Tax self-assessment - are you ready this January?

January is self-assessment tax return time! It’s time to get your tax returns for the year ending 5 April 2011 prepared and submitted to HM Revenue & Customs (HMRC) by midnight on 31 January 2012.

  • 31 January is your final deadline for submitting your self-assessment tax return onlineSubmitting your self-assessment tax return online

    The deadline for paper tax returns filed has already passed, so online is the way to do it. It's not hard to file your tax returns electronically, but make sure you apply for your e-filing password from HMRC well in advance of the 31 January.

    What if I miss the deadline?

    Missing HMRC tax return deadlines can be costly. The penalty system has changed, making it even more important to get your tax returns out in time. A penalty of £100 applies if your tax return is filed after the end of January, whether you've paid your tax liability or not.

    These fines become more severe the longer you leave it to file your tax return. So, if your tax return is filed three months late, then fines of £10 will be applied for each day the tax return continues to be late, up to a 90-day maximum of £900. This is on top of the £100 already applied.

    If you file your tax return six months late you'll get a further penalty of either £300 or 5% of the tax due - whichever is higher. If your tax return is twelve months late, then a further fine of either £300 or 5% of the tax due (whichever is higher) will be levied on top of the fines already issued. In serious cases, a taxpayer may be asked to pay up to 100% of the tax due instead.

    What do I need to file my tax return?

    You need consider what financial information you need in order to complete your tax return, regardless of whether you're filing it yourself or sending it to your accountant.

    January is a very busy month for accountants so send them the information they need as early as possible.  It makes their life easier and you won’t have to worry about any late-filing penalties. It's a good idea to speak to your accountant to clarify the format they prefer to receive your financial information in, and what specific information they need you to provide - and when.

    Regardless of whether you're a sole trader or a shareholder/director of a limited company, to complete your self-assessment tax return you'll need details of the following income:

    • Interest income from banks and building societies.
    • Dividend income received during the year from UK and/or foreign equities, or from the shares in your own company.
    • Details of any capital gains made in the year through the sale of assets, such as shares or investment property.
    • Property income, such as rental income.
    • Income received from gilts or bonds (excluding Premium Bonds).
    • Income from a pension.
    • Income received from a trust, settlement or from a deceased person's estate.
    • Income from any employment, self-employment or a partnership.

    You should have documentation from the relevant organisations for most of the above. However, it's likely you'll have to generate the information yourself for income from employment, self-employment or a partnership.

    Managing your tax return information

    Managing your tax return information - good accounts and payroll records are key for accurate tax returnsGood accounts software will keep track of your invoices, expenses, cash payments and receipts throughout the year and produce your business's cash flow statement, balance sheet or profit and loss account.

    The latter two are especially useful for sole traders trying to calculate their taxable self-employment profits. Details can be provided on expenses and assets which are disallowable for tax purposes (such as client entertaining, computers, laptops and other office equipment) that are eligible for tax relief. For a business that operates as a partnership, profits have to be allocated to each individual partner as per the partnership agreement.

    Your business's payroll software should also come in handy for providing details of employment income - salary, benefits, bonuses, income tax and national insurance already paid, and so on. Shareholder directors should also make sure they have up-to-date information in their systems of any dividends paid from the company to themselves.

    Don't leave it late!

    Last but not least, make sure that your tax return has been fully completed and filed with HMRC in advance of 31 January. With so many tax returns being filed on deadline day there's a possibility the HMRC website might be very busy. After all your preparation and hard work, this is a scenario any business owner will be keen to avoid!