There’s just one day left to tell HMRC about any income you earned during the 2019-20 tax year that might require you to submit a self-assessment tax return.
If you’ve never submitted a tax return before, and have earned money that you haven’t yet paid any tax on, you’ll need to act now.
While HMRC often gets in touch to let people know they need to submit a tax return, this doesn’t always happen – and the onus is on you to declare all forms of income you’ve received that you need to pay tax on.
Here, Which? explains what kind of income you may need to declare and what the government’s coronavirus measures mean for your 2019-20 tax return and bill.
Are 2019-20 tax returns cancelled due to coronavirus?
No – if you need to declare income earned during the 2019-20 tax year, you must submit a tax return at the usual time – either by 31 October 2020 if you complete a paper return, or by 31 January 2021 if you submit your return online.
The thing that’s different for the next round of tax returns, is that you can defer the tax payments.
Chancellor Rishi Sunak announced the government’s Winter Economy Plan last week, which outlined further coronavirus measures.
During the crisis, self-employed people who made payments-on-account could put their July 2020 payment off until January 2021. Now they can spread this – and the additional tax due in January – over 12 monthly instalments.
You won’t pay any interest on the deferred payment-on-account between July 2020 and January 2021. However, you will have to pay interest at 2.6% on all your outstanding tax from 1 February.
The deferral is available as part of the Time to Pay arrangement. Before, you could only apply to spread a bill of £10,000 or less. Now you can apply if your debt is between £32 and £30,000. Anyone with bigger debts, or who needs longer to pay, is encouraged to contact HMRC.
- Find out more: the Chancellor’s Winter Economy plan explained
What do you need to do by 5 October?
You need to register for self-assessment with HMRC by 5 October in order to get your tax account set up in plenty of time to submit you 2019-20 tax return.
You can register online, or by calling HMRC on 0300 200 3300. You’ll need to choose whether you’re self-employed, not self-employed, a business partner or partnership.
After you’ve registered, you’ll be sent a Unique Taxpayer Registration (UTR) number, which you’ll need to use to create your self-assessment account.
You only need to register for self-assessment once – so if you’ve already submitted a tax return in the past, you can use the same UTR and other details from last time. If you’ve lost your UTR number, call HMRC’s self-assessment helpline on 0300 200 3310.
While you won’t get a fine for not registering for self-assessment by 5 October, you do run the risk of not being ready to file your first tax return – and submitting it just a day late could mean a fine of £100, which quickly escalates the longer you leave it.
Find out more: late tax returns and penalties for mistakes
What income is taxable?
You need to report any untaxed income over £2,500 – commonly, this could include money you’ve made from selling shares or other valuables, rental income from a buy-to-let property, earning interest or dividends, or receiving cash tips.
If you’ve earned less than £3,000 and pay other tax through PAYE, you can ask HMRC to add the additional tax you owe to the following year’s PAYE deductions. To do this, you’ll have to make sure you submit your tax return by 30 December 2020.
Otherwise, you’ll need to pay tax by self-assessment – but you may not need to pay tax on the whole amount you’ve earned as there are several allowances that can be applied.
Income: up to £12,500 of income was free from income tax in 2019-20 (this is the same for 2020-21), but for every £2 you earn over £100,000 you’ll lose £1 of this allowance. Note that income tax bands in Scotland are different to elsewhere in the UK.
Capital gains: the capital gains tax (CGT) threshold in 2019-20 meant you could earn a profit of up to £12,000 before having to pay any tax. This has increased to £12,300 in 2020-21.
Savings: depending on the rate of income tax you pay, you can earn up to £6,000 in savings interest before having to pay tax. There’s a savings starting rate of up to £5,000 for those on lower incomes; a £1,000 savings allowance for those who don’t pay income tax and basic-rate taxpayers and higher-rate taxpayers have a £500 savings allowance.
Investments: if you earn dividends from shares, there’s a tax-free allowance of £2,000.
Trading allowance: the first £1,000 you earn from trading activities such as selling items on eBay or other marketplaces or small freelance jobs, is tax-free.
Property: similarly to the trading allowance, you can earn up to £1,000 from your property before paying tax – this could be for things like renting out your parking space, or letting your home out for an event. Then there’s the Rent-a-Room scheme, which means the first £7,500 earned from having a lodger in your home is free from tax.
Find out more: how much tax you pay
Submit your tax with Which?
When you come to submitting your tax return, the Which? tax calculator can help you tot up your tax bill and submit your return directly to HMRC.
You can use the tool to help work out what you owe, and it will prompt you with any allowances or expenses you might have missed.
Plus, you can use it to declare income from a range of sources, from self-employment to capital gains and savings interest.