Why Is It Important To File A Tax Return
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As a business owner, you will need to b aware of your responsibilities when filing tax returns. This article looks at why it is important to file a tax return.
Do you need to complete a Self Assessment tax return?
Only a select few people are required to file Self Assessment tax returns. Those employed and paying tax through the Government's Pay As You Earn (PAYE) scheme do not need to file Self Assessment tax returns.
Those who do include those who are self-employed, trustees or executors of estates, partners in an LLP or other partnership business, amongst others.
You may also have to pay tax via a Self Assessment for different types of taxable income you receive. For example, other untaxed income such as money from renting a property, savings, investments, dividend income, foreign income, or tip/commission work will all have to be declared through a tax Self Assessment.
You can sometimes pay tax on these non-employment incomes through your PAYE code, but there are maximum limits applied, and you may end up simply having to file a Self Assessment anyway.
Importance of Filing Income Tax Returns
According to the Income Tax Act, if you fall into the bracket of people eligible for Income Tax, your Income Tax returns must be filed on time and accurately.
There are late payment penalties for failing to do this, which can be severe depending on your individual situation. Alternatively, there are also benefits you can glean from accurate and timely filing of your Income Tax Returns. These include:
When do you need to pay your tax liability?
If you need to file Self Assessment Tax Returns, you must pay the balance of any tax liability you are eligible for by the 31st of January in the relevant tax year. You will usually be allowed to split your tax liability payments into two in the subsequent years.
They will take the first tax liability payment as a guide, placing one half of the payment on the previous 31st of January date, with the second half having the due date of the 31st of July. Regardless of how you file your Tax Returns, whether online or on paper, your tax liability will be due every 31st of January.
Penalties for late payment
Depending on how late your tax payments are will determine how severe the penalties you have to pay will be:
after 1 month you will be charged 5% of your tax liability
after 5 months its another 5% of your unpaid taxes owed
after 11 months its another 5% of all tax outstanding
If you have been charged a late filing penalty for your tax returns, you have 30 days to pay that fee. Failing to do this will add interest to the fee you must pay at a standard rate of 2.6%.
This element of tax affairs is why it is important to have appropriate tax planning for you or your business. Working out how much tax owed you have is crucial to keeping things running smoothly.
What are the important deadlines and dates for Self Assessment?
Defining the "tax year" is important when discussing important tax deadlines. The tax year runs from the 6th of April to the following 5th of April in the UK.
So, as of writing this, the current tax year will run from 06/04/2022 until 05/04/2023. The important 31st of January date for this tax year is 31/01/2023. The 5th of October for this tax year will be 05/10/23, and the 31st of January following this tax year will be 31/01/2024.
Here is a rough idea of what you need to do on each of these and other important dates during the tax year:
What records do I need to keep?
You are legally required to keep hold of documents relating to your Self Assessment tax returns. HMRC may need to check your tax returns and request these documents to verify them. These can be digital, or paper returns and HMRC can penalise you for not keeping complete and accurate records of your returns.
If you complete Self Assessment tax returns as a self-employed individual, you should hold onto any tax records for at least 22 months after the tax year has ended.
So, for the 2022/2023 tax year, you should keep hold of your records until the 31st of January 2025. If you submit your tax return late, you can hold onto your records for at least 15 months after you file the return.
Alternatively, for self-employed people or those taking their income from rental properties, you should keep all of your business records for at least five years after the 31st of January tax year deadline. For example, you should hold on to your business records for the 2022/2023 tax year until the 31st of January 2029.