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There are now less than 100 days to file your 2022-23 Self-Assessment tax return online. The deadline is 31 January 2024. The deadline for paper returns ended on 31 October 2023.

You should also be aware that payment of any tax due should also be made by this date, 31 January 2024. This includes the payment of any balance of Self-Assessment liability for the 2022-23 plus the first payment on account due for the current 2023-24 tax year.

If you miss the filing deadline you will usually be charged a £100 fixed penalty. If your return is up to 3 months late, regardless of whether you owed tax or not, and if you do not file and pay before 1 May 2024, then you will face further penalties unless you have arranged to pay with HMRC.

HMRC is encouraging taxpayers to complete their tax return as early as possible to avoid getting more stressed as the filing date looms. Those who submit their returns early still have until 31 January 2024 to pay any tax due.

If you are filing online for the first time you should ensure you register to use HMRC’s Self-Assessment online service as soon as possible. Once registered an activation code will be sent by mail. This process can take up to 10 working days. 

Dividends received are taxed as income but the rates of tax applied are different to the formal Income Tax rates. Also, individuals can receive dividends up to the annual dividend allowance tax free. The annual dividend allowance for 2023-24 is £1,000.

The current tax rates for dividends received (in excess of the dividend tax allowance) are as follows:

• 8.75% if dividends form part of a taxpayer's basic rate band;
• 33.75% if dividends form part of a taxpayer's higher rate band; or
• 39.35% if dividends form part of a taxpayer's additional rate band.

Dividends that fall within (are covered by) your Personal Allowance do not count towards your dividend allowance. It is also possible that you may pay tax at more than one rate of tax.

If you receive up to £10,000 in dividends, you can ask HMRC to change your tax code and the tax due will be taken from your wages or pension. Alternatively, you can enter the dividends on your Self-Assessment tax return if you already file a return.

You do not need to notify HMRC if the dividends you receive are within your dividend allowance for the tax year.

If you have received over £10,000 in dividends, you will need to complete a Self-Assessment tax return. If you do not usually complete a tax return, you will need to register by 5 October following the tax year in which you had the relevant dividend income.

The 2022-23 tax return filing deadline for taxpayers who continue to submit paper Self-Assessment returns is 31 October 2023. Late submission of a Self-Assessment return will incur a £100 late filing penalty. The penalty usually applies even if there is no liability or if any tax due is paid in full by 31 January 2024.

We would recommend that anyone still submitting paper tax returns consider the benefits of submitting the returns electronically, and therefore benefit from an additional three months (until 31 January 2024) in which to submit a return.

Taxpayers with certain underpayments in the 2022-23 tax year can elect to have this amount collected via their tax code (in 2024-25) provided they are in employment or in receipt of a UK-based pension. The coding applies to certain debts and the amount of debt that can be coded out ranges from £3,000 to £17,000 based on a graduated scale. The maximum coding out allowance only applies to taxpayers with earnings exceeding £90,000.

Daily penalties of £10 per day will also take effect if the tax return is still outstanding three months after the filing date up to a maximum of £900. If the return still remains outstanding further higher penalties will be charged when a return is six months and twelve months late.

Taxpayers that received a letter informing them that they have to submit a paper return after 30 July 2023 have an extended deadline which runs for three months from the date they received the letter to submit a paper return.

There is an interesting anomaly that can affect taxpayers with homes in Scotland and other parts of the UK. Where this is the case, the question arises as to whether or not the taxpayer is liable to pay Income Tax in Scotland or elsewhere.

As a general rule, the Scottish rate of Income Tax (SRIT) is payable on the non-savings and non-dividend income of those defined as Scottish taxpayers. The definition of a Scottish taxpayer generally focusses on the question of whether the taxpayer has a 'close connection' with Scotland or elsewhere in the UK. The liability to SRIT is not based on nationalist identity, location of work or the source of a person’s income, e.g., receiving a salary from a Scottish business.

Where a taxpayer has a home in Scotland and also elsewhere in the UK, they need to ascertain which is their main home based on published guidance and the facts of the case.

HMRC’s guidance on the issue states the following:

Your main home is usually where you live and spend most of your time. It does not matter whether you own it, rent it or live in it for free. Your main home may be the home where you spend less time if that’s where:

• most of your possessions are;
• your family lives if you are married or in a civil partnership;
• you are registered for matters such as your bank account, GP or car insurance; or
• you are a member of clubs or societies.

It is also possible to change which home counts as your main home if there has been a material change in the underlying facts. Scottish taxpayer status applies for a whole tax year. It is not possible to be a Scottish taxpayer for part of a tax year.

The rent-a-room scheme is a set of special rules designed to help homeowners who rent-a-room in their home. If you are using this scheme, you should ensure that rents received from lodgers during the current tax year do not exceed £7,500. The tax exemption is automatic if you earn less than £7,500 ;there are no specific tax reporting requirements. If required, homeowners can opt out of the scheme and record property income and expenses as usual.

You can use the scheme if:

• you let a furnished room to a lodger; or
• your letting activity amounts to a trade, for example, if you run a guest house or bed and breakfast business, or provide services, such as meals and cleaning.

You cannot use the scheme if the accommodation is:

• not part of your main home when you let it;
• not furnished;
• used as an office or for any business — you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities; or
• in your UK home and is let while you live abroad.

The relief also simplifies the tax and administrative burden for those with rent-a-room income up to £7,500. The limit is reduced by half if the income from letting accommodation in the same property is shared by a joint owner of the property.

The rent-a-room limit includes any amounts received for meals, goods and services provided, such as cleaning or laundry. If gross receipts are more than the limit taxpayers can choose between paying tax on the actual profit (gross rents minus actual expenses and capital allowances) or the gross receipts (and any balancing charges) minus the allowance – with no deduction for expenses or capital allowances.

The basis of assessment reforms will change the way trading income is allocated to tax years. The changes will affect sole traders and partnerships that use an accounting date between 6 April and 30 March. There is no change to the rule for companies.

The reforms will change the basis period from a ‘current year basis’ to a ‘tax year basis’.

Under the current rules there can be overlapping basis periods. When this occurs, tax may be charged on profits twice and generate ‘overlap relief’. This overlap relief can be used on the cessation of a business or when an accounting date is changed. The new method of using a ‘tax year basis’ will remove the basis period rules and prevents the creation of further overlap relief. 

The new rules will come into effect in the 2024-25 tax year and the current 2023-24 tax year is known as the ‘transition year’. During the transitional year, all businesses’ basis periods will be aligned to the tax year and all outstanding overlap relief can be used against profits for that tax year.

Affected businesses in 2023-24 will be assessed on the tax for profits for the:

• 12 month accounting period they have previously been using; and
• for the rest of the 2023-24 tax year.

Any excess profit covering more than 12 months, is known as ‘transition profit’. This can be reduced by overlap relief and the remaining profit will be spread over the next 5 tax years until 2027-28.

The changes do not affect sole traders and partnerships who draw up annual accounts to a date between 31 March and 5 April. These businesses will continue to file as usual for the 2023-24 accounting year.