Last updated on March 28th, 2024 at 11:00 am
If you’ve just moved to the UK, managing your financial affairs will be an integral part of forging your new life here. That includes being clear on how income tax works. While few people are excited by the subject of tax, it’s something that has to be dealt with, so let’s get stuck into everything you need to know.
Who needs to file a tax return in the UK?
Living in the UK, you have to pay income tax on anything you earn that exceeds the tax-free personal allowance, which at the time of writing is £12,570.
If you’re employed in the UK and your salary is below £100,000 per year, any income tax you have to pay will be automatically deducted from your salary by your employer. This means you don’t have to file a tax return.
On the other hand, you will have to file a tax return through a process known as Self Assessment if a number of other scenarios apply, including the following:
- You earn more than £100,000 per year as an employee.
- You make more than £1,000 as a self-employed person.
- You’re a partner in a business partnership.
- You receive taxable foreign income, such as rental payments from a property in your home country.
When does the tax return need to be filed by?
The financial year in the UK runs from 6 April to the next 5 April. The tax return for this period must be submitted by the following 31 October, if you’re doing it by post. However, most people prefer to file the return online, which buys you more time as the deadline for this is 31 January.
How can the tax return be filed?
Before filing your first tax return, you’ll need to register for Self Assessment with HM Revenue & Customs (HMRC). This has to be done by 5 October following the first financial year you’ve been working.
If you’re self-employed, the easiest way to do this is online, following these steps.
- Set up a Government Gateway user ID and password here. You’ll need to provide your full name and an email address where a verification code will be sent. Having a Government Gateway ID will enable you to access online government services.
- You can now register for Self Assessment by following the on-screen prompts. You’ll have to provide details on the nature of your work, along with personal information including your national insurance number.
- Within 10 days you’ll receive your Unique Taxpayer Reference (UTR) number in the post, which you’ll need when filing your tax return.
- You’ll also receive an activation code for your online tax account in a separate letter.
If you’re not self-employed but still need to file a tax return – for example, because you receive untaxed income from abroad – the process is very similar, except you’ll fill in the form SA1 through your online account. If you’re registering for Self Assessment as a partner or partnership, there are more details to consider, and these are covered on the government’s site here.
Once this is all done, you’ll be all set to file your tax return online here. You just have to sign into your account and follow the on-screen prompts to provide the income information required. Alternatively, you may choose to post a paper tax return form which can be downloaded here.
Tax relief
You may be entitled to deductions from your tax bill, also known as tax relief. If you’re self-employed, you should keep a record of your running costs, as some can be designated as tax-free ‘allowable expenses’. These include:
- Office costs such as stationery, phone and internet bills, computer software.
- Office rent, utility bills, and insurance costs.
- Travel costs, including vehicle insurance, fuel, breakdown cover, and hotel bills.
- Costs of uniforms or protective clothing.
- Financial and legal costs, such as accountants’ and solicitors’ bills.
To claim these expenses, you need to record the costs on your tax return. Be sure to retain proof, such as receipts and bills, in case HMRC ever asks to see them.
What happens after the tax return is filed?
You’ll be able to see how much you owe in tax after completing your return online. If you’ve submitted a paper form, you’ll get the tax bill by post.
If the amount is more than £1,000, the bill will typically include an advance payment towards next year’s bill. Known as the ‘payment on account’, this is usually split into two instalments, each reflecting 50% of the current tax bill.
The deadline for paying your tax bill, along with your first payment on account instalment, is 31 January. You then have to pay the second payment on account instalment by 31 July. If your next tax bill turns out to be higher than the payment on account amount, you have to make up the difference with a ‘balancing payment’.
This sounds complicated, but an example scenario should make it more clear. Let’s say your first Self Assessment tax bill is £2,000. This means that by 31 January you need to pay £2,000, along with the first payment on account of £1,000 (50% of £2,000).
The second payment on account of £1,000 must be paid by 31 July. Now, say your next tax bill comes to £2,500. This will mean you have to make a balancing payment of £500 by 31 January, as that’s what’s owed once you deduct the two instalments of £1,000 you’ve already paid in advance. You’ll also have to pay the first instalment of the new payment on account, which would be £1,250 (50% of £2,500).
If you know that your next tax bill is going to be lower because your earnings have been reduced, you can log into your tax account and select the option to reduce your payment on account. Alternatively, you can submit this form by post.
How can tax bills be paid?
It’s important to pay your taxes by the two annual deadlines, or you’ll be charged penalty fees. The most straightforward way to pay is online through the official UK government website or your HMRC account. You’ll be able to pay by online bank transfer, debit card, corporate credit card, or by setting up Direct Debit payments.
Alternatively, you can pay in person at a bank or building society using cash or cheque, or post a cheque to HM Revenue & Customs.