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Self-Assessment Tax Return Process for Self-Employed and Foreign Incomes

Self-Assessment Tax Return Process for Self-Employed and Foreign Incomes

Table of Content

  1. What is Self-Assessment Tax Return (SATR)?
  2. Who is required to file a SATR?
  3. Registration Process and Deadlines of Self-Assessment Tax Return
  4. Keep all the Essential Information Before Filing for SATR
  5. Self-Assessment Tax Return for Self-Employment
  6. Self-Assessment for Foreign Income or Gains
  7. How Long Do Individuals have to Obligate Self-Assessment?
  8. Seek Advice of a Skilled Tax Advisor for Help

What is Self-Assessment Tax Return (SATR)?

SATR encompasses all details regarding each year’s income, capital gains, claimed & applicable allowances and reliefs. Certain taxpayers under Self-Assessment Tax Return (SATR) must file a tax return via form SA100. A tax return is a legal document, and all sources of income, no matter how minor they are, must be mentioned or specified by the individual in the form.

The majority of employees in the United Kingdom pay all taxes through the PAYE system and do not need to file a tax return. However, individuals with foreign incomes must file a tax return; therefore, tax affairs can be complicated.

A Self-Assessment Tax Return may seem intimidating. However, it appears much easier if the individuals are pre-arranged, systemised, and organised for what they will be asked and required. Therefore, one has to understand the processes very acutely to file them correctly and avoid penalties.

Who is Required to File a SATR?

The question is raised in everyone’s mind when it comes to pay the tax returns and fill the forms, do I need to fill in a SATR? Thus, it is essential to find out who is required to pay and who is not.

Self-Assessment Tax Return has defined criteria by HMRC for individuals, fall under the tax return, are given below:

  • A person with a self-employment income of more than £1,000.
  • A person who acquires income by renting property more than £2,500 (If below than £2,500, not required to pay)
  • All commissions a person receives other than salary.
  • A person who makes money by selling assets such as stocks or second residences.
  • Shareholders and partners, having an income of more than £50,000.
  • A person who earns more than £50,000 and receives a pension must undergo an assessment.
  • A trustee of a trust with more than one pension scheme.

However, an employee who pays tax through the Pay As You Earn (PAYE) system cannot pay SATR. Individuals with more than one income source or foreign income have to undergo the Self-Assessment Tax Return Process.

Registration Process and Deadlines of Self-Assessment Tax Return

Predominantly, any individual who interacts with SATR needs to register for Self-Assessment. Self-employed, non-self-employed, partners, trustees, and shareholders all have to go through different ways of the registration process.

SATR follows the tax year for submitting tax returns, not the calendar year, i.e., for the 2020/21 tax year, a person will pay between April 6, 2020, to April 5, 2021.  After registering for Self-Assessment, you have two choices: filing a paper tax return or filing online.

It must be sent to HMRC within three months from the date of issue of the return. Thus, if you register on December 5, 2021, and file a paper or online tax return, you must submit your return by midnight on February 28, 2022. If the dates are not reached, however, HMRC will impose strict restrictions, and you may be charged a penalty cost as well as interest on late payments.

Keep all the Essential Information/Records Before Filing for SATR

Filing for SATR or understanding the process is relatively simple if you have all the essential information. Make sure you have the following information before you begin:

  • Ten-digit Unique Taxpayer Reference (UTR).
  • National Insurance Number (NIN).
  • Untaxed income details from the tax year.
  • Self-employment income records.
  • Self-employment all expense’s records.
  • Charity and pension contributions data.
  • Already paid tax records or P60 form.

As there are two sections to a SATR where the required information is put in. The first main section is the SA100 and the second main section is the supplementary page.

SA100 section entails detailed information such as Taxed & Untaxed Incomes, Dividends & Interests, Pension Contributions, Charitable Donations, State Pension, Child Benefit and Blind Person’s Allowance. 

On the contrary, the supplementary page is filled by a company director, a foreign resident, self-employed from abroad, property sellers. 

Self-Assessment Tax Return for Self-Employment

All income, profits on tax returns, savings income, employment income, overseas income, and capital gains are self-employment. On the other hand, Self-Assessment requires a self-employed person to fill out all of the business’s income and costs.

Details of the business income and various business expenses must be added into tax return self-employment forms.

Self-employed must fill out self-employment forms such as SA103 and SA100. Individuals earning less than £85,000 per year, on the other hand, will complete the short pages of SA103S rather than the full pages of SA103F.

Taxable profits from self-employment aid determine how much income tax and Class 4 National Insurance payments must be paid. However, if the tax return is entirely online, the online system will calculate the income tax liability.

Self-Assessment for Foreign Income or Gains

Foreign migrants working in the UK have to complete a formal tax return each year, even if their employment taxes are dealt with under PAYE. Also, foreign residents with foreign income have to complete a tax return in the UK.

Foreigners must retain records of their taxes paid while in residence, their domicile status, and information about their foreign earnings and gains. Furthermore, various comprehensive data linked to tax remittance, such as bank statements, must be kept safe to file SATR forms.

You will have to keep them safe for at least 22 months from the end of the taxation year. For example, you must keep records until at least January 31 2023, for the tax year 2020/21 (from April 5 2021).

How Long Do Individuals have to Obligate Self-Assessment?

There is no specific duration for paying Self-Assessment Tax Return to HMRC, as it varies from situation to situation. Three scenarios have been described below according to deal with the different conditions.

First Scenario: A foreign person who will no longer be a resident of the UK and think they might not be considered under the complicated tax affairs of Self-Assessment. If a person has already received a notice of tax return, in this situation, can call HMRC and request to withdraw or remove from SATR in the future.  

Second Scenario: If a person is a UK resident and has been issued a notice to file a tax return, then it is a legal obligation to complete one; otherwise, HMRC will issue a penalty.

Third Scenario: If a person has ceased self-employment or left the UK, he will need to fill in a tax return for the year his self-employment ends or the year that he leaves. The date you stopped being self-employed or left the UK should be shown on your tax return so that HMRC can close your Self-Assessment record and stop sending you tax returns to complete.

Seek the advice of a Skilled Tax Advisor for Help

A tax expert might be able to assist you with your tax situation. Authorise a tax consultant to deal with HMRC on your behalf. In addition, an expert accountant will verify that you do not make any mistakes.

Although accessing Self-Assessment through the internet, filling it out correctly might be difficult, especially if you are new to the process. It is possible to make mistakes, and these mistakes can be costly. A tax expert has filled out innumerable tax returns and is well-versed in the process. Hence he can help you in the Tax legislation of Self-Assessment Tax Return.

Payroll Tax Process Guide, Ambiguities, and Future

Payroll Tax Process Guide, Ambiguities, and Future

Payroll services support corporates in inspecting the daily-based payroll processes, i.e., calculations of accurate tax, salaries, wages, allowances, accounts, and eliminations of inaccuracies in the payrolls. Corporations, however, need to arrange payroll solutions with essential features for business continuity.In general, payroll taxes are collected via the PAYE (Pay As You Earn) system performed by employers.

To pay employees on time, including all the benefits bounded by HMRC, employers must register with PAYE. During the COVID-19 crisis, the UK government has helped employers and employees by introducing more beneficial schemes and packages. 

As lockdown regulations have been released, the Chancellor declared a range of support packages to continuing COVID in the spring Budget of 2021 to benefit enterprises, self-employed individuals, employers, and the economy. Paying Statutory Sick Pay (SSP) and Coronavirus Job Retention Schemes (CJRS) are the support packages, yet both schemes are part of the PAYE system. Employers registered with the PAYE can take advantage of these schemes as well.

How Payroll Tax Procedure Operates in the UK

UK payroll procedure is considered as one of the complex procedures. Pay As You Earn (PAYE) is a central system responsible for processing payroll taxes in the UK. The employer must deduct the amount of tax from the salary that an employee owns and directed it to the HMRC (Her Majesty’s Revenue and Customs) department.

Although, the process of paying payroll tax is the same for both the salaried and hourly-paid workers. The majority of businesses deduct this amount every month from the employees. Employers send their current pay deductions by post and electronically on or before the 19th and 22nd of each month in the UK. Thus, employers need to keep on updating their accounts to pay their workers on time.

Employee Payroll Set-Up

In the UK, employers have to go through a simple procedure to prepare employee payroll. As soon as the employer employs his first worker, he follows some basic steps of PAYE, elaborated down below:

Step#1: PAYE Reference Number

Predominantly, employers apply online to get a reference number from the government. After successfully registering as an employer with HMRC, only then RN can be acquired. HM Revenue and Customs send reference number via message to employer after five working days.

Step#2: Get Employee’s Tax Code

Employer uses tax code to inspect the amount of tax deduction from the employee’s pay or pension. However, plenty of tax codes are used in the UK, yet HM Revenue and Customs department provide the exact tax code to employers. Furthermore, the required tax code is also available on employee’s pension letters, payslips, and P45 forms.

Step#3: Get Employee’s NIN (National Insurance Number)

Every employee has a National Insurance Number (NIN) in the UK that shows the tax they must pay to HM Revenue and Customs. Employees can find NI numbers on the payslip, bank statements, pension letters, and letters from the Department of Work and Pensions (DWP). So far, the employer also needs this number to check benefits, pensions, and amount of tax-related to his employee.

Step#4: Get Employee’s P45 Form

The P45 form is a tax code that is very important for both the employee and employer. Details regarding the employee leaving work, issued by the former employer at job termination, are available in this form. Revenue and Customs have the list in which the tax codes are listed. The employer gets this code to complete the further process.

Step#5: Configure PAYE for a New Employee

Finally, the employer can pay a new employee by computing their PAYE. To maintain continuity in PAYE, the employer can record the salary, estimate deductions, add the employer’s NI contribution in the pay, and get payslips. Consequently, the employer reports all payrolls to HMRC in a documented form recognised as a Full Payment Submission (FPS).

Traditional PAYE System Ambiguities

Employers receive the tax code of each employee via P9T or P9X forms. Whenever the tax code of any employee is updated by HMRC, under the PAYE system, an employee can receive the details of the new tax code through the P9T form. Further tax details such as employee’s tax-free income, increment, or decrement in tax will also be available in the P9T form.

However, an employee with more than one source of income gets confused among multiple tax codes. The employee does not get the right idea of which tax code should use. Hence, wrong information about the tax code can lead to incorrect deductions of tax for the taxpayer. As a result, employees are compelled to pay tax either over-deducted or under-deducted.

Also, due to the change in the tax code, an employee may get unqualified for multiple benefits, i.e., age-related relief and receiving a car on retirement. Sometimes, HMRC does not update the tax code automatically. Consequently, the employee might end up paying more tax. Due to these loopholes, HMRC is trying to mend the operations or functions of PAYE to avoid any discrepancies.

Basic PAYE Tools

Basic PAYE Tools (BPT) is an advanced form of PAYE. BPT offers multiple services to employers, such as update details of employee pay and deductions for tax by using Earlier You Update (EYU) function in a real-time environment. HMRC has introduced BPT to help employers and employees by providing Real-time Information (RTI).

Employers can use BPT to run payroll and report the pension contributions paid by the employees. Moreover, BPT is easy to install, and everyone can take advantage. Employers can receive notifications automatically and can add employee payroll information on or before payment.

Conclusion

Basic PAYE Tools does not support auto-enrolment, pension contributions, staff assessment, and supply information to the pension provider. Thus, HMRC is constantly updating the services to enhance the PAYE system operations via digital tools. Still, with the huge number of registered individuals and tax data, HMRC and UK government upgrading gradually but surely.

Choose the Best Payroll Consulting Firm

Managing all payroll processes in-house is complicated, and consultancy from an experienced and effective payroll accountant can provide you with better payroll management. Similarly, quickly expanding organisations may find it challenging to adapt swiftly for delivering payroll on a large scale.

Payroll consultancy services providers are comprised of a team of payroll management experts, including local market experts. As a result, they know how to execute compliant and dependable payroll at scale.

Experts at Bloom Financials take the time to get to know your organisation and create an accurate, timely, and user-friendly payroll for employees. Their services and practical insights give you total control and visibility into personnel data and corporate metrics, including real-time data visualisation.

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