using your car for work. For cars, you receive tax relief at a rate of 45p per mile for the first 10,000 miles and at 25p thereafter.
- Professional membership fees.
- Business trip costs, which does not include travelling to and from your home and your regular place of work.
- Substantial equipment such as computers or machinery. You can usually get tax relief equal to the full value of these items as they qualify as a capital allowance.
Pension contributions and charity donations
You get tax relief on private pension contributions worth up to 100% of your annual earnings. This usually happens automatically when your employer takes your pension out of your salary before deducting income tax, or if your pension provider claims it as a tax relief and adds it to your pension pot.
If this tax relief is not done automatically, or if you pay income tax at rates higher than 20%, you can claim this relief on your Self Assessment tax return.
What income counts as untaxed?
You will have to declare any income through Self Assessment that is not tax-free, such as the first £1000 of self-employment income or rental income, and which has not already been taxed.
How do I submit my Self Assessment tax return?
If you need the help with filing your Self Assessment tax return, our CIMA-registered chartered accountants would be happy to assist you.
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