It is that time of the year again when anyone new to Self Assessment for the 2022/2023 tax year must tell HM Revenue and Customs (HMRC) by 5 October 2023.
What does new to Self Assessment mean?
In simple terms, it refers to someone who might have:
- Become self-employed either on their own or in partnership with one or more other people.
- Become a director of a limited company.
- Bought a property and become a landlord, earning rental income from tenants.
- Started earning some other income, which has not already been subject to tax, such as commission.
- Been in receipt of total taxable income of more than £100,000.
- Had to pay the High Income Child Benefit Charge.
If any of these changes happened between 6 April 2022 and 5 April 2023, that person needs to register for Self Assessment and complete a tax return.
For example, someone might have always been a full-time employee taxed under PAYE and never previously been required by HMRC to register, but during the tax year decided to sell goods online.
HMRC is not interested in people who have made a one-off sale, perhaps selling some old clothes on Vinted, but it does expect people to register who have started selling regularly, maybe via one of the online marketplaces like eBay or Etsy. HMRC considers that person to be trading and running a business, even if it is just a side hustle.
However, there is some good news. HMRC does not expect anyone to register for Self Assessment if their untaxed income from self-employment is under £1,000.
How do I register?
People who need to register can do so online, via GOV.UK and this link Register for Self Assessment – GOV.UK (www.gov.uk)
Registration involves a series of questions, which include:
- Have you filed a tax return before?
- Did you work for yourself between 6 April 2022 to 5 April 2023?
- What was your work status when you worked for yourself?
- Did you earn any untaxed income such as dividends from a company, money from renting a property, tips and commission, payments from a pension, income from savings and investments or foreign income?
Once all the questions have been answered, the online tool gives a decision about whether registration is required.
What happens after registration?
HMRC will issue a Unique Taxpayer Reference (UTR), which should arrive by post within 15 days if the person is within the UK, or 21 days for non-residents who live abroad.
Once the UTR has arrived, a Self Assessment tax return needs to be completed and filed with HMRC.
The deadline for submitting a tax return online is 31 January 2024. This is also the date for paying any tax owed.
HMRC no longer issues paper tax returns for completion. If a paper tax return is required, then a telephone call to HMRC, to request a SA100, is necessary. The telephone number is 0300 200 3610.
What happens if I don’t register?
HMRC can charge what is known as a failure to notify penalty.
A penalty will not be charged if all the following conditions apply:
- There is a reasonable excuse for the failure.
- The failure was not deliberate.
- There was no unreasonable delay in notifying HMRC after the reasonable excuse ended.
- If these conditions are not met, HMRC then charge a penalty based on the ‘Potential Lost Revenue’ or PLR.
The PLR is the amount of tax that arises as a result of the failure to notify. The maximum penalty can be 100% again of the PLR. In other words, if the tax due is £10,000, the penalty can be up to £10,000. That level of penalty is usually reserved for the most serious cases though.
In practice, unless a genuine reasonable excuse exists, HMRC usually consider a failure to notify to be a deliberate act and seek a penalty in the range of 20% to 70%.
Is there anything else I should know?
It is worth remembering that HMRC has a computer software system called ‘Connect’.
All the information HMRC receives from third parties like banks and building societies, other Government agencies, online marketplace platforms and credit card companies is fed into Connect for analysis.
If HMRC becomes aware of a failure to notify before someone registers for Self Assessment, the penalty is likely to be closer to the upper end scale of 70%, rather than the lower end of 20%.
A typical example might involve a new landlord. HMRC receives information from the Land Registry, so can pinpoint when a property has been acquired and by whom. It also has access to Voters Lists, so can see if the property houses multiple unrelated occupants.
If that landlord has failed to notify HMRC of their rental income for several years, the tax due could well be substantial, which means the penalty will be too.
It is an annual obligation to notify HMRC of a new taxable source of income, or if any of the other registration conditions are met.
It is not unusual for people to forget to register because they might be working round the clock to get their business off the ground, or might think because they have made a loss in the first year of trading, they do not need to tell HMRC.
Some people who are not resident in the UK, but have taxable income in the UK, also get caught out. They frequently assume all their income only needs to be declared in the country in which they live, but that is not always the case and they can receive the dreaded brown envelope from HMRC asking questions.
The longer it takes for someone to register with HMRC, the more problematic matters become, which are not easily solved by simply completing a tax return. In those circumstances, a formal disclosure is required to HMRC. This is specialist work because the tax, interest and penalty must be calculated before a disclosure can be made and HMRC can become more difficult to deal with.
If you, or a client, requires advice concerning notifying HMRC or needs to make a disclosure, then please get in contact by calling us on 0800 001 6686 or by email at firstname.lastname@example.org for a no obligation consultation and for more information.
This is the type of work we at Independent Tax do day in day out. Strong by your side and strong in your defence.